The key thing to look in the potential if the business is it's scalability. It may be losing money, it may be stagnant currently, but if it is able to grow it's capacity while decreasing the incremental cost securing and supporting a new client, it's scalable. And being a scalable model adds value to your business.
How to make your business scalable (PPPC)
Product
try to standardize your production and keep to a standard product. Think apple. They have only one product the iPhone, and you can observe similar parts used across their Span of products. This gives them the advantage to be able to produce morevolume for less amount.
People
if the business depends on a star player and cannot survive without him, naturally it is harder to scale. To expand operations, we need to break away from exclusive skills held by few to pervasive knowledge such that more people can run the show, increasing the capacity to grow. To achieve this, some sort of training program or knowledge- sharing sessions should be in place.
Processes
Operations and processes should be kept as simple as possible. They should also be standardized as far as possible. In that way, expanding the company would be mostly repetition of the same thing and can tap on existing infrastructure for support. Identify suitable areas of the business which can be outsourced, transforming your fixed cost into variable cost.
Customers
Leverage on your customers to reduce resources on certain tasks. Some process need not human intervention and can be passively accomplished. For example, instead of getting a staff to take their orders, use a computer/ self-service kiosk for the customers to input their orders.
What are some examples of scalable business?
- a grocery store. Below the maximum capacity, You can restock and extend your operating hours to increase sales. This does not require a large additional capital investment.
- selling your licensed software is scalable. You can sell as many copies of your software once developed and the cost to support the customer should not be more than the cost of goods. Successful SaaS(software as a service) models is able to easily scale their operations and expand their client base to all over the world.
- remember the overnight sensation drawing app "draw something"? That is also an example of a scalable business as they built something that was efficient, fast and easy to scale. They had the capacity to accommodate 50 million downloads - the processes were kept up and running throughout.
Thus, the potential of being able to garner millions of customers is very attractive to investors. To fully maximize the value of your business, refine your model such that it is easier to scale up.
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