Not all businesses can ‘scale up’ (or grow successfully) and will therefore stay the same size over time. There is nothing wrong with establishing a single location business that addresses a local need and keeps a set of customers happy and coming back to you. However you may decide that the time is right to grow and you need to understand the dynamics of scaling as it will affect the overall profitability of your business.
First of all, in business there are at least 2 types of scaling involved, namely:
- getting more people to pay and use your product or service (the focus of this article), and
- scaling the technology / infrastructure – making sure that product or service can keep up with the increased demand without delivery significantly slowing or failing altogether.
It is a fact that some businesses, by their very nature, cannot scale. If you have to increase your operating costs (sales, marketing, administrators, etc.) at the same rate you grow revenue, and then your business does not scale. However, if revenue grows and requires relatively smaller additions to operating costs, then your business scales. Simple! Also, just because a business doesn’t scale, doesn’t mean it’s not a great business.
So how do you ensure that you can scale your business, here are 5 steps to successfully scale your existing business
1. Grow your company without growing your staff. Some businesses can double or triple their turnover if they also double or triple their costs, with the significant cost being their staff or employees. Yes, it looks like they are making big revenues and profits, but what they have is an equally big payroll that has to be met every month – this model cannot be scaled efficiently, so try and increase your revenue without taking on more people.
2. Automate everything that can be automated. If your business isdoing well, but is labour intensive, some investment is required to automate processes and procedures so that as the customer base grows, they get the same level of consistent and quality service. Yes clients need their hands held and when things wrong people need to intervene to address the issues. But by using technology to enable the customers to manage the service you deliver to them themselves, e.g. by providing additional help desks, online portals to take orders and answer queries, the automation model will allow you to double or triple your customers without growing your expenses and costs at the same rate.
3. Shift from outbound to inbound marketing. Very few businesses can afford sales people working exclusively for them with reasonable basic salaries and good commission led bonus schemes – as above people are expensive! Instead, think about how to pivot so you can bring customers to you rather than having to chase after them. Use other mechanism, like websites, social media, customer loyalty schemes, affiliate programmes, etc. to supplement your sales team as this will be a much more cost effective way than spending money on advertising. This will leverage (not replace) your sales people and make them more productive and provide new revenue that is not based upon commission alone.
4. Consider the possibility of franchising or licensing. A very successful way to scale your business is via franchising or licensing. Let’s say you own a successful design printing or IT repair business in a town or city. You get lots of great press and have loyal customers, but opening new offices in adjacent towns or cities might be too difficult and cost prohibitive. If you can focus on your idea and brand, i.e. the best parts of your business that is unique you; you can expand by allowing like-minded entrepreneurs to buy into your business for a percentage of the sales without having to manage the staff it takes to run them. Please note this is not always the easiest route to scale and grow and will require some investment and on-going training and support to ensure tour licensee or franchisee are successful and the profit returns to you.
5. Get your finances sorted before you scale. Scaling your business may be viewed as another way of looking at growing your business. There will be demands on your cash and your ability to generate profits to sustain the growth of your business. The previous points will require additional planning and some investment of both your time and cash. To successfully scale you need to do so sustainability without burning your cash reserves too quickly – you will need to understand and plan for the cash flow involved.
If you think about scaling your business fairly early on in its cycle, you will be more likely to grow your company without unforeseen issues and be less likely to abandon your customers who helped make you successful in the first place!
Making the decisions required to scale your business is never simple and you will need some guidance. Phil is an authorised Growth Adviser in the UK, and may therefore able to assist you in getting a voucher to reduce the costs of this advice by 50%. For more information contact us via this form.