It’s rare for a CEO to clock more than a few minutes of an investor pitch without getting the bottom-line question: What makes your enterprise scalable?
Investors are so obsessed with scalability that they often overlook what drives it. Scalability is the sustainable ability of a company to grow its revenues faster than its costs.
In the world of physics, this property is called efficiency: output divided by input. A gasoline engine, for example, has a thermal efficiency of about 30%: a lot of heat (energy) escapes without doing any work.
Likewise, if an enterprise has too many costs that don’t “work” — produce revenues — it is unleveraged, inefficient, unscalable, and possibly unprofitable.
Demand and Drag
Two factors affect scalability: demand and drag. Alas, most CEOs and investors, especially venture capitalists (VCs), focus on drag — the friction that impedes nonlinear growth.
What about demand, the magnet that PULLS enterprise growth? That is the brand. Demand and brand are correlated. Dare to mention brand and branding in an investor pitch, though; you’ll likely get stares and raised eyebrows. That’s when you should walk out.
Newsflash: Investors who disdain branding will impair your company’s success.
This axiom applies to corporations of all sizes, from startups to those in the Fortune 50. 3M, which has no known brand, is now experiencing flat growth and flailing about for a solution. Merely reducing drag and adding products, the typical panacea, won’t spur growth.
As I’ve written and spoken, ad nauseam, the brand — the enterprise’s customer-validated reason for being — drives all corporate activities and growth. NOT PRODUCTS, where most people focus! Disconnect? You betcha.
Products are ephemeral fulfillments of the brand’s promise to customers. The brand is not subordinate to any product. Like snowflakes, products have short shelf-lives. Competitive, brand-centric enterprises replace them frequently and eagerly.
Jony Ive, Apple’s chief design officer, recently admitted to Charlie Rose, correspondent for 60 Minutes, that when consumers purchase Apple’s newest products, they’re already obsolete. Ive also confessed that success can breed complacency, which will kill a brand rapidly.
Parting Advice to CEOs
When investors invoke scalability, your response shall include your branding strategy, which you created BEFORE your product. And, if they balk, you must walk.
Execute, in the proper order, the inviolable three steps of the branding hierarchy (most CEOs incorrectly execute them in the reverse order):
- Customer
- Brand
- Product.
Finally: Without a brand’s strong magnetic pull, increasing scalability is impossible.
POSTSCRIPT #1: 3M’s Quarterly Sales Fall 5.5% (01.26.16)
POSTSCRIPT #2: 3M’s Quarterly Sales Fall 2.2% (04.26.16)
© 2015 Marc H. Rudov. All Rights Reserved.
About the Author
Marc Rudov is a branding advisor to CEOs,
producer of MarcRudovTV, and author of four books