Crunch Mode Blog - A State of Mind by Developers at D2Soft Technologies

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Make your startup a scalable business

When creating your new business, ask yourself if your business is scalable.  In my mind, there are two main points about scalability: technology and revenues.

Scaling technology means that as your number of users go up, you need to support those with more hardware/technology.   It’s very important not to overlook this, of course.  Will your product be able to grow well as your number of users increase?  Can your service support more users?  These are important questions that need an answer from the start.  You must have a plan to scale your technology as needs increase.

I think most entrepreneurs make a mistake by thinking of scalability only from a technology side.  The second and very important scalability point is business revenues.  If your user base increases, will your revenues increase?  Is your revenue stream directly linked to your number of users?  Is it proportional as the growth increases?  These are mandatory questions that any business must ask itself from the start.  You must be able to have more revenues if you handle more users.

Why must those two scalability points be directly linked?  Simple: more users means more technology requirements, which means more expenses, which means more revenue needed.  If the two curves do not increase in a similar pattern, then your business is not scalable.  In that case, you will need to search for other revenue streams, like investors.

Having investors only delays your revenue problem.  Yes, you get big money injection, but as you start spending it, now what?  How will you take care of your revenue problem?  Do you have a plan to convert those users into customers?  And there’s always a danger of losing users as you ask them to pay for your service.

Twitter is a great example of a business that is not scalable.  They have grown their business to hundreds of millions of users, but they have yet to find a revenue model that scales.  They have been relying on investors to continue to grow and support their business.  This is a very tricky situation that can lead to a dead-end.  What happens if they run out of investors’ money before they find a successful revenue model?

They are thousands of startups out there that follow a similar non-scalable business model like Twitter.  They only focus on scalability of technology, but they overlook scalability of revenues.  They think that they will figure out how to make money as they grow, but unfortunately, that doesn’t work for most startups.  If you want your startup to be successful, make sure that you find your scalable model from the start.

1 Comment:

Comment by Paula on 2011/12/22:
I totally agree with you! There are many examples of non-scalable companies that just want to grow, and that, as a matter of fact, they don't even have a real business model.