Hyper Scalable Business Models

Without repeating the beating-a-dead-horse discussion when a company is a startup or not, let’s use the following definition that is useful: a Startup creates and commercializes a proprietary product that rapidly scales to global proportions without linear dependence on human capital.

In other words, a small team can conquer the world. Think Snapchat or Instagram each serving more than 30 million users with 30 and 13 employees respectively. Or Skype (1,600 employees for 40% of all international telephone traffic) where national provider Belgacom’s +15,000 employees can claim only a fraction of their call volume but have to bear the heavy cost of the infrastructure giving Skype literary a free ride.

Airbnb is more worth than the Accor, Hyatt and Intercontinental hotel chains and already worth half of the nearly 100-year-old Hilton. Where Airbnb with 600 employees can offer half a million rooms without even stabbing one cent of investment in real estate, Hilton needs over 300,000 employees operating 680,000 rooms. Similar extreme disproportion between the size of the company (super small) and market impact (gigantic) are to be found with the Hyper Scalable business models of Uber, Twitter, Netflix, Zappos, Eventbrite, Dropbox, Evernote, Zipcar and booking.com to name a few.

But how do you become Hyper Scalable? What’s the business model behind it? The answer requires understanding the rules of the fast emerging digital world and use them as levers. More specifically, by combining the strengths of machines (precision and scale) with the strengths of people (insights and creativity) using them as levers for growth and innovation.

There are in my view three critical conditions to create a Hyper Scalable business model:

1. A Hyper Scalable business model is based on intangible assets

Think of music, books, movies and photos. But also patents, franchising, algorithms (software) and data. In a digital world, the reproduction cost of intangible assets is virtually zero while the quality remains 100%.

2. A Hyper Scalable business model requires technology as a lever

In medieval times, music was not scalable. A troubadour played in markets and castles and was paid for the entertainment. Only the invention of the phonograph as a carrier of sound in 1877 by Thomas Edison made music scalable. Music could be recorded, distributed and enjoyed without the required presence of the musician. Not surprising as technology advanced, we saw the emergence of rockstars, actually another word for a Hyper Scalable artist.

3. A Hyper Scalable business model uses the Internet as a free distribution channel

Through the Internet, we can reach 40% of the world population in all corners of the world. The moment we go online, we are also global. Serving a customer digitally in Australia is as easy as a customer around the corner. In the case of music, the combination of the MP3 format and the free distribution over the Internet was a killer combination – just ask the remnants of the “old” music industry that was destroyed by the barbarians-a- the-gate: technology driven companies such as YouTube, Apple and Spotify.

By combining the Hyper Scalability trinity (create, replicate and scale) as levers for its business model, a company can achieve Hyper Scalability. How else than by applying this combination can a WhatsApp with no more than 30 engineers support an impressive 7.2 trillion messages per year? Not much less than the total number of text (SMS) messages that the world sends together annually: 7.5 trillion!

There was never a better time to build innovative digital products and services with minimal investments. The sky is no longer the limit. Hyper Scalability can also be achieved by a company based in Belgium. While our natural resources are limited, our creativity and innovation has no limits. While labor is expensive, Hyper Scalability can be achieved by just a handful of talented people.

 

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