Numerous Advantages of Concepts that Scale
Beyond the decrease in cost associated with mass production, there is measurable advantage to having massive revenue. Even a small increase in efficiency can increase profits by a large margin. Having thousands or millions of customers requires a different approach when minimizing customer dissatisfaction (or maximizing customer satisfaction). Beyond the guessing game of new product offerings, with massive user bases, wide data sets can be collected to understand how and why users prefer your products or services (offering). Localized demand may be low, but global demand could be enormous for our offering.
Obvious Requirements
Is there demand for your offering?
The required demand to sustain a product or service is not only dependent on the size of the user base, but on the value measured by each member. If your offering provides great value to asset fund investors or governments, you likely may only need at most a handful of customers to support a healthy revenue.
For lower cost and value offerings necessary scale may be measured in the thousands or millions. Electronic books have a low cost per copy (some are free), but when many millions of copies are sold your business can generate sustainable revenue.
Is the demand for your offering sustainable?
Will there only be a fixed event for the sale and distribution of your offering, or will there be recurring sales? Services can usually be provided on an as needed recurring basis. Some products are "built to last" and require limited replacement over time. A preferred offering requires the business to research and innovate more valued replacements (computers, Internet connectivity, communication/social media systems) instead of relying on short product lifespans (cars, tires) to drive replenishment needs.
Is your offering reproducible?
Great works of art are one of kind, Toyota Prius' can be mass produced. Expert consultants can provide fantastic service, but their efforts cannot be scaled without getting more consultants.
Subtle Requirements
Can you manifest demand for your new offering?
If there's not a current need for your product or service, can you leverage freemium concepts to initiate demand for your product. A classic example, the mass delivery of free cookbooks with recipes all requiring gelatin (thanks to Chris Anderson for this example). Simply mass producing gelatin was of little use to making sales, until demand was created by the widespread sharing of recipes which required it.
What makes your product or service stand out from other offers?
Quality, Convenience, Price/Value
It's not enough that your product is better than an alternative. Adoption of a new product takes a change of inertia for large businesses. For individual customers changing brands or solutions involves a factor of risk. You must overcome this risk by having a product or service that simply doesn't compare to what competitors are currently offering. I've read quotes of people noticing a 10% improvement, but when it comes to changing products or services the threshold of improvement to instigate substantial adoption could be much larger. From a recent post of Seth Godin's Fidelity vs. Convenience:
In the words of Bill Gross, in order to win with a new product, you need to be on one axis or another, and ten times better than what you're aiming to replace. Which means ten times more high impact or ten times cheaper and easier.
Gaining an improvement in quality or convenience by a factor of ten or making your product ten times cheaper or easier is no small task. It requires incredibly clever thinking along with brilliant execution, or a breakthrough invention.
I suspect if this was the actual requirement on successful new businesses we would see very few new companies succeed, and very bursty improvement to value offerings (this could be the case). In contrast for huge scales even a tiny improvement is valuable. Say your company helps Google improve advertising clickthrough rates by 1-2%, the net return could be a hundred million dollars and only cost Google a fraction of that improvement.
Can users of your offering increase it's value?
Network structures increase in connectivity by the number of nodes squared. When it comes to social collaboration allowing your users to customize and share their developments within your marketspace is a gold mine of innovation. Businesses that can leverage collaborative design are positioned to benefit from the passion of it's user base. From web programming development platforms, to utility sites with public APIs there are great examples of community building/supporting business concepts.
Is the rate of spread of your offering sustainable with the infrastructure you have available?
If the spread of your concept is so fast that you can't possibly satisfy the need, competitors are likely to capitalize on your lack of production. Maintaining slower growth of need to match the pace of your distribution is a great way to control market position.
Relevant Links:
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- Kevin Kelly weighs in on Free (800ceoread.com)
- I Believe Mark Cuban is Right (chrisbrogan.com)
- Prototype: Staving Off a Spiral Toward Oblivion (nytimes.com)
- Gladwell, Anderson, Godin, and Bad Brains (idiomag.com)
- Seth Godin's Thoughts on Social Networking (brandinfection.com)
- Set Yourself Apart In The Tough Times (socialmediatoday.com)