Our recent article, "Pop Quiz: Is Your Business Scalable?" spurred a number of questions from readers. Our main point was that if you don't build a business that is scalable, your growth will eventually peter out as you reach the limitations of your current model. One of our readers asked a very interesting question:
Can it be applied to a fast food restaurant? What are the mechanisms in such a case? Would you consider McDonald's scalable? I would think of it as economies of scale and not as scalable per se. How do you see it?
We do consider McDonald's to be a scalable business model, and many other national or regional fast-food chains have followed McDonald's approach. The interesting part is that when McDonald's was founded in the 1940s and experienced dramatic growth in the 1950s and 1960s, fast food was not recognized as a "scalable business." Ray Kroc, who was responsible for franchising McDonalds' throughout the U.S., changed all that.
Even more interesting is that McDonald's didn't build its business based on a notion of "economies of scale" or the ability to create more value because of its size. Now, obviously, the company generates economies of scale with vendors and in its marketing and advertising, but it initially "scaled" its business by providing franchisees with a winning formula to build their own local businesses.
At its heart, a restaurant has scale limitations--just as many retail businesses do. One of a restaurant's key strategic assets is its real estate, which is limited by its very nature. When McDonald's was founded, restaurants were individual and maxed out by the limits of their local markets and the staff's ability to serve customers.
So can your growing business create scale by following an approach similar to McDonald's? We think so. Here are three steps to get started.
Note that we didn't say "design a winning business model." When building a business, it's important to start with a basic business model and hone it over time until you have the model right. Once you believe you have the basics down, you may be ready to scale it, but not until you've figured it out by experimenting and witnessing the success and failure of various models.
Parts of your business are key to your success and must be maintained to ensure future success. In the first six years at Avondale, the two of us were essential to every client relationship. Before we could grow beyond our own capacity, we had to determine which parts of our "secret sauce" were inherent to the two of us and which parts could be replicated by others on the team. Until we were comfortable with this model, we were not ready to scale the business beyond our initial team.
Once you've determined the right model, it's important to grow in a way that allows you to test whether the scalable model is working. Set predetermined plateaus to test whether the secret sauce is being transferred as the business grows. Make adjustments to ensure that your business doesn't just become big. Big is not sustainable if you don't have a profitable competitive advantage.
As the experience of Ray Kroc demonstrates, just because a business model doesn't seem scalable today doesn't mean it can't be built in a scalable manner. Think about these things as you seek to build a bigger and better business.
Share your thoughts on scaling your business with us at firstname.lastname@example.org.