Scalability criteria

by Adina Luca, September 8, 2018

In the area of professional services, scaling up in the right way is the key to the growth of your business. Here we refer only to B2B businesses, i.e. when you sell your services to other companies.

You won’t find a single recipe for how to scale up, because it depends on the degree and form of expansion suitable for your business. Scalability has implications for the speed of your growth and for the question of whether it is delivery or sales that you should scale up – the ‘chicken and egg’ question for small businesses everywhere.

We are going to look at the degree of customisation of your services as the criterion that determines which area you could scale up more efficiently and how. Our conclusions are limited by our own experience and in practice things are not that straight-forward because a) in professional services, scaling up is done through people – a less predictable resource than technology for example, and b) the line between sales and delivery ability of professionals in services is not clear-cut.

Let’s assume your business is highly customised, and therefore less scalable. For example, you sell internal communication strategy to big international businesses and their sub-divisions. The service depends on the advanced skills of the people who draft and implement the strategy.
Highly customised services are more difficult to scale, but margins are higher and therefore speed and volume are not that important. You have more time to think things through.

  1. Delivery first. In this situation, in our experience, it is easier to scale up delivery than sales. First you need to ‘work yourself out’ of delivery and hire people more talented than yourself. Why? Because with your margins you can afford it. And you need to get out of delivery because you can’t see the wood for the trees.

    We know this is counter-intuitive, as you will feel you are losing control over delivery. Your instinct tells you to hire people who do the lower-level job, whose work you can still supervise. But if you don’t find better deliverers than yourself, there are two consequences: you arrest the development of the business and keep it at your current level of knowledge and skills, and you will increase your cost without increasing your output accordingly – economics call this ‘decreasing returns to scale’.

  2. Sales later. When your own capacity to sell has reached a plateau, you could look into hiring sales people to gradually take over the development of the accounts, freeing you to go after new clients. But, as we have said before in these posts, that is one of the trickiest things to achieve. It may take years for you to become able to “delegate” your core clients to an employee. Some entrepreneurs never reach that point.

    Hire experienced and specialised people from the industry. One at a time. Farmers, rather than hunters. Your business is highly customised and difficult to package, if indeed it can be packaged at all. Someone new, who expects to be able to sell replicable services fast, will stumble.

    Be generous when it comes to sharing your experience and your clients with your sales people. They need to see how it is done in depth before they are able to explain it to someone else.

Let’s now assume you sell a less customised service, easy to package and productise, and therefore more scalable. For example, you sell online training licenses for internal communications skills for corporations. If you offer a productised service, scaling is easier, but the margins are lower and speed is paramount.

  1. You can hire both the sales and the delivery. Again, start with delivery until you are sure that you have a good team that delivers without any need for your intervention, and then look into hiring sales.

    Margins are usually lower in easy and easier to package. You need volume. To build the necessary volume you need to target the B2B market that needs volume. And that can only be found through direct sales – selling to bigger companies that can buy bulks of your online licenses. This is a situation when you can hire more than one sales person at a time, and see which one catches the ball faster.

  2. Think twice about a distribution channel. If you are tempted to build distribution channels to support your sales, you are taking two risks: a) that your margins will be even lower, and b) that the distribution channel may start competing with you. Either you only sell through a distribution channel, effectively by becoming the “wholesaler”, or you first build a solid client base before you look into the distribution channels. Doing both well is unlikely.

Let’s assume part of your service is easy to package and another part is highly customised. For example, you offer both the internal communications strategy and the online training packages.

  1. First, scale up the part that brings most margin. Lead with the high-value services and embed your online packages into your service. Make that your differentiator when competing packages spring up in the online market – as they will.Again, this is counter-intuitive, as you will be tempted to push the online training packages that sell faster, as they are cheaper than the big strategy projects. But the packages have smaller margins and you will end up making a lot of effort for a smaller gain.
  2. Continue to sell directly. It is tempting to push the packaged service through online marketing and drop the direct sales, as they take longer. But you will confuse your B2B market, who will not know why they cannot receive the cheaper online version with the same highly customised value.
    You may end up commoditising your high-value services. Later, if you have given your market the impression that you are a cheap online package provider, you may have to give up on your high-value services.

Whether your service is B2B or B2C has implications for how and what you scale. The latest online-based business craze confuses the two types of business, giving the impression that you can cater for anyone, whether corporate or individual customers. That is not true. The B2C market has different rules and scaling it will require different criteria, including demographics, size and distribution channels.

So before you consider scaling up, make sure you consider the type of business you are in and how that helps or hinders your expansion.