The Obsession with Scale
To scale often shows the effect of profit, and to be profitable means we have the option to scale. Scaling, or expansion means we are growing in our necessity and capabilities to fetch more — clients, sales, revenues, and so on. Currency is not so much in bills but in demand. Right before you know it, demand becomes our gateway to scale. The question is, is scaling always the answer to demand? And is bigger always better?
Demand-driven or Driving demand?
Oftentimes we think that we have enough agency over the business model that we have. Built with passion and strategy, sure, because you know your business better than anyone. You see a crisis and start creating your version of the solution to this problem. People are hooked, they love your product (or service). A more, newer bunch of people start paying your offering attention. Some return to hand you over their money for it and some don’t. Over time, you’d have two groups of people buying your product or service: the same faces, and the new faces. When this consumer rate balance is retained with your product or service in mind regardless of high turnover, you’d have created demand. Congratulations, there is at least a nice percentage of profit there.
Sometime after, more people are trying to get their hands on what you’re selling because if everyone has it, why shouldn’t they?
You start to feel the urge to take more people and systems on board, helping your business satisfy this demand for the sake of efficiency. The stakes are high, but this is not the time to lose the momentum, and revenue is calling for you in your sleep. Yet, efficiency is a lot of times… costly. With the growing need for resources toward efficiency, the cost of this — expansion — grows too. At this point, your movement is solely driven by demand, making it highly fragile to volatile times.
Business owners have learned a lot after the global pandemic, and one of the hardest lessons was that their business was not sustainable through drastic changes. Additionally, it’s that their business is not fit for the long run. Some are extremely lucky to have survived, either by a strap in their boots, or their meticulous maneuver through the changes. Not only business owners, we’ve collectively learned that either way, volatile times are a little nicer to those who know that demand is not there to solely drive our business. This, of course, depends on the kind of business one runs.
We have our versions of the OG old-school neighborhood bakmi vendor. The one that takes the long queues and if you don’t come early enough, your best bet would be right before lunchtime over the last few bowls. Many travel far just to get a taste of the tongue-tingling, belly-filling, heartwarming bowl of bakmi. These owners don’t play, and their strategy remains the same for years, and for some, decades: By not doing a massive expansion. This doesn’t mean that they don’t ever establish and evaluate the way they run their business. These owners know the demand for their product yet still keep its accessibility limited. Fondness grows into word of mouth, whose words grow into a community, and the community of these bakmi enjoyers sustains for a good few years and generations too. What these owners know is that their business is not the one driven by demand, but it is the demand that they’re driving.
Knowing their business inside out, they realize the amount of agency and control they have over demand. Satisfying this demand is reflexive to them, but driving the demand becomes an instinctive pursuit.
Between Profit and Purpose
Once upon a time, I knew a consulting firm run by a good ten people whose purpose was to help businesses be heard in their market better. I’ll make it easier for you by naming them Firm A. Over time, Firm A fetched more clients, received publications, and reached a sustained degree of credit in its industry. With more and bigger clients coming in, the firm reviewed its annual plan to expand its team by 20% at the end of the year. This strategy carried on until the next few years when the team became 70% larger than its start. This is good news, even for any businesses. It’s proven and given that the demand for their service arose over a nice decade, but so did the turnover rate of their consultants.
Change impacts places we never knew needed attention, and it’s given to think of everything holistically as a system. Firm A knew that the rising number of employees meant the rising need for a stable growing income and operational costs. However, they did not look further at explorative career paths. For the firm, economic opportunity is indeed important to support the former, but the latter? Only half of its probability. Firm A couldn’t place a bet in adding numbers toward their managerial positions. This meant managerial positions directing more consultants, which meant more divided focus and opened a box of new risks. These risks could accelerate into loss if aspects such as working flow and client management are not improved and made adaptive to changes. With rising turnover and employee dissatisfaction at the end of one year, they had decided to shift the firm’s focus to making more profit to accommodate for these effects of scaling. The purpose of helping businesses be more visible became partially denied of existence. This loss of purpose later impacted the firm’s working culture and internal chemistry where the consultants’ ownership of their work unfortunately decreased.
In an ideal world, there’s no such thing as compromise; but leadership lives up to its name when we make the sacrifice. This sacrifice only applies to everything but our purpose in existing. When we lose our purpose, we also lose the chance to make it to the end of the line.
To run the business marathon, profit is the how and purpose is the why.
Sustainability: Overused, Under-Implemented
With the status quo, there’s no doubt that we’ve heard the word ‘sustainability’ more than ever before. I mean look at the graph.
Ridiculous.
‘Sustainability’ is that one fancy word that everyone likes, and I’m not talking only about the word in the environmental aspect. Brands of today, particularly, love slapping this word in their book, along with other tools they can use to gather more eyes on them. However, the word holds so much accountability, and thanks to the businesses that don’t take the word lightly.
Business is established in hopes for the long run, and to run long, a business needs to maintain its values that can be categorized into what’s notable as the Triple Bottom Line: Profit, People, Planet.
So what is the Triple Bottom Line?
There’s the word ‘commitment’ that intertwines with the word ‘sustainability’. Having the triple bottom line as the foundation, businesses must commit to driving their financial growth for all shareholders, along with making a societal impact and a positive impact on the planet.
The present state of affairs shows consumers have big expectations for brands that are committed and consistent in working toward a visible impact. No longer price- or product-driven, consumers today are purpose-driven. Representing 44% of consumers while having a strong buying power, purpose-driven consumers look for brands that align with their values, as shown in a consumer report by IBM.
So what does sustainability have to do with scaling a business?
Scaling is a strategy to pull in more revenue into profit, but this strategy is not always sustainable. As we’ve learned previously from Firm A, their scaling strategy might have sustained for their Profit leg, but not so much on the Planet and, more significantly, the People leg.
We’re so obsessed with making a profit yet it’s undeniably easy for us to fail to realize how profit is not the only thing that grows the business. We also fail to step the brake and think if a growing demand always leads to the need for expansion. Leaders must be more careful now than ever to make decisions that can withstand the storms of their industry. Sustainable strategies create sustainable business models (Long, Thomas B. 2019). A business that overflows with hype-train demands rides on aggressive expansion, and when the train stops, we can observe their declining growth from layoffs, decreasing points of sales, revenues, ‘tank’ stocks, and so on.
Right now, business is to create economic, societal, and environmental profit.
And profit is not strictly to grow bigger;
Profit is to grow better.
References
- Harvard Business School: Triple Bottom Line https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line
- IBM Research Insights: Consumers Want It All https://www.ibm.com/downloads/cas/YZYLMLEV
- Thomas B. Long, (2019) Sustainable Business Strategy https://www.researchgate.net/publication/332414437_Sustainable_Business_Strategy
- Forbes: 12 Essential Strategies For Building A Sustainable Business https://www.forbes.com/sites/forbesbusinesscouncil/2022/02/25/12-essential-strategies-for-building-a-sustainable-business/?sh=7e846a077d5e
