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What’s the difference between a small business and scalable business?

The Startup Ladies supports founders who are building scalable, for-profit startups. If it’s your first-time starting up a company, it’s important to understand the difference between a small business model and a scalable business model. Our programming and connection opportunities focus on scalable business ideas. This short article will explain the difference between a small business and a scalable business and help you determine if The Startup Ladies can help you and your business grow.

What is a business model?

Simply put, a business model is a plan that defines how a business will make money selling goods or services. The model can include one or more ways to generate revenue with a single proprietor or a growing team. It explains how the person or team operates in order to become profitable (keep more than you spend!). There are many different types of small business and scalable business models from which to choose.

What is a small business?

From day one, the intention of the business is to be small by design. Often, companies begin with just one person, and then grow to a few people. Our current “gig economy” affords many people the opportunity to be their own boss. The freelance lifestyle is very appealing to many designers, developers, writers, attorneys, accountants, etc. In some cases, freelancers or single proprietors experience unanticipated success and need to hire additional contract employees or permanent employees. That’s a great sign that you’re doing something right – the market wants more of your services!

Some small business owners, such as developers or attorneys, specialize in providing services. Others sell tangible products: oodles of fashion boutiques, bakeries, restaurants, bookstores sell their wares in physical spaces and online. Some of those business owners buy from other small business owners who are selling arts, crafts, food, or wine.

A good example of a small business model might be a local cupcake bakery. Cupcakes that are made fresh every morning need to be sold to customers or delivered to an event the same day. The owner might even take orders online. In this case, the team is small, revenue goals are small, and the idea of success is achieving a defined amount of revenue from foot traffic or catering orders each day.

Typically, a small business owner goes into business thinking she will be able to make a comfortable living for herself and her family while providing the flexibility needed to live the lifestyle she chooses. While there may be some growth over time, the goal of the small business is to sustain its number of employees, revenue, and physical space. There is no plan at the beginning to expand, sell off, or “exit” the business.

The last Census (in 2010) reported that there were over 27.9 million small businesses in the United States.

What is a scalable business?

From day one, a scalable business begins with a plan to grow exponentially. While the company may be small during the startup phase, the goal for the entrepreneur is to raise money to hire staff, build out a product, go to market, keep growing, and in many cases sell (or exit) so that the founders and investors experience something called a “liquidity event.” This means when the business sells, they receive a large sum of money.

Jennifer Hyman, Founder of Rent the Runway, has raised over $60 million to scale her fashion/tech empire. She must manage dress selection, inventory, and delivery. A lot of money was needed to purchase clothing, design and build technology, market and sell the product, and make sure the customers are happy.

The Startup Ladies is a good example of a scalable business model making a social impact. We are a for-profit company that began with growth in mind. While we are small now, we are in the process of executing a plan that will allow us to hire staff, build out technology, and grow chapters beyond Indiana. We have multiple revenue streams that could grow by investing in marketing and sales.

Can a small business model scale?

Absolutely! Apple started out by building a few computers out of Steve Wozniak’s garage. Panera Bread started out as a convenience store. Kathy Ireland’s $2 billion furniture (yes furniture!) empire began by selling socks! Each one of these entrepreneurs began with a small business, grew their customer base, increased revenue, then scaled.

Small businesses may take more time to grow. A one-person shop can’t be a full-time sales person and a full-time web developer. If you are busy cutting and highlighting hair all day, you can’t be working on social media 100% of the time to market the company. While the growth typically comes more slowly, it is often more sustainable over the long-term compared to a riskier scalable business.

Which business model is right for me?

The marketplace ultimately decides which business model is best for you. That means it’s really important to understand your customers BEFORE you go into business. If customers want, need, and are willing to pay for a product/service, you need to figure out the best method to sell to them. If you want to be clear about what potential customers want, go ask them. You can interview and survey people to better understand how they perceive the problem and what they think is the best method for solving it. That data will help to inform how you form a business.

It’s worth noting that there is a strange perception that exists right now purporting that scalable businesses are more prestigious than small businesses. Not true. These are two different business models and business owners need to wisely choose the model that works best for their industry and market.

Where does a small business begin?

Let’s say you want to start selling your own custom-made jewelry. Awesome! You’ll need a business plan to figure how your small business is going to generate revenue. There are two trustworthy resources available to you: Small Business Administration and SCORE. Both non-profit organizations can help you with free services to get you up and running.

Where does a scalable startup begin?

The Startup Ladies can help you! You are going to need community, education, and funding to help you go from idea, to market, to growth. Every month at Startup Study Hall, our Executive Mentors teach one topic that can be applied immediately to your business. This educational series is designed for founders who want to build trusting relationships with people who are living through the same entrepreneurial challenges. Some of the topics that we have covered over the last four years include: how to choose a co-founder, sales, marketing, content creation, pitching, fundraising, prototyping, product roadmapping, and developing technology as well as mental wellness for entrepreneurs.

Committing time to learning how to build a company will be paramount to your success. Schedule time on your calendar to attend Startup Ladies programming, do the homework, and connect with members outside of formal programming to expand your network. Register for an upcoming educational program in your city to meet fellow entrepreneurs and begin learning what you don’t know. We look forward to helping you and your scalable business grow!

Is your startup idea viable and scaleable?

Now you have a better understanding of the difference between a small business and a scalable business model. Want to learn if your idea for a business is viable and scalable? Read my IBJ article.

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