Scaling a Business: Steps to Ensure Profitability

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As you attain your goals and achieve a certain level of success in your business, it’s important to see further growth opportunities. However, the goal here doesn’t end in growing. You need to further scale your business to know how to handle issues down the road.

You may not realize it during the initial phase. But revenue increases will cause problems if there are no proper systems in place. And this is all part of scaling a business. Here, we’ll tell you all about scaling your business by doing all these methodological steps that keep you prepared in all business phases. 

What is Scaling a Business

scaling a business

Scaling a business is the process of preparing your operations to enable and support further growth in your company. Once your business achieves a growth of 20 percent or more in either employment or turnover consistently for at least two years, and have a minimum employee count of 10, you are considered by the OECD as a high-growth company. 

Now that your company has grown to a certain size, scaling up is the way to grow it even more significantly. Scalability is generally about capability and capacity and requires you, as a business owner, to assess your business models. Figuring out whether your company has the capacity and the existing systems to deliver to all your new customers is surely a must.  

Scaling a business isn’t simply growing it. A scalable business is something that is able to handle sales volume increases, new operational demands, and larger operating overhead in a reasonable, efficient and cost-effective manner. 

How Different is it from Business Growth?

Scaling a business is not the same as growing a business. Business growth is when a business adds new capabilities such as capital, people or technology. While scaling is achieved by increasing revenue through less significant costs. The way to do this is through systems and processes.

An example of growth would be tech companies hiring new teams to align with their growth plans. This may lead to $100,000 in new revenue, but would also amount to $100,000 in new salaries. 

In this case, the company’s gains are evened out by its losses. When companies scale, they can gain new revenue by spending much less through effective methods, which can lead to further exponential growth. The difference between growth and scaling is most clear when a company isn’t a startup anymore but isn’t yet a larger corporation. 

Achieving growth for your business is not bad at all, but getting your business to scaling mode is a more optimal approach when you can handle it. Understanding the stage of growth of your business is important if you want to maintain a scalable business.

5 Critical Steps to Scaling a Business

Now that your business is ready for sustainable growth, here are 5 Steps to take in scaling a business:

1. Planning and Evaluation

Taking a step back to take stock of where your business stands today is the first thing you need to consider in scaling a business. According to a Start Up Genome Report, 70 percent of startups scaled too soon and contributed to their eventual failure. Successful scaling requires a firm strategy that would lead to a steady but effective increase in sales. 

You’ll first need to make sure that your business is capable of attending to that increase in demand. Having a good plan allows you to better coordinate operations for the sudden doubling or tripling of your product’s orders. Start with a reliable sales growth forecast, including your customer acquisition goals, targets for orders and revenue that you aim to generate. The more specific your planning is, the more realistic your execution will be. 

Then you’ll need to do an expense forecast based on the things you’ll need such as technology, staffing, infrastructure, and systems to handle your new sales orders. And don’t forget to try and think about everything. Having the right information from proper cost estimates and reliable research can only make your plan better.

2. Secure Your Funding

Despite the lower cost incentive, scaling a business still requires a suitable budget in line with your growth plans. After evaluating your growth rate, you can identify the necessary items you’ll need for successful scaling. You may need to hire new staff, acquire new technologies, add new facilities and equipment and create new systems to accommodate your growing business. 

Planning to finance rapid scale-up is something every entrepreneur needs to consider even as early as still putting up the start-up.  When you scale up, it’s more feasible and less dilutive to acquire funding from a combination of equity investors, banks, public funds, suppliers, credit cards, customers and even employees willing to take stock options. 

Learn how to speak the language of different capital providers, since their primary interest is that you’re able to repay their principal plus interest. They don’t really care about how passionate you are at scaling up your venture. Of course, business owners need to build strong relationships with early investors, as they can help mitigate problems by providing additional funding or adding more investors down the line.

3. Secure Your Sales

When scaling a business, it’s natural to assume that you’re heading towards more sales. However, as your customer base grows, your infrastructure expenses will also see an increase as you keep up with your growing demand. You’ll be hiring new personnel as you update your systems and watch as your costs continue to grow. 

An increase in your gross profit doesn’t immediately mean your net profit margins will increase either. Net profit margins tend to decrease when growing a business, but these margins can vary depending on the industry. As you scale your business, it’s important to note gross margins, since these are great indicators whether a product is profitable or not. Just don’t forget to consider your net profit to make sure that revenue is growing faster than your expenses. 

It’s also important to assess if you have the proper sales structure in place to generate more sales. You’ll need to make sure that you have a sufficient lead flow to generate your targeted leads, with the right marketing systems to track and manage them. Setting up a reliable system to manage sales orders and secure billing is a standard that needs to be maintained especially as you expand your resources.

4. Invest In Technology

When scaling a business, technology makes it a lot easier and even less expensive. Knowing which new products on the market you can use as tools that save time and money is a wise investment. System integration is an important aspect as you scale up, with dozens of systems running companies today. 

An inefficient system can only expound management and communication problems which can hamper your company’s growth. If there are sectors in your business that can benefit from Automation, consider it the best move you can ever do. 

Automation helps you run your business at a much lower cost while increasing efficiency significantly. If you intend to scale up, and maintain a competitive advantage in the market, knowing which systems and technologies to bank on is an important aspect you can’t neglect. 

5. Find Your Team, Or Outsource

Finally, when scaling a business, you need to secure all the positions to make your expansion work. Having the benefit of technology is already a huge leverage, but people will still always be your most vital asset. It doesn’t matter if you’ve raised millions for your growth plans without having people with the expertise to effectively see things through. 

Knowing how to creatively implement your strategies with what you’ve got is important to outpace the competition, but you’ll need help as your business grows. Look at the industry benchmarks to determine your staffing requirements and how to fill them. Knowing who’s responsible for elements of your business such as manufacturing, inventory and delivery of product or services is essential to your growing system. 

If you’re in sales, it’s important to note that you should only hire more salespeople when the system is already part of your repeatable processes. Many startups make the mistake of hiring sales staff before the company is even ready. Pick out qualified help by recruiting a team with broad and complementary skills. 

You can also choose to outsource certain functions of your business rather than hire internally. Some good third-parties have the experience and the systems to provide more efficiency in handling a job than your still-growing company can provide. Finding a reliable partner to outsource can also be a faster and cheaper way to position your business when scaling up.

The Secret to Effectively Scaling Up

The process of scaling a business up can be exciting, but don’t get ahead of yourself. As an entrepreneur, you’ll also need to think out of the box using reliable systems and efficiencies as you scale up. A proven methodology is the 5E Scale Engine, which tackles the proper business owner’s mindset, and the right order of systems you’ll need.  This includes five proven principles:

1. Evolve

  • To effectively scale up, you’ll need to grow as the leader of your business if you want it to grow. Set the proper mindset for yourself, while focusing on wellness and fitness so you can perform at your full potential.
  • Allow yourself to understand that “What got you here, won’t get you there”. 
  • Analyze what you’ve done to get where you are, and throw away the concepts that no longer work while introducing new ones that will.

2. Envision

  • Having the Power of Vision allows you to connect with the right people while developing a network that will support your products or services.
  • To structure your vision, use the 4WH Business Model: Why, Who, Where and How. 
  • Envisioning the future that you want is essential when scaling a business. It’s crucial to set clear goals to know the possibilities of your short term (three-month goal), mid-term (one-year goal), long-term (three years goal) and your overall vision (7 years and more).
  • Plotting these stages out gives you a strong idea of what you need to strategize for to achieve your desired outcomes. 

3. Empower

  • Understand that the difference between a group and an effective team can mean the success or failure of your business.
  • Empower your team by providing fair pay with meaningful benefits as they bring value to your own business.
  • You’ll need to provide Meaning, Autonomy and Mastery so your team can perform higher as well. 
  • Empowering a highly effective team can amplify your own efforts which result in The Cycle of Good Work and can only set your business up for success.

4. Engage

  • With any successful business, maintaining engagement with your customers and clients is always important.
  • Unfortunately, it takes more than a great product to become a successful business. Proper engagement makes the difference between proving your brand’s impact in the market or having no one know about you at all. 
  • Plan out customer journeys and make sure you follow the right sequence to engage with them properly. This includes Discover, Consideration, Conversion, Fulfillment and Renewal. These steps ensure a more organic approach to engage with your customers as they find out more about your product. 
  • Plotting out buyer personas is also a helpful tool that can use data and research to identify your ideal customers so you can focus your efforts and align your strategies. 

5. Execute

  • After going through the first four pillars, it’s now time to focus your approach on the efficient execution of your plans. Always choose to optimize, delegate and automate processes whenever you can.
  • A systematic approach can transform your business to focus on strategy and growth as it becomes a well-oiled machine. 

Conclusion

It’s important to note that there is no prescribed time for a startup to transition into becoming a scaleup. But when your thriving company achieves economies of scale that simply pushes you to the direction of growth, you must be able to commit completely to the concept. 

Scaling a business requires you to make tough choices, but if you’re prepared and equipped to see it through, then your business is on its way to becoming a more successful company than you ever expected. 

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