9/3/2015

Saul Kaplan: Our Obsession With Scalability Must End

Saul writes about the need to think about customer value creation first and scale later. Nail the business model before you execute on scale. Simple idea but many people miss it.

I always advise entrepreneurs to take a minimum viable business model to the market before thinking about scalability. Start by uncovering the job someone is trying to do, figure out how you can get the job done better, and demonstrate it. Entrepreneurs skip this step at their own peril. Develop a business model prototype and test it with a few people. If the business model prototype works, then and only then, start working on what it will take to scale it to reach more customers. It takes successful entrepreneurs three, four, sometimes five tries to get a business model right. Why worry about scalability until you land on one that works for the customer? Focusing on scale too early leads to too many elegant solutions too far removed from real customer contact resulting in too many dead ends.

Institutional leaders are even more obsessed with scalability than entrepreneurs. They fixate on protecting their current scale and assess all new customer value creating ideas through the lens of their current business model. If opportunities to create customer value in new ways are distracting to the organization or would cannibalize current business they’re routinely dismissed. The questions asked and metrics applied to evaluate new opportunities are more about scalability and fit, than about creating new customer value. The baseline for evaluation is the current business model. Market making opportunities are routinely screened out or ignored for more predictable share taking opportunities to increase scale. This is why CEOs are so hungry for merger and acquisition opportunities. It’s all about scale, not changing the customer value equation. New business models force institutional leaders to rethink scalability.


Humanomics


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