Saul Kaplan: Our Obsession With Scalability Must End
Friday, October 31, 2014
Our obsession with scalability is getting in the way of unleashing the potential of the 21stcentury. We are so fixated with scalability we have taken our eye off of delivering value at every scale including the most important scale of one. The Industrial Era did that to us. Reaching the mass market takes precedence over delivering value to each customer. New customer acquisition trumps delivering value to existing customers. It’s not only business that is obsessed with scale. Our obsession with scaling a national education, health care, and government system has also taken our eye off of delivering value to each student, patient, and citizen. We have been talking about the idea of mass customization for years while we continue to hang on to business models that were designed for scale more than for delivering customer value.
The Industrial Era brought us the reign of the predominant business model. Every industry quickly became dominated by one business model that defined the rules, roles, and practices for all competitors and stakeholders. We became a nation of share takers clamoring to replicate industry best practices to gain or protect every precious market share point. Companies moved up or down industry leadership rankings based on their ability to compete for market share. Business schools minted CEOs who became share-taking clones of one another. It was all about scale. Bigger was always better. So what if the predominant business model doesn’t serve everyone’s needs? So what if it doesn’t even serve existing customers well? Scalability and share taking became about protecting the predominant business model by preventing the emergence of new business models. Incumbents do everything in their power to erect regulatory and legal moats to keep new business models out of the market.
You know the scalability frenzy is out of control when iconic entrepreneur, Facebook founder Mark Zuckerberg, proclaims;
“For us, products don’t get interesting to turn into businesses until they have about one billion users.”
No wonder entrepreneurs are obsessed with scalability. Everyone wants to be the next Mark Zuckerberg. Entrepreneurs always fall into the scalability trap of trying to imagine what it will take for a model to reach large numbers of customers before they have demonstrated that they can create, deliver, and capture value for only a few. Over many years of mentoring entrepreneurs I have observed them, particularly tech entrepreneurs, spend too much sweat equity and startup capital focused on developing code and a beta version of a web platform before they have a clear value proposition and a testable business model concept that can withstand initial customer contact.
Serial entrepreneur and Y Combinator co-founder Paul Graham says it well:
“As long as you can find just one user who really needs something and can act on that need, you’ve got a toehold in making something people want, and that’s as much as any startup needs initially.”
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 CEO’s 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.
We live in an era that screams for less share taking and more market making. Market makers don’t accept the idea that a predominant business model has to dictate the industry landscape. They create a new market with a different playbook. We have access to more enabling technology than we humans and the stubborn institutions we live and work in know how to absorb. Today, it’s possible to unleash an infinite number of exciting business models to create, deliver, and capture customer value. Today’s consumers refuse to accept that there is only one predominant business model in every industry and that they have to take or leave its offerings. Consumers now demand personalized experiences, products, and services.
Consumers are bringing the era of the predominant business model to an end. Business models don’t last as long as they used to. Predominant business models are crumbling all around us. The new strategic imperative for all institutional leaders is R&D for business models as a core competency. It was easier to be a CEO in a world constrained by a predominant business model. In a world defined by business model proliferation CEOs have the trickier task of both pedaling the bicycle of today’s business model while leading the exploration for a steady flow of new business models. If they don’t there is a market maker out there who will.
It’s time end our obsession with scalability. There are too many consumer, student, patient, and citizen needs left unmet by predominant business models in every industry. There are too many new business model concepts stuck on white boards and in consulting decks. We are still allowing predominant business models to slow down and block the emergence of new business models that can better meet our needs. It’s time to move from the era of the predominant business model to the era of business model proliferation. Let a thousand business models bloom.
Related Slideshow: RI Business Rankings in US
See how Rhode Island stacked up.
Rhode Island has 2015's eighth highest insurance premium penalties for high risk drivers, according to a WalletHub report.
Rhode Island ranks fifth overall in the category of speeding over 20 mph annual premium increase at $482. While ranking third overall in the category of 2 accidents annual premium increase at $2,721.
Rhode Island ranks ninth overall under the reckless driving annual premium increase at $749.
Rhode Island has been ranked as the 8th most eco-friendly state in the country, according to a recent study by WalletHub.
Rhode Island ranks third in environmental quality and 16th in Eco-Friendly Behaviors Ran landing them in 8th overall.
RI is behind Washington and New Hampshire who are in the six and seven spots respectively, and in front of Connecticut and Hawaii who come in at the nine and ten spot.
Rhode Island is 2015's 4th Worst State to be a taxpayer, according to a recent WalletHub report.
Rhode Island ranks 48th of 51 with an average state and local tax price of $7,159 which is good for a 27% difference from the national average.
The states that are directly behind Rhode Island are Wisconsin at $7,159, Nebraska at $7,298 and Illinois at $7,719 for a 37% difference from the national average.
Rhode Island has the highest vehicle property taxes in the country, paying an average of $1,133 according to a report from WalletHub.
Virginia and Kansas are the two states just ahead of Rhode Island in the 49 and 50 spots, paying $962 and $905 respectively.
RI also ranks 42nd in average real estate tax, paying an average of $2,779, according to the WalletHub report.
WalletHub has ranked Rhode Island as the 7th worst state to be rich in in a recent in depth analysis of 2015's Best States to be Rich or Poor From a Tax Perspective.
On a scale with 1 being the best, and 25 being average, Rhode Island ranks 37th in low income earners, 42 in middle income earners and 45th in high income earners.
To see the full report, click here.
Providence-metro ranks at the bottom for job creation in 2014
Rhode Island has been ranked amongst the worst in job creation, according to a recent survey done by Gallup.
Gallup gives the Prov-metro area an index score of 23, the lowest score is the New York- New Jersey area with 20.
Salt Lake City, Utah and Austin-round Rock, Texas rank the highest with a score of 37.
The 2014 state rankings by Forbes has just been released and Rhode Island moved up two spots from #48 in 2013 to #46 in 2014.
What does Forbes say about RI's business environment"
After Michigan and Illinois, Rhode Island has experienced the third worst net migration out of its state in the country over the past five years. With a recent unemployment rate of 7.6%—lower than only Georgia and Mississippi—residents are leaving the state in search of jobs. Rhode Island has been stuck in the bottom five overall for six straight years. One plus: labor costs are 5% below the national average, which stands out in the expensive Northeast.
Findings from The State Business Tax Climate Index were released this morning by Tax Foundation which found Rhode Island to have the 45th best tax climate for businesses for 2015. The state's rank has not changed since last year after The Index analyzed 100 different tax variables in multiple categories.
After conducting an online suvery consisting of 1,050 individuals from both parties across the nation, WalletHub ranked Rhode Island as having America's 33rd fairest tax system.
Providence is the second worst city in America for small business, according to a new survey conducted by Thumbtack.com and the Kauffman Foundation.
More than 12,000 small businesses in 82 cities across the country participate in the survey. Providence received an overall "F" grade for small business friendliness.
Small Business Friendliness Grade: F
The Economist grades states on an A+ to F grading scale for its small business climate. Rhode Island is one of just 6 states to earn an "F" grade.
Overbearing bureaucracy and excessive licensing is stifling small business in America.
CNBC ranks each state in cost of doing business, economy, technology and innovation.
Rhode Island's unemployment rate as of May 2014 was 8.2 percent. This is RI's lowest unemployment rate since August 2008.
Forbes ranks each state in business costs, economic climate, and growth prospects. RI is third worst in 2013.
The most damning in the commentary:
After Michigan, Rhode Island has experienced the second worst net migration in the country over the past five years.
ChiefExecutive.net ranks each state in taxations and regulations, workforce quality, and living environment.
The most damning in the commentary:
Sky-high unemployment rate bespeaks continuing terrible business climate.
#46 Tax Foundation
Tax Foundation ranks each state in corporate tax rank, sales tax rank, and unemployment insurance tax rank.
Rhode Island and the other states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates.
#24 Wallet Hub
Wallet Hub ranks each state in ROI rank, state tax rank, and overall government services.
Rhode Island ranked #50 for worst roads and bridges, but ranked #4 in safety.
ALEC ranks each state in economic performance and outlook.
Although Rhode Island ranked low in economic performance, a forward-looking forecast is based on the state’s standing in 15 important state policy variables. Some of these variables include top marginal personal income tax rate and sales tax burden.
#50 Kauffman Foundation
Kauffman Foundation ranks each state in entrepreneurship.
Entrepreneurial activity generally is highest in Western and Southern states
and lowest in Midwestern and Northeastern states.
#47 Free Enterprise
Free Enterprise ranks each state in performance, exports, innovation + entrepreneurship, business climate, talent pipeline, infrastructure.
Rhode Island has continued to feel the direct impact and ripples from the recent recession—it ranks 47th overall in economic performance. However, positive rankings of 15th in talent pipeline and 16th in innovation and entrepreneurship suggest the existence of a foundation on which to build the future.
The Pew Charitable Trusts
#40 The Pew Charitable Trusts
The Pew Charitable Trusts ranks each state in job growth and job creation.
Rhode Island added 6,223 jobs in 2014.
10th Worst in Gallup's Annual Ranking of State Job Markets 2014
Rhode Island has been ranked 10th worst for job creation in Gallup's annual ranking of state job markets in 2014 with a job creation index number of 21
Rhode Island is one of two (Connecticut) states to rank in the bottom ten each year since 2008.
The 2014 State level findings have were drawn from 201,254 interviews with employed adults across the nation.
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