There are only so many hours in a day so you need to build a business that can grow while you’re sleeping, on vacation, or working on your next business. You have to do things that scale when starting a business that will take off.
While we are discussing scaling a business, there are plenty of other areas of life that you can scale including investing and video games.
What is Scale?
To scale a business means to create a system, product, or service that can generate more money through some resource that isn’t your time.
Scale is typically used in computer science. We have a website that can support 100 people. How can we scale it to support 100,000 people?
Scale is a concept that is meant to support infinite growth. When starting a business, you want to find ways to apply your time and money that are scalable and to shift your focus from things with a hard maximum return to things that have the potential to be infinitely scalable.
Scale is Sexy
Sexy sells and is why Amazon is such a sexy business. When Amazon recently announced that the cost of Prime would go from $119 a year to $139 a year, they scaled their revenue without doing any additional work or spending any additional money.
Amazon Prime is not a physical good, it can be sold over and over, and the price can continue to increase. Those price increases create revenue out of thin air.
Things That Scale
If you’re looking for a business idea, these are examples of things that scale.
Digital Creations
Microsoft coded the first version of Windows in 1985 and has since sold it hundreds of millions of times (with development and code changes over the years). Windows now has over 1.4 billion users.
Subscriptions
How many of us pay for a monthly gym membership we don’t use? Or a dormant domain name. Do you subscribe to magazines you don’t read? When you have a business based on subscriptions, retention is more important than acquisition. You’ve switched the customer’s resistance from purchase to cancelation.
This is why Rocket Money is such a great model; it’s a business that scales because there is no end to the number of people who have subscriptions they don’t use. Why don’t they cancel them? Because it’s a pain in the ass to do so. Rocket Money identifies your subscriptions to help you stop paying for things you no longer need.
Podcasts, Blogs, YouTube Channels
Each episode of LMM has a fixed cost to create. There’s the time of the people creating (Andrew et al) and editing the episodes. But once we publish each episode, everything after is profit. Sometimes an episode makes a lot of money, and sometimes it languishes out there.
Gangnam Style has been viewed more than 5.4 billion times (as of 2024). From YouTube views alone, it has made more than $20 Million.
Things That Can Be Automated
Things that can be automated are things that scale. The average profit margin for a dry-cleaning business is between 22%-36%. It’s not unheard of for the business to make a $1 to $3 profit on every article they clean. Why so high? Because almost all of the dry cleaning process is automated it’s a service that there is always a need for.
A car washing business is another example. Running a full-service car wash? If your spot pulls in under $1 million in sales, you’re looking at profit margins of around 35%. But crank those sales over $1.5 million, and boom, your margins can shoot up to 48%.
Internet-Based Services
Netflix pays for a video once and streams it an unlimited number of times as customers continue to pay for a monthly subscription.
Teachers Pay Teachers is a marketplace where teachers can sell their lesson plans and other course materials to fellow teachers. The basic service is free, but paid subscribers get perks like keeping a higher percentage of each sale and lower transaction fees.
When you whip up digital products to sell, you’re in for a sweet deal of ongoing passive income long after you’ve done the design work. The cool part? You keep raking in cash every time someone snaps up your product.
Skillshare lets anyone create a course and sell it online. Every time a student takes the class, the teacher makes money. Those who want to take the courses pay a monthly subscription fee.
Investing
What do we always tell you about investing? Investing is a thing that scales too if setup correctly. Set up an automated monthly payment into your
- Tell them about your financial goals.
- Choose how you want to invest.
- Betterment’s technology does the rest.
They're perfect for DIY investors who prefer a hands-off approach but can still pick individual stocks and funds. We specifically use them for the Golden Butterfly portion of our portfolio.
Rental Property
As long as you are doing turnkey rental property investing, you can scale it. You buy the house, hire a management company, and answer the occasional email they send you.
A turnkey property is a fully renovated home or apartment, managed by a third party, offering owners an easy passive income source.
This is our guide to budgeting simply and effectively. We walk you through exactly how to use Mint, what your budget should be, and how to monitor your spending automatically.
Things That Don’t Scale
The ultimate thing that doesn’t scale is being an employee. Your income is 100% tied to your time, and you only have so much time. The constraints of the business become your constraints. Even if your work is the best in the industry if the business you work for stops making money, so do you.
As Warren Buffet once said, “If your salary is your only source of Income, you’re one step away from poverty.”. This is why we always tell you to have more than one income stream.
Consulting
Consulting is all about trading your time for cash. There are only so many hours you can sell, and eventually, you’ll bump into the limit of what folks are willing to fork over for your expertise.
The issue is that there are only so many hours in a day and time is the limiting factor (does not scale well).
However, if consulting is something you would like to consider, freelance consulting comes with a bunch of perks, such as setting your schedule and picking the projects and clients that excite you the most. A hot bath for many freelancers is diving into consultancy, where you call the shots on your gigs.
Upwork is a site that helps you work as a freelance consultant. You earn your way by bidding on gigs, pitching projects, and sharing your skills with their recruiters. They’ll line up jobs that fit your passions and goals.
Not a Pizzeria
A typical restaurant faces a lot of obstacles. The costs are high, there is a lot of competition, and you can only serve so many customers a day. Delivery might be an avenue to scale the business, but that comes with its problems.
“There are many difficulties in owning a restaurant that begin from starting the restaurant to managing it on a daily basis. Some difficulties include inventory waste, forecasting demand, supplier relationships, theft, determining the cost and profitability of menu items, and managing employees.” – Investopedia
Fixed Price Goods and Services
The most important feature of a scalable business is its ability to increase prices, like in the Amazon Prime example. What would happen if a supermarket tried to scale by increasing the price of milk to $10 a gallon?
People would stop shopping there. This is why supermarkets only have about a 1% profit margin. If the market you are considering starting a business in is extremely price-sensitive, avoid it.
Super Niche Businesses
There is a fine line between niche and super niche. It can be a good thing to start in a niche. It lets you be a big fish in a little pond so you can make a splash in your market. But if you’re too niche, you can never scale a business because there aren’t enough customers.
Things That Are Difficult to Scale
Scaling a business can be achievable, but it often demands a tremendous amount of work. The key goal of scaling is to decouple your income from the time you invest.
Half the Battle
“Showing up” might be half the battle in a lot of cases, but when you’re trying to grow a business that needs you there in person, it’s pretty much the whole game. To get your business to the next level, you gotta think smart—plan carefully, delegate like a boss, and maybe even use some cool tech to stretch your presence beyond just being there. It’s all about finding creative ways to make things work without cloning yourself.
Physical Products
If your business is all about a physical product, sure, you can rake in serious cash, but there’s a limit to how big you can grow. Take Apple, for example – they’ve banked billions by pumping out products on a massive scale. But keeping costs in check and sorting out the assembly and delivery logistics? Total headache.
Kickstarter projects often fall short due to not just scaling challenges but also flaws in market research, product design, marketing, and team dynamics. Achieving success requires a well-rounded approach from concept to thriving business.
When Not To Scale
Sometimes, scaling up isn’t always the right move. Keep in mind, that money isn’t everything. Balancing satisfaction, impact, and well-being is just as important for true success.
You’ll Acquire a Boss
Many start businesses to escape having a boss, preferring independence over following orders. To scale your business, you’ll need an investor, as expanding on your funds isn’t an option.
Acquiring an investor is usually going to mean acquiring a boss. Look for ways you can scale without involving someone else’s money which is always going to come with their opinions.
Good Customer Interactions
If a big part of your business is based on top-notch customer service, you can only scale so far before the level of service your customers expect will suffer. You can hire people, but no one is going to care as much about your customers as you.
Even then, you may be able to find top-notch employees and pay them well enough that they care almost as much as you. But at some point, you can’t find such people or can’t afford to pay them well enough, or there are simply too many to keep tabs on, and the customer experience declines.
Infinite Scale
We know a lot of you are interested in starting a business and we’re thrilled. We want you to succeed. But we want you to have a healthy work-life balance too. You’re more willing to slave away when it’s your baby, but it doesn’t make it any more fun.
When you are considering ideas, don’t forget to consider whether or not your idea will scale. More money for less work is the dream for us all.
Show Notes
Tool Box: All the best stuff to manage your money.
Do Things That Don’t Scale: The essay Andrew mentioned by Paul Graham.
Scale at Speed has helped founders, entrepreneurs and business leaders:
- Chart a clear route to business transformation
- Build enthusiastic and talented support for your vision
- Uncover your unique value proposition
- Introduce processes and KPIs
Fiscal flexibility that’s funny, free and delivered weekly.
Mark spent over 30 years as a senior finance executive in Private Banking, Asset Management and Alternative Investments. Mark holds a BS in Accounting from Brooklyn College, an MBA in Finance from Pace University as well as being sponsored to attend The Wharton School Executive Development Program.
