Having just rented a Jeep in Nevada using Turo, which by the way is a brilliant service, I got to thinking about scalability, and how important it is to the aspirations of the Freedom Entrepreneur. Let me explain.

If you are not familiar with it, Turo is a vehicle sharing app, sort of like Airbnb but for cars, which connects car owners with renters.

After I’d returned the car I got a very nice message from the ‘host’ thanking me for my custom and for contributing to the growth of a small business and his ‘dream of passive income’. Now of course I realise that this message wasn’t for me personally, and that he’d set up an auto-send to all customers, but it was a nice touch (and without it I wouldn’t be writing this article).

Many people on Turo own several cars that they use to generate income. In this way Turo provides, on the face of it, a fabulous opportunity for anyone seeking to start a small business (provided that they have one or more cars that they don’t personally need to be driving all of the time).  

But (you knew there was a ‘but’ coming), although this business is a super side hustle, its not going to turn you into the Freedom Entrepreneur. The reason is that its not very scalable.

What is scalability and why is it important?

To answer the second question first, scalability is important to becoming the Freedom Entrepreneur because it gets you there much faster.

Some business activities are highly scalable, and some are not scalable at all. Most are somewhere between those two extremes, and creative thinking can get your business into a position where it can become more scalable.

The scalability of a business is a function of the amount of resources that are required in order to generate more profit. In other words scalability means that ever larger amounts of money can be generated from comparatively small outlays.

Turo Example - Alice

Let’s look at a hypothetical example of a Turo business run by Alice. She owns a car which she needs to use personally for one day per week and which she makes available to renters for the remaining six days at $100 per day. Her expenses are $50 per day. Therefore, the maximum amount of profit she can make is $300 per week. (She could increase the price, but then she risks losing customers).

What would Alice need to do to significantly increase the income? The obvious answer is that she would need more cars. That’s expensive. Therefore, although this business does have some level of scalability, because it can be grown by adding more vehicles, it will take time to recoup the outlay of the vehicle acquisition costs.  

This type of business activity therefore has a low scalability rating. Let’s give it a score of 2 out of 10 for scalability.

Now, just as an example (I am not saying that this would be a viable business), suppose Alice starts an online weekly newsletter for Turo vehicle owners – in the newsletter she publishes tips and news for persons who rent out their cars. She charges a fee to subscribers. She may sell advertising space in the newsletter for additional income.

This is an example of a highly scalable business. Why is the newsletter business more scalable? Because the money/resources that are needed to publish each newsletter remains almost the same no matter how many subscribers there are. In other words, the costs associated with having 10 subscribers are largely the same as having 10,000 subscribers. Therefore significantly more profit can be generated from minimal additional outlay.

Restaurant Example - JACK

Let’s take a look at the restaurant business for another example of scalability. Suppose that Jack owns an Italian pizza and pasta place in a suburban neighbourhood with plenty of local clientele, and that its open six days each week.

There are 12 tables in the restaurant, with eight being 4-tops and the remaining tables being 2-tops. Let’s say that the highest priced appetizer, main and desert courses are $12, $38 and $10 respectively, and that there is one seating at lunch time and three seatings in the evening.

What’s the maximum revenue that can be generated from the food sales per week? The answer is $1,440. (There may also be beverage and alcohol sales, but let’s keep the example simple.)

Now, there are a lot of costs associated with running a restaurant - rental of premises, purchase of ingredients, staffing costs, etc. - so the profit will be much less than the $1,440.

So, onto the important question: how scalable is this business?

The answer is that its not very scalable as it currently stands. Jack could open the restaurant on the 7th day of each week, he could introduce more expensive food items and he could open a new premises in a different town. But there would be additional (and proportionate) costs associated with these changes. We could give it a scalability rating of 3 out of 10.

How could Jack increase the scalability of his business by making some changes? Some possible suggestions, include these:

• he could cook additional food for collection or delivery (more food sales without the costs of seating space and serving staff)

• if his restaurant is popular, he could sell his special pasta sauce online (product sales without the locality restriction)

• he could publish a book of recipes of his most popular dishes (maximally scalable, especially as an e-book or audio book)

You can probably think of additional examples. If Jack were to make these changes then the scalability of his reformatted business would be significantly higher, perhaps 6 or 7 out of 10. At that level, acceleration to higher levels of profitability become much more attainable.

So remember scalability on your business journey. If your business is currently not very scalable, what new product or service, can you introduce that would make it more scalable, or how can you adapt the existing operation so that there is more scalability?

Freedom Entrepreneur strives to give business creators the tools they need to avoid burnout and to maximize profit