While some companies may have small, niche markets, others are aiming for a large TAM. Successful scaling businesses leverage external resources, such as drivers, cars, and software developers. These external resources will always exceed internal resources. Scaling is also enabled by automation. For example, Amazon’s robots can process orders from 350,000 customers a day, which is huge compared to human labor. In addition, these companies are usually backed by venture capital firms.
Companies with scalable business models have the advantage of scaling up without compromising structure or resources. The majority of big companies started out as small businesses, but today they are industry leaders and employ hundreds of thousands of people. While this can make it difficult to expand, many companies are able to quickly scale their business model by utilizing different business models. Here are some examples:
A scalable business model can accommodate increasing customer demand and handle more employees. This allows them to meet growing customer demands while maintaining high quality and service efficiency. This allows them to attract more customers, as well. However, scalability does not mean growth. Growing requires a higher level of capital, which makes it more expensive. The ability to grow in a scalable manner also allows businesses to adapt to the changing market.
While non-scalable business models are good for small businesses, scalable business models are critical to growth companies. In general, scalable businesses see their unit costs decrease as the company grows. In addition, scalable businesses increase their productivity with the same input, enabling the company to continue to grow without incurring resource constraints. This flexibility is an advantage that investors seek to exploit when investing in growth companies. You can learn more about scalable business models in this article.