‘Scaling’ a business means growing it significantly in a way that achieves greater profitability.
Therefore expect funders and investors to ask you: ‘Is your business scalable?’
Here is your guide to scaling your business in a sustainable way without sacrificing quality.
What does it mean to scale a business?
When people talk about growing a business, what they actually mean is scaling it. Growth is classed as having a higher turnover, whereas scaling is a means for widening profit margins. If your overheads increase at the same rate as your growth, you’ll only ever make the same profit. The challenge of scaling is to increase growth at a much higher rate than your costs, and so deliver ever increasing profit margins. Achieving this is what turns a startup into a thriving company.
How can I scale my business?
You will need to find the approach to scaling that suits you best, since this will depend on the nature of your business, your resources and other circumstances. Here are some common scaling strategies:
- Streamlining – finding ways to make the same product in a shorter timeframe so you can produce more with less effort
- Automation – making your processes more efficient with new or updated systems and tools
- Reducing production costs – altering elements in your supply and distribution chain to make your product easier to make and deliver, e.g. using larger suppliers
- Taking on the right staff – keeping as much work as possible in house to drive down the costs of outsourcing, and hiring talent that brings added value to your company
- Open new branches – running additional branches can increase your profits by more than your overheads, provided that you can achieve synergies (e.g. sharing the same supply chains).
- Create a franchise – sell licences to use your brand and business model to others for an additional revenue stream
The 7 challenges of scaling a business
Deciding to scale up is a big step, so make sure you’re ready for it – and that your market is ready for you. Some of the common hurdles to overcome include:
Missing the needs of your market
You need to know your market before you scale up. If there isn’t demand for your product, will scaling up your production generate higher profits?
Lack of funds
Do you have the money to scale up your offering? If not, where will you source funding? If you choose investment, be aware that this involves reducing your share of the business and hence your share of any profits. Conversely, bank lending will have to be repaid, which could hamper future growth. Weigh up these risks against the potential rewards of scaling – or wait until you have sufficient resources in the business.
Cash flow problems
Cash flow issues can be especially common when you’re increasing production but still trying to drum up demand.
Trouble meeting demand
Are you able to create what you’re selling quickly enough to keep up with increased demand? Work closely with suppliers and consider hiring extra pairs of hands.
Hiring the wrong people
People are your biggest asset, but they are also your biggest overhead. When recruiting always take the utmost care, and only take on new people when it’s clear you will struggle without them. If necessary engage a professional recruitment firm to ensure the best fit for your business.
If you’re hoping to increase demand, you’ll need to get the message out there. Many businesses fall down at this step by thinking that more marketing = better. But often this only means working harder and spending more money without necessarily profiting from it. Instead, create a new marketing strategy for scaling, with targets and clear steps.
Struggling to manage a larger business
You will face significant new management challenges as your business grows, and you will not be able to maintain the same close level of control as you once did. Learn to step back and take a more strategic role, and consider taking on extra help (such as other co-directors, a finance director or a non-executive director) if you start to feel overwhelmed or in uncharted territory.
Inadequate accounting systems
Managing your accounts gets more complicated as you scale up, and often there is also a tighter window on your cash flow. At this point you definitely need a skilled accountant (either in-house or outsourced) and quality systems to ensure long-term financial stability as you scale up.