When scaling a business, things in your business will inevitably change. We look at what to expect and ways to plan.
Though they are often used interchangeably, growing and scaling a business are two distinct concepts. It’s easy to assume that a startup or new small business is successful because they have experienced explosive growth. But when you understand what scaling a business means, you see that growing too fast can do more harm to the company than good.
Without scaling and creating a firm foundation, rapid growth leaves a business vulnerable to problems. The key is learning how to scale your business to ensure your operations withstand growth demands. Then, you can properly position your company for long-term success.
There are many moving parts to scaling a business. But business owners can accomplish scaling by taking the right steps. Here, Hoist provides practical guidance on the process. We’ll start with…
Scaling a business is not easy due to the many challenges involved. Here are five common obstacles all small business owners face:
Business owners want to see growth quickly. That is what leads many to attempt to scale before they are ready. Many business owners assume that the kinks will work themselves out along the way, which can come back to haunt them.
Problems can arise when small business owners try to boost growth and production without having a firm grasp of their target customers. Other owners start the process before confirming that the market demand is sustainable.
Our advice: Don’t begin scaling until you have done your research and fine-tune your product or service to match your research results.
Every company must operate within management and leadership structures. The structures that prove adequate for an enterprise of 30 employees won’t necessarily work for one with 300.
You must be flexible and ready to adapt. In other words, don’t expect to use the same structure indefinitely.
Our advice: As you grow, explore, modify, and create new systems that work better for your business.
You mustn’t ignore those problems while scaling your business. Even healthy growth can remove people from their comfort zones, especially when it’s occurring rapidly. So you should accept that issues with your personnel, products, and services may arise.
Consider solutions that will not harm your company's scalability rather than pushing the problems to the side and pretending that everything is OK.
Our advice: It’s critical to put your business health first, so confront issues head-on to protect your company.
Scaling a business often involves adding employees to the payroll. But each new employee must be qualified for the role you hire them for and thrive within your company’s culture. The same logic applies to suppliers, investors, or others who may interact with your business.
Don’t assume that the obvious choices for your team will fit into the bigger plan of your business.
Our advice: Remember that everyone whom your company works with may represent long-term relationships and prove essential to scaling.
Healthy business growth does not always mean growing upward and outward. You will likely see that some things are no longer working as your company grows. As you move forward, you may identify departments that have served their purpose and employees who may not fit into your company culture and goals.
Our advice: When thinking long-term, don’t be afraid to trim anything that may be holding the scaling process back. That is the only way your business will be able to grow effectively.
While you must know how to scale your business, knowing when to scale is just as important to your success. If you try to scale prematurely, it can unleash a plethora of organizational issues that spell failure. However, you don’t want to miss key opportunities by waiting too long to scale.
You must know that there is enough demand for your product or service before scaling. This means you must have a validated product/market fit with a well-defined target audience, marketing strategy, and minimum viable product.
If your startup exceeds expectations and goals, it could indicate that you are ready to scale. For example, you should consider scaling if you are experiencing more revenue, profit, and customers than you forecasted.
Having positive cash flow is another sign that it’s time to scale up. Cash flow refers to the money coming and going out of your company.
If you have more coming in than going out, it may mean you are financially prepared to handle the increased expenses of scaling and position your business for long-term growth.
Furthermore, regularly delaying services due to demand is often a sign that you should start scaling. This delay may mean you have more orders or service calls than you can handle with your current team or assets, which indicates that your product or service is in high demand.
If your business has experienced sustained profitability, it shows that you are operating from an effective business model, and you’re in an excellent position to scale. Being able to consistently turn a profit could mean that you can do the same at a larger scale.
You’ve probably guessed that scaling isn’t something you should take lightly. Let’s provide some pros and cons to help you decide if it’s time to scale:
The economies of scale work in your favor. It essentially means that the cost per unit decreases when you create a product in large numbers. For example, if you can produce 200 units for the same price as your previously created 150 products, you should profit from at least 50 units.
Scaling also provides more employment opportunities. It allows you to bring in new or fresh talent, providing fresh perspectives while also supporting the local community.
Then, there’s proof that bigger businesses tend to make more money. When done right, you will boost customer acquisition, increase sales, and create more powerful marketing strategies that help you build a loyal customer base.
One challenge with scaling a business is organizing a dependable supply chain. If you effectively manage your supply chain, it can enhance customer value and give you an edge over competitors. But you must spend the time and energy necessary to manage your supply chain efficiently and keep it coordinated; otherwise, it could lead to devastating consequences.
As you begin recruiting new team members for your company, you risk a decline in employee motivation. Smaller companies tend to be composed of passionate employees, and when you begin to add new workers, there is a chance some of them will not carry the same zeal, which is why you will need to be wise in how you hire and train your new employees. In other words, make sure your human resources department has a plan!
Scaling a business also requires you to spend more money. Though it typically doesn’t cost as much as traditional growth methods, you will need to prepare for additional expenditure before diving into scaling.
You will also need to be smart about increasing your sales output. It can be risky to buy goods in bulk and invest in new equipment, so carefully evaluate your goals and situation to prevent inventory excess and unused equipment.
To position your company for long-term growth, you need to plan, secure funding, evaluate your structures, invest in the right technology, and more. Here are a few practical tips for scaling your business the right way:
Your business must be ready for growth if you are going to scale up. That means that you must take stock of where your company stands at the moment. Say, for instance, that your order triples overnight after you attempt to increase sales. Do you have the team and systems in place to get those new orders to your customers? If not, trying to scale could significantly damage your long-term growth goals.
Start by planning a detailed sales growth forecast that includes your desired number of new customers, orders, and revenue. Break the data down by month, and be specific.
Follow the same process for creating an expense forecast that details the people, technology, and systems required to handle more orders. This is one example of how you will need to assess and plan your scaling. Take time to think of everything and diligently research what it will cost your business to scale up.
While scaling a business the right way can lead to long-term growth, it doesn’t happen for free. You will need to hire new staff, use new technology, purchase equipment, buy or rent new facilities, and invest time in creating new systems and structures that you can rely on.
Many entrepreneurs embrace bootstrapping, which means that you pay for business growth from your pocket. But this is not an option for some entrepreneurs, and it typically means it takes longer to scale.
Research all of your funding options—from small business grants and loans to investors and crowdfunding campaigns—to determine how you can get the money you need without putting your company in an unstable financial position down the road.
As mentioned, you will need to sell more when you are scaling a business. You must have the appropriate sales structure established to generate and manage more sales.
Having the proper sales structure means you need a sufficient lead flow, the right marketing technology to manage leads, and enough salespeople to close leads. Also, you will need quality automation software to handle sales orders, receivables, and invoices.
Implementing the right technologies allows you to take full advantage of economies of scale while using less labor. Automating everything allows you to maintain operations at a lower cost. You want to make sure that you integrate your systems to avoid creating silos, which can cause a slew of management and communication problems in the scaling process.
As helpful as technology and automation are, you still need actual humans to carry out an effective scaling process. Make sure you have enough employees working in customer service, manufacturing, inventory, and delivery of your products or services.
Consider using recruiting and hiring systems that allow you to attract the best talent for each position. Don’t forget to prioritize management in all areas of your business, which will require you to add integral positions and rethink structures as your business grows.
Growth and scaling are both essential fixtures for long-term success. But they are two distinct concepts often mistaken as the same thing. Let’s briefly touch on the difference between growing and scaling a business.
Growth is generally considered the definition of a successful company. You can boil it down to increasing revenue consistently. Growth can also refer to other areas of a business (e.g., number of employees, number of customers, number of offices) that are growing. Even these things are typically connected to increasing revenue.
However, the problem with sustaining constant growth is that it requires a lot of resources.
With the costs of growth in mind, many modern founders focus on scaling. The key distinction between growing and scaling is that scaling can boost revenue while minimizing costs. The idea is that exponentially increasing customers and revenue should only cause an incremental rise in expenses.
You can see the distinction between growing and scaling most clearly when looking at a business that is no longer a startup but is not yet a large company. Such small or medium businesses must determine whether they aim to grow regularly or move to faster scaling.
Growth or scaling must be a priority to achieve long-term success. If you’re considering how you can position your business for future success, consider scaling up the healthy way.
But, remember the challenges, pros, and cons of scaling a business. Consider the tips above for how you can scale your company in a way that maximizes growth while minimizing incurring costs.
Don’t forget to consider Hoist for all of your startup needs.
Sources:
15 Signs Your Startup Is Scaling Too Quickly (And How To Slow Down) | Forbes
How to Know When It's the Right Time to Scale Your Business | Entrepreneur
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