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Scaling a Business: How & When to Do It
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Many entrepreneurs start a business with the goal of one day running a large company. While you might start small, you can dream big and create a plan to expand — or scale — your business.
Scaling a business is about determining if there’s more demand and more profit to make in a larger market. Not all businesses can scale, but we’ll help you take a closer look to see if it’s the right strategy for your company and when it might be the appropriate time to expand.
What is scaling a business?
Scaling involves replicating your business products and operations to serve a larger market, with the focus on increasing profits. Scaling gives business owners a chance to break out of the time-consuming owner-operator role. It can allow you to turn over day-to-day tasks to managers or create a pathway for your exit if you’re interested in selling the business, Finally, scaling can also be a way for your company to become a major player in your industry, perhaps even on a global scale.
However, not every business is built to scale. The success of many small businesses depends on factors that may not be replicable on a larger scale, such as local culture or personal relationships with customers. A small neighborhood restaurant may not be able to find the same success in other locations, for example.
Scaling vs. growing. Growing a business is similar to scaling, but the difference lies in how much it costs you to expand. Scaling requires you to increase revenue without upping your expenses too much. On the other hand, your revenue and expenses rise simultaneously while growing.
How to scale a small business
When starting the process of scaling your business, here are a few steps you can follow to stay on track.
1. Put together the right team.
One of the key components of scaling your business is increasing your headcount to support a larger operation. There are a few ways you can add more people, such as adopting a franchise model, bringing on contractors or hiring employees.
Adding more members to the team can be frustrating for entrepreneurs who are used to doing things themselves or with a core group of co-workers. You’ll need to be patient when working with people who have varying skill sets, especially when they’re new and learning the ins and outs of the company, he said. We’ll discuss strategies below for how to budget for a bigger staff until new products or initiatives begin to pay off.
2. Develop your strategy for growth.
Develop a simple and clear strategy that employees, customers and vendors can understand and embrace.
Although you want to stand out among competitors, you should also keep focusing on your core offering and brand promise. If you specialize in a certain service or industry niche, you would have a better chance of connecting with customers and scaling the business if you stay focused on your core products.
3. Create a game plan.
Once stakeholders are on board and you’ve identified your target audience, create a plan by taking these three actions:
- Set priorities: Narrowing down your to-do lists to your most important tasks would improve the growth of the business.
- Determine metrics: Focus on specific metrics that you want to use to measure business growth, such as income statements.
- Improve staff meetings: Schedule proactive, effective meetings like daily huddles or monthly all-hands meetings to keep your team up to date on the scaling process.
4. Figure out how to pay for it.
Scaling takes money, and you’ll need to figure out a way to pay for your plans. Bootstrapping is appealing because you’d use your own funds and you wouldn’t have to worry about borrowing money or bringing on investors. Being able to rely on your own revenue to scale would also indicate strength in your business.
However, many small businesses may some outside sources of capital to fund growth. It can be difficult for a business to scale using only reinvested profits.
You could borrow money in the form of a small business loan or line of credit from a traditional bank or an alternative lender, or you could seek equity from outside investors to boost your scaling efforts. Both types of financing come with costs, whether it’s interest on a loan or loss of total control of the company to investors. However, borrowed money tends to cost less than equity in the long run, as long as you can handle the interest rate and repayment terms.
Is it the right time for you to scale?
If you’re thinking about scaling your small business, you should first ask yourself why,. You should be able to articulate your long-term goal in your company’s business plan. That would help you understand what you want to achieve by scaling your company.
Then, turn to your core customers to understand how they interact with your business and how you can expand your customer base. To better understand customers’ perception of your business, consider asking these three questions:
- When did you first choose our business and why?
- Based on your experience with our business, what do we do that’s great and better than anyone else?
- What’s bad, different or weird about our business?
Asking these questions would help you gauge customers’ expectations and experiences, as well as what differentiates your business. Once you’ve gathered sufficient customer data, you would be better equipped to reach new customers and start scaling.
Next steps after scaling a business
After scaling your business, there will be more moving parts within the company that you’ll need to manage. You may decide to move into a new role or implement training tools to bring staff members up to speed.
Be sure to keep an eye on accounting and financial reporting within the larger organization. With more people involved in the business, there’s a higher risk of things going wrong.
It’s common for businesses to experience growing pains when scaling. You might feel a strain in your company culture, for instance. Employees who were around during the startup days may not like the structured environment of a bigger company. But you can’t run a large business without some of those corporate elements like a human resources department and workplace policies.
After scaling your business, it’s important to keep your expectations realistic. Some business owners are overly optimistic based on prior success, but it can take time to find your footing as a larger operation.