What kind of companies are most scalable?

Typically, product companies are more scalable than service companies because they are easier to scale and also easier to build barriers to entry around, which protects your margins from twenty clone companies. This is because anyone can hire your people and replicate most of your services. Many industries have near zero barriers to entry like real estate sales where you just rent a desk and join the MLS.  It is also possible to have service companies that are hybrids because they have some proprietary processes, products and trade secrets embedded that help create some sustainable competitive advantage.  H & R Block is a good example of this as they supply many systems for sales, tax prep and other benefits that enable the services, so an individual tax preparer has a tougher time competing.

Because scaling almost always requires outside capital too, you generally need strong margins and a large market opportunity to attract outside investors.  This means you...

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How do I know when my company is ready to scale?

To me, scaling means growth over 50% per year, which can become exponential in a few years. That kind of growth requires that a company be very developed in its internal processes and systems. And it must also have a serious and experienced management team.

Planning this growth is complex and will usually also require outside capital.  You also need complete systematization in each area of your business, not just to “Do it” but also to hire people, train people and manage those people too. So, with five departments this means four times five total procedures or systems to “do it” (i.e., sell, delivery, generate leads), hire, train and manage (by the numbers).  Or about twenty total systems. These may be simply a few pages, and I usually recommend a flow chart as a visual helps people learn and improve these as more employees join the company. 

Shifting gears as a company moves to rapid growth is very difficult, and few figures it out...

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