There are a lot of moving parts to scaling. Are you considering scaling your business and unsure where to start? Are scaling efforts underway and not going well? Or you want to know more…
Unlike organic growth, scaling enables you to increase your revenues while keeping your expenses down or flat. You need to be past the startup phase to scale successfully, however.
The Startup Genome Report investigated over 3,200 high growth tech startups. The findings revealed that over 90% fail, in most cases due to ‘self-destruction rather than competition’. However, 74% of startups failed due to premature scaling. Founders scaled before they had sufficiently demonstrated their product or customer acquisition strategies or over-hired based on false assumptions about the former. Critically, founders underestimated the time it took to validate their market and their product by 2x-3x. This underestimation created the pressure to scale prematurely, misallocating precious resources that would have been better used making product adjustments for a sustainable product to market fit.
Assuming that you have navigated your way through these early difficulties, how do you know you are ready for scaling?
- You have established your offering(s) in the market, have a solid customer base, and have stable revenues.
- You have satisfied customers and you are getting referral business because of them.
- There is a regular shortage of your product that customers need. In terms of software products, systems become overloaded more frequently due to excessive activity and causing performance degradation and more downtime.
- Your teams are regularly working long hours just to keep up with current demand.
Preparing to Scale
Scaling is about building capacity and capability. The manual processes that worked when your company was smaller now won’t let you move fast enough. Scaling enables you to grow your company without constantly struggling to keep up. It requires planning, some funding, and the right systems, staff, processes, technology, and partners. A scaling plan is even more important now, in times of economic uncertainty, to help you remain focused and on track.
Is your company ready for scale? Based on current trends, what do your sales look like in 6 months, 12 months, and 18 months out? By month, breakdown the number of new customers, orders, and revenue you want to generate. What systems, staff, processes, and technology do you need to enable these sales levels? Your scaling plan needs to include these items and a timeline as to when they are needed.
As you plan to scale, you are consulting with those – at least a representative subset - that will implement the plan. Not only do you need their buy-in, but you need their input to ensure the scaling plan is implementable. Everyone should know what they need to do, and why, for effective implementation.
Funding. Scaling a business requires investment, either through use of internal fund, external monies, or both. Along with identifying the additional resources, the scaling plan needs to include cost estimates, which likely require additional work and research. Once the cost estimates are in hand, how will you fund scaling activities? What internal funds are available for scaling? What outside sources of funding are available to you? Are there competitive pressures that may require you to scale faster than you would otherwise driving the need for more money sooner?
Scaling Implementation
Processes. Scaling requires a thorough understanding of the processes you have in place today for customer facing, product/service and back office functions like finance and human resources. By mapping the steps taken to implement these processes, you’ll see ways to automate and otherwise make them more efficient to support your growing sales. Look for ways to simplify your processes and eliminate processes no longer needed. Establish standardized procedures and ensure all are trained on them: now you have a basis for continued improvement.
Personnel. How many people do you need with what skill sets? Given the current labor market, in addition to hiring more people, are there current employees that can be retrained for new roles? Recruiting and hiring systems are important, as are benefits and payroll. Another alternative is to outsource, rather than hire internally.
Technology. Adding technology often means automating processes. If you are new to implementing automation, start with a simple process or task: success builds confidence and competence. Consult your employees about candidate tasks: they likely already have ideas here. By automating an annoyance, you gain support for your efforts from your employees.
Companies don’t run off a single system – your company may have a dozen or more systems. If they don’t work together, particularly for groups that use the same data (e.g. customer data for marketing and sales), silos are created which causes communication and management problems. Automation can play a critical role in eliminating these inefficiencies.
The Scaling Mindset
Shift Your Focus. As the CEO, your focus shifts from performing critical business tasks to optimizing operations and focusing on the future of the business, including company position in relevant markets and industries. Step back from doing everything. You will need to hire great line managers who can run their own departments as if it were their own businesses. You bring in experts to focus on the day-to-day operations in key departments so you can focus on what the business needs now and in the future.
Maintain Customer Focus. Just as you did in the startup phase, continue your relentless focus on your customers to achieve business scaling projections. Meet your responsibilities to your employees and continue to grow the business.
Mindful Scaling. Keep in mind that as you scale, the business needs to continue to deliver a great experience to current customers and maintain your company’s culture and mission. The people who are carrying out these duties today are likely the ones you want to perform scaling tasks too, possibly overloading them (further). Increasing sales, hiring, (re)training, process updates, and technology implementation are happening simultaneously, which is a lot to handle all at once. Thus, scaling needs to happen incrementally, at a sustainable pace, both in terms of funding and resources available so you make it to the finish line. Scale at the speed that is right for your company.
As you scale, there is a certain, unavoidable, amount of experimentation. Make it OK for you and everyone else to make mistakes and learn from them. The ability to learn from failures enables you and your organization to keep improving all that you do.