Most people believe that the way to bigger profits is to scale up the brand.
And, almost all business owners dream of scale. They dream of parlaying a great idea into an extensive line of products, services, books, and even a movie deal. Maybe they dream of a huge audience or a global brand presence.
They dream of products reaching the other side of the world, in the hands of millions. The more items for sale, the better. The more income streams, the better. Many business owners fall into this trap because they believe scale leads to higher earnings. They believe more income streams means more money in the bank.
Scale Doesn't Always Create More Cash
The problem is many things don't end up scaling profitably. Some products and services don't scale at all. And, even when things do scale, they almost never scale in a predictable way. Not every idea lends itself to big branding, extended product lines, and large-scale sales. Some ideas make more money when they stay smaller.
Take the luxury market, for example. Luxury products are luxurious because they are rare and expensive, out of reach for most people. Their value hinges on low volume. If everyone drove a Maserati, if parking lots were full of them, they would lose some of their appeal. And, the more consumers got used to seeing Maseratis around, the less they'd be willing to pay for them because they'd lose their "luxury" status. And, sometimes this exclusivity is the key to profitability.
Childcare is another business that doesn't scale efficiently. The more children in a daycare facility, the lower the perceived value. Parents want as much individualized attention for their child as possible, so the way to get top dollar for daycare services is to keep the number of children low.
The same is true for education. Some parents will pay astronomical tuitions for their children to attend private schools, with the promise that those classrooms remain small and elite. Or consider Harvard, what would happen if they capitalized on their brand and opened a handful of additional universities with the Harvard name? Their clout and brand equity would likely become diluted. More students might mean lower profits in the long run.
Often, the more something scales, the more brands allow the price to be driven down, dissolving margins and ruining profitability.
Scale Also Hurts Agility
For brands to remain competitive and desirable, companies must be able to make changes and adapt to the needs of the market. The bigger a brand gets, the more scale a product enjoys, the slower it becomes. This means that newer, leaner, smaller brands can come in and impress customers, stealing them away. So, sometimes the smartest, most profitable way forward is to stay lean, agile, and adaptable, rather than bloated or over-extended.
Scale can be profitable, but the biggest misconception is that scale is always profitable. It's not. And, it's always more work.
So, be sure to evaluate opportunities with a clear understanding of scale and what it means. Because, scale can be wonderful for a brand, but it can also mean large stocks of expensive inventory, bureaucracy and bloat in decision making, larger overhead, complicated fulfillment, and unforeseen expenses.
Positioning is More Important Than Scale
Resist the urge to take a good idea and scale, scale, scale. Sometimes the profit and glory is achieved by being more strategic. Sometimes it's smarter to stay small and simply raise prices or introduce a new offer to the market.
Sometimes the way to financial success is by marketing smarter rather than marketing bigger. Marketing isn't just about scale and reach. It's ultimately about value and positioning. The best marketing builds up a brand that customers love for the long term.