BUSINESS SCALING AS AN ENTREPRENEURIAL DECISION

Author
, professor, Kharkiv, Pushinska, 77

In heading

 Economic theory;

Signed print

 27.06.2024

Issues number

 2024 - 2 (57)

Page

 25-39

Type of articles

 Scientific article

Code UDK

 330.131.3:005.51:658

ISSN print

 2411-5584

Abstract

 Problem setting. The most difficult decision for a modern firm is scaling, that is, the rapid growth of business volumes and profits, which exceeds the rate of attracting new resources and increasing costs. This decision is usually relevant for startup developers, but it is also made by others, primarily large firms that implement corporate growth strategies.
Recent research and publication analysis. The content and features of scaling are analyzed in the works of economists, representatives of management science, and business practitioners. Among them are P. F. Drucker, H. Verne, P. Whatman, J. Rayport, R. I. Sutton, H. Rao, R. Hoffman, J. Cohen, and D. Triff. Many researchers warn businesses against falling into scaling traps that are the pursuit of business growth without a clear plan and competitive strategy, and uncontrolled growth of the management apparatus.
The purpose of the article is to substantiate the preconditions, content and features of business scaling processes as a modern business strategy.
Paper main body. The author of the article draws attention to the need to distinguish between the concepts of business growth, expansion and scaling.
Business growth occurs if a firm adds new resources, makes large expenditures, and as a result receives an increase in income and market share. However, a business may grow in size but not in income, or income may be volatile.
Business expansion occurs when a firm has already established itself in its market, and in order to increase income, it resorts to the acquisition of new business in the form of business integration or diversification outside the industry in which the firm operates.
Scaling a business is about increasing income faster than expenses. The concept of business scaling is closely related to microeconomics concepts such as «scale effect “ and «economies of scale» and takes into account the dynamics of average total costs.
There are several aspects of the scaling problem that should be addressed:
1) during scaling, firms constantly face restrictions of their activities. The type and size of restrictions depend on the stage of the organization’s life cycle, the size of the business, market dynamics, etc. Scaling a business is essentially about overcoming restrictions;
2) scaling should be based on the firm’s competencies that are divided into general and key. Exactly the key competencies make the company unique, attract the attention of investors, and provide an opportunity to attract the funds needed for development;
3) developing scaling solutions, it is necessary to determine the balance of all processes within the firm, especially in conditions of uncertainty and unpredictability;
4) in the process of scaling, it is important to prevent large businesses from losing their manageability;
5) business scaling is not without certain risks, managerial mistakes, traps of unconscious biases and conscious management decisions.
Conclusions. Many issues remain debatable in the theory of business scaling and in the practical activities of managers.
First, you need to plan for scaling. This means having a business development strategy, a business plan, a business map, as well as a financial scaling model with the definition of sources and types of investment.
Second, scaling processes should be constantly controlled. At the same time, there should be no scaling for the sake of scaling.
Third, scaling requires flexible business management. Firm management should easily adapt to changes and new market needs; to be able to effectively implement new ideas and initiatives, to quickly respond to changes in the behavior of competitors and consumers.
Fourth, the effectiveness of scaling directly depends on the work of the staff: their awareness of the organization’s strategy and goals, their professionalism, compliance with the organizational culture, responsibility for their work, involvement in the management of the company.
Fifth, there is a specific time horizon for scaling and it needs to be justified for each business.
Short abstract for an article
The author of the article substantiates the differences between business scaling and business growth and expansion. Scaling should be based on the company’s competencies, provide for overcoming limitations and balancing all internal company processes. The task of management is to maintain the business manageability as it grows in size and to prevent falling into the traps of scaling.

Keywords

 business growth, business expansion, business scaling, business manageability, traps of scaling.

Reviewer

External reviewer

Article in PDF

 Economic Theory and Law, 2024-2-25-39

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Code DOI

 https://doi.org/10.31359/2411-5584-2024-57-2-25

This post is also available in: Ukrainian

27.06.2024