16 Mar Small businesses vs. Scalable startups
Most entrepreneurial new businesses do not choose to remain a small business. They aspire to greater prospects. However, the truth is that not all new small businesses are truly scalable (innovative value proposition, repeatable business model, high growth, high margin, vast distribution potential…and high risk/reward returns).
It is necessary to distinguish between new businesses that are and will remain small businesses (and likely local) and those that are scalable startups and that possess the brand and innovation potential to profitably span regional and national distribution channels.
Only a small percentage of ventures will be fortunate enough to capitalize on a massive market opportunity with a compelling value proposition. So it is critically important that those ventures that are in a position to exploit a massive market opportunity do so without having to fail because they ran out of money or because they were unable to scale profitably.
Angel and VC investors want to find and fund high-growth businesses. They know there is risk and they know that some of their portfolio companies will fail. Expectations are thus extraordinarily and appropriately high. Target companies and their business models need to exhibit the level of scalability potential that is promising and highly likely.
What if my startup is not that scalable? You should review your business model and assumptions and close any gaps. Or if you have missed something you should test it by “getting out of the building” and then adjust or pivot accordingly. Or you can accept that maybe your growth trajectory is going to be a slow haul and that you will have to evolve and fund your business differently. Many of the scalability and customer development lessons and principles will still apply. You can still be a great and profitable small business and even a small business that organically grows to be larger and more successful.
Your success will depend on the robustness of your business model and the tenacity and resilience of your team to execute against that business model.