What is involved in ‘scaling your business’? It is probably best to answer that question first. For a business it is the model or system whose characteristics are that it is able to cope and perform under an increased or expanding workload. Or, a scalable business is one that can maintain or improve profit margins while sales volume increases. Since profit = revenue – costs, scalability is where the growth rate of cost is less than the growth rate of turnover.
The idea of scalability in a business has become easier to model and predict in recent years as technology has made it easier to acquire customers and scale. Technology companies or technology intensive businesses can have an amazing ability to scale quickly, making them high growth opportunities. For example businesses with low operating overhead and little to no burden of shop fronts, warehousing & inventory don’t need a lot of resources or infrastructure to grow rapidly.
At its core, a scalable business is one that focuses on the implementation of processes that lead to an efficient and effective operation. It is therefore key that the business has effective tools for measurement, so the entire business can be assessed and managed at every level.
Making the decision for scaling your business is an exciting process that has the potential to bring significant success to both your business and to you the owner manager. Scaling your business isn’t always an easy thing to do, as the many areas needing to change that can hinder a successful businesses.
So let’s get some details on the road map to scaling your business, i.e. what are the pitfalls and how to get some answers to them
Scaling your business ‘too soon’
Some owner managers try and scale with errors still present in the product they are taking to market, believing that these kinks will work themselves out over time. Others start to increase growth and production without being clear who their future customers actually are or without knowing if the market has sustainable demand.
Answer – do your due diligence and perfect your product before you begin to scale.
Choosing the wrong people as part of your team
Whether it’s engaging suppliers, recruiting staff or adding investors, or growing internal teams, this is one of the most common mistakes growth businesses make. It is easy to simply accept the help and staff that come along naturally, without thinking about how they fit into your bigger plan as the business grows. These people represent long-term relationships, so carefully consider how they will work with your company and culture.
Answer – if possible engage with people who have scaled a business before and rely on their expertise – remember that a great culture fit and competence are key for the long term.
Focusing on sales and marketing instead of building long-term demand
When scaling, many owner managers focus on massively increasing sales and marketing activities, but these are only short-term, tactical initiatives.
Answer – create a strong buyer market and build long-term demand is just as important to your overall success — if not more so – there is such a thing as over-hiring for sales in your business.
Competing on price
As you begin to scale your business, it is tempting to compete on price in order to gain market share. From a cost perspective you think that by ramping up production, you can cut your price and still be profitable. While this works occasionally, competing on price more often results in a “race to the bottom,” both in terms of profit and quality.
Answer – it is far better to compete on quality and customer service than to position yourself as your industry’s low-cost provider.
Not changing management structures as growth occurs
The management and leadership structures that work well with a company of 20 people may not work well when you have 200 staff. Scaling brings its own challenges, and your leadership team has to be ready to change and adapt.
Answer – a flat structure that worked well when you were small will almost certainly give way to a more defined leadership hierarchy with more clearly defined roles and responsibilities for individuals and teams.
Forgetting that trimming fat is part of scaling
A few owner managers think that scaling only involves growing upward and sideward. You may find things that no longer work, departments that are no longer needed, and staff members that cannot grow as the business grows.
Answer – trim back those areas that are no longer working is an important part of building on those things that are. As you scale your business, don’t be afraid to trim fat so that your company can grow effectively.
Ignoring issues that arise when they arise
An owner manager scaling the business cannot ignore issues as they arise. Growth, especially when it happens quickly, takes most people out of their comfort zone, so there are bound to be personnel, personality, product, etc. issues along the way.
Answer – do not try and persuade yourself that things are OK when you can see they are not, and do not believe that things can’t change for the better by leaving things as they are – confront issues head on to avoid long-term damage to your business.
Making the decision to scale your business is not always a simple set of choices so you will need some guidance. If you as an owner manger wanting to scale your business efficiently and effectively in the next 6 to 12 months call CMC on 01844 319286 or complete the contact form below.