14 Sep Linear vs Exponential Growth: Which E-Commerce Business Model is Best?
The debate between linear vs. exponential growth is about as common as the “Tortoise and the Hare” fable. However, when it comes to scaling your e-commerce business, slow and steady may not always win the race. For budding entrepreneurs, it’s important to lay out the pros and cons of both models from a product and market perspective before setting down the path to growth.
Linear vs Exponential Growth – What’s the Difference?
From a financial perspective, the difference between linear vs. exponential growth is simple. Linear growth represents steady sales increases on an upward trajectory, while exponential growth assumes a “hockey stick” curve of rapidly compounding sales.
In the short term, business owners would aim for a controllable 10% increase in profits or a 10% decrease in costs with a linear growth model, while the entrepreneur seeking exponential growth would aspire for 10x growth in profit over time.
At first instinct, exponential growth might seem like the obvious goal—quicker success often means beating out competitors—but working to achieve this sales model comes with certain risks and considerations that might make linear growth a more appropriate direction for your online brand, lest you have the capital and confidence to invest in your expansion.
Linear Growth: e-Commerce Business Model
For e-commerce sellers, linear growth takes shape by expanding your business one customer at a time. This means you have one or two products that exist in a singular region, which you strive to gradually cover through one-off sales. Rebuy marketing is virtually absent, as the focus is primarily on compounding new customers over a loyal consumer base.
Because focus is narrowed to a singular or minimal product line, there’s ample opportunity for niche feature development and acute, narrative branding. In other words, you can spend more time and resources on making your product a stand-out from competitors.
Linear growth is also much easier to control, especially for the e-commerce business model which already assumes a certain amount of risk for deliveries. You own all facets of development which exist in a localized region, thereby minimizing uncontrollable interferences to production. By nature of a small product line, production costs are also much lower than the exponential growth model.
While linear growth may seem like a conservative approach, there’s also a lot of excess involved that inherently drags back your revenue. For instance, from a marketing perspective, it costs far more to draw organic consumers to a new product than to sell new products to existing customers.
A consistent, developing consumer base breeds feedback that could inspire targeted product development or operational adjustments that improve the customer experience overall. On the flip side, when your product offers are limited, there’s only so much buyers can say (and very little motivation to say it).
By nature of selling online, feedback exists in a public forum, meaning siphoned reviews could lead to a quick plummet in sales if the consensus doesn’t wax in your favor and your growth model doesn’t allow for the line development to pivot and address consumer demand.
Exponential Growth: e-Commerce Business Model
If the linear growth model is marketing a stand-alone product to a fluctuating audience, exponential growth strives to market a brand to a consumer following. This means customer feedback becomes invaluable, as maintaining loyalty drives the continuous release of new target products that rapidly compound the value of the brand as a repeat-buy commitment.
Having a broader product line also means the ability to pitch different products to different regions with unique production materials or more niche audiences. In theory, more products in more places increases your chances of nailing your market appeal. And as an e-commerce business model, already operating in a virtually borderless domain, cross-regional expansion is much easier to achieve.
As mentioned earlier, rebuy marketing tactics are also more cost-effective than customer to customer pitch models. You may consider as well the opportunity for cross-utilization of resources when expanding your product line, thereby diminishing the cost of materials waste.
There’s a lot of assumption that comes with exponential growth that might not necessarily be worth the risk for budding businesses. Put simply, the more expansive your operation grows, the more vulnerable you are to unforeseen challenges which could quickly compromise your revenue. Building trusted relationships with regional vendors and developing an accurate topography of your consumer market will take time before you can confidently achieve this type of growth.
Launching new products, outsourcing your production, and subsequently adding to your supply chain also all come with increased costs. You’ll have to be prepared to front sizable investments before you can expect to see that “hockey stick” appear on your P&L.
Which Ecommerce Business Model is Right for You?
Deciding between a linear vs. exponential growth model depends largely on your product, brand, and experience as an entrepreneur.
Ideally, you should be able to control as much of your operational and production costs as possible, which for early-stage business owners is far simpler on a linear trajectory. While this isn’t necessarily the best news for sellers competing for rapid growth in dense marketplaces like Amazon, the good news is it is easy to shift from a linear to an exponential e-commerce business model once you get your bearings, or, choose to take on a growth capital investment.
How Can Growth Capital Help?
While an investment might seem instinctively more apt to ignite exponential growth, this is not to say that growth capital investments can’t serve linear growth just as well. Keeping up inventory, especially as a localized seller with potential for seasonal cash flow dips, is a common pain point for businesses trying to scale up. Growth capital can be used to front the product stock-ups as you expand your sales capacity.
Still, accepting growth capital for things like product launches and broad-scale marketing initiatives is what will help you catch that exponential curve and scale up in the quickest time frame possible—a huge plus for e-commerce entrepreneurs navigating a fast-paced market. As the risks remain in question with this type of business model, it’s important that you choose a growth capital partner that offers more than just a cash advance, ideally without requiring equity or dilution to help you scale.
For instance, when partnering with Yardline, you gain access to Seller Success Managers who offer e-commerce and business-building insights along your journey to profit. They can help forecast risks for expansion initiatives, and help you optimize your investment to ameliorate potential downfalls. You also receive your growth capital non-equity and unrestricted use, meaning you retain full creative control of your brand as it scales.
If you’ve developed an e-commerce business model—whether it’s based on linear or exponential growth—and the only thing standing in your way is access to capital, you can easily apply for up to $1M in advances here when you partner with Yardline.