How can you scale n gram models
Scalability of the business model: important for investors
Scalability of a business model
The term scalability is used in different areas. In the IT industry, for example, scalability describes the relationship between an increase in the corresponding capacities and the resources required for this. In art, too, scalability is about the ability to enlarge things such as a photo - if possible without a great loss of quality.
In the business sense, scalability stands for a special property of a business idea or a business model. The crucial question is whether sales can be increased significantly with the respective business model without major investments - apart from the start-up investments, of course - being necessary. The scalability is interesting because in this way the margin can be increased with increasing sales.
Because little or no capital is required for company growth with existing scalability, depreciation is also kept within reasonable limits. These factors have a correspondingly positive effect on company profits. Typically, business models that have no physical capacity limits, e.g. for production facilities, are more scalable.
Franchising makes business models scalable. Successful franchise systems show how it's done - we introduce a few of the top franchisors.Continue reading
Scalability in finding the ideal business idea
In theory, scalability sounds simple and obvious. As a start-up, it is best to look for a business model where investments are made at the beginning, but then you can expand capacities without having to make new investments.
In reality, however, this is often difficult. Especially with "normal" start-ups, the scalability is often not given, because one is either strongly tied to one location - e.g. a bakery is strongly tied to the respective location and the customers in the area - or depends on one's own working hours - for example a consultant does not work much more than 40 to a maximum of 50 hours per week. Both factors stand for a clear limitation and a lack of scalability. Sales cannot simply be increased unless additional resources are used and, for example, invested in a new location or a new location someone and incurs new costs.
The automotive industry offers an example of relatively low scalability. An automobile production plant usually has a maximum capacity of e.g. 100 cars per day. As soon as the utilization is at 100%, sales can no longer be increased unless a new production unit is added, which would then mean high investment costs. In other words, the margin would remain the same or would fall in the first few years due to the high initial costs, the depreciation and the presumably not 100% utilization of the new plant. In this case, there is no positive effect from the scalability.
In an internet business model where, for example, organic herbal teas are offered on the internet - for our example we are assuming pure trade - investments must first be made in the website and in logistics. Once the business model is in place, it often doesn't matter whether 100 herbal teas or 200 herbal teas are sold per day. Sales can be increased without having to use additional resources - this is called a scalable business model.
Features of a scalable business model
As described above, the scalability depends on the respective business model. The following factors characterize scalable business models:
Asset Light: High initial investments in production units usually also mean low scalability, since sales can normally only be increased until the capacity limit of the respective production unit is reached and large new investments are necessary. On the other hand, business models that have relatively low fixed assets and are therefore more asset light are very often able to increase sales with relatively low investments. With asset light business models, scalability tends to be more likely.
High level of automation: Business models with a high level of scalability are often very highly automated. Processes are optimized and standardized in order to guarantee efficient and fast processing of the respective order.
Relatively low proportion of fixed costs: Almost every company has fixed costs - e.g. rent for the office, wages, etc. are incurred by almost all companies. The crucial question, however, is how high are the fixed costs in relation to the total costs. Scalable business models are often characterized by a comparatively low fixed cost base, which usually does not increase too much when production is expanded.
Variable costs dominant: Scalable business models usually have a high proportion of variable costs.
Focus on sales and marketing: With a high level of scalability, it makes sense to focus in particular on sales and marketing. Since there are no capacity limits, the aim should be to be able to sell the goods and services on offer as quickly as possible.
Expand into other markets: Another important characteristic of a business model with high scalability is the ability to expand. A scalable business model, which has been established in Germany, for example, can also be set up in Italy without much effort.
Scalability is important for investors
The question of the scalability of a business model is often asked by professional investors such as venture capital funds or business angels. The motivation of investors is relatively simple: With scalable business models, investments must be made at the beginning, but no larger investments follow. If you are involved as an investor from the start, you will not be watered down by new investors.
In addition to avoiding dilution, professional investors are particularly interested in the likely high profitability of a scalable business idea. Increasing profitability means that with increasing sales, more and more profit can be distributed.
Scalability & Franchise
As described above, scalable business models usually have typical characteristics. But what if you as a company do not have a scalable business model but still want to expand quickly without having to make enormous additional investments?
The answer to this is provided by franchising. With franchising, you quasi "lend" your business model to a franchisee who will take over your business model and set up a new location under the same brand. The investments are taken over by the franchisee. As a franchisor you benefit from the franchise fees, which are usually a percentage of With franchising it is therefore possible to make business models that have clear capacity limits scalable.
You can find more information about franchising here:
As editor-in-chief, René Klein has been responsible for the content of the portal and all publications by Für-Gründer.de for over 10 years. He is a regular interlocutor in other media and writes numerous external specialist articles on start-up topics. Before his time as editor-in-chief and co-founder of Für-Gründer.de, he advised listed companies in the field of financial market communication.
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