Startups have a high failure rate. And those that survive never grow beyond being mom-and-pops or SMEs. So what are the forces that accelerate the growth of companies into multi-million or multi-billion businesses?
Accelerator #1: Leverage. Leverage is based on a simple but powerful concept – you can lift a much heavier object by using a lever. You don’t need as much strength or weight as it would otherwise require. Leverage in business is the same. You can use OPM or Other People’s Money, meaning debt or capital from other investors, without using your own resources, to start or expand your business. Leverage can also be about using other people’s skills, knowledge, and time.
Accelerator #2: Arbitrage. This is the secret of successful traders, of both financial products like currencies and commodities like sugar. The basic idea is buy low, sell high. Businesses that source at very cheap prices and sell at higher rates take advantage of the price difference. That’s what hedge funds and wholesalers do. It’s what fuels the global manufacturing and business outsourcing industries.
Accelerator #3: Scale. A small café or store can stay that way for a long time. It is hard to expand a business that requires a lot of capital and targets a very specific location. But businesses that can scale, i.e. expand rapidly, are bound to go big. Internet-based businesses can scale fast, since they are not location-specific. Even businesses with physical stores can scale by using the franchise model.
Accelerator #4: Brand. Companies with well-loved or cult-like brands are huge precisely because a strong brand is powerful – it inspires trust, loyalty, and even fanatical devotion. It is much faster to grow with a brand that people love. Consumer electronics, fashion, automakers, and food manufacturers do this well. Apple and Nike are good examples.
Accelerator #5: Network. Businesses that have a network effect, i.e. the more users, the more powerful the network, and the faster the growth. Social networks and e-commerce marketplaces are examples. Airbnb and Uber are massive because of the network effect. Once all your friends or peers are on a social network, it’s hard to leave. If all the potential buyers are in a marketplace, suppliers will stay. And it just keeps growing and growing.
Accelerator #6: Monopoly. If a company has a monopoly of something, whether a sole regulatory franchise, a copyrighted work, or exclusive rights, it’s easy to expand and own the entire market if there is a high barrier to entry. It can also mean having the bulk of the market share that no one even comes close. Examples are Google in Internet search and Monsanto in the seed market.
Accelerator #7: Platform. Successful companies that turn their core product into a platform grow fast. Here you have Facebook, Sony, and YouTube. Their platform creates an ecosystem of complementary products and services that further strengthens the hold of these companies. Examples are operating systems, gaming platforms, and social media.
So if you want to grow your business fast and grow it big, these are some of the forces you need to build in your business model. It may not become a multi-million or billion company but it can certainly get big enough to be sustainable, profitable, and successful.
Photo by Oscar Sutton on Unsplash
