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.
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What is 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.