The dream of every budding entrepreneur: scaling their business into a multi-million-dollar empire.
How does one even get to that stage, though? And how do you scale your business to be profitable? I mean after all, the goal is to make a profit.
Although the odds are slim, plenty of daring founders have successfully expanded and scaled their companies to that coveted level.
The magic word here: scaling.
Scaling is what all businesses need to properly execute in order to eat up market share and boost profit margins.
There is, however, a bit of confusion as to what the term really means; it’s often (mistakenly) equated to “growth.”
By definition, you could say that scaling is raising revenue at a faster rate than costs.
Let’s consider a basic example to see what this means in practice.
Say you earned $100k in revenue from a newly launched product.
To launch that product and earn the $100k revenue, though, you had to spend $100k on new hires and a software tool.
You essentially hit break-even and didn’t change the profit margin at all.
If, instead, you only needed to spend $10k on a new CRM software to streamline your sales efforts for that same $100k in revenue, you hit a whopping 90% profit margin.
In the first example, you grew the business through additional hires, and more efficient software solutions at a substantial cost i.e. managing the revenue growth cost you as much as the revenue growth itself ($100k).
In the second instance, you grew revenue but only needed a relatively minor investment to facilitate that growth; you managed it comfortably and cost-effectively.
It’s a subtle yet significant difference.
Now that we’ve established what scaling means let’s look at what you need to start doing so.
When to Scale
Once you’ve established an operational business, you will, at some point, ask yourself: when do I scale?
That’s a tricky question.
Part of what’s difficult about it is that there’s no set time, in months or years, to do so – it’s more a matter of whether the business is ready to.
In essence, your firm should only scale if it has a solid foundation and infrastructure to support it.
Some subjectivity will come into this, too, in terms of what your definition of “solid” is, but there are definitely some key factors that you can objectively observe and base your decision on.
Entrepreneurs who scale too early or too fast – or both – expose themselves to vulnerabilities that ultimately bring them down.
Their internal CRM process may not have been fully built out, leading to poor customer service when their customer base suddenly tripled, for example.
Or, perhaps they were understaffed, and the existing employees couldn’t handle the influx of orders, which negatively impacted the company’s supply chain.
As you can see, many factors need to be considered and robustly set up.
Some companies may hit their required level of foundations within a few months, whereas others might need a year (or more).
That’s why it’s useful to not think about the “right time” as a literal timeframe but rather as a stage of business development.
So, when is your business really ready to scale?
Certainly not on day-1 of registering your business at your local chamber of commerce.
At the very least, you need a well-researched and meticulous business plan with a roadmap of the months and years to come.
Of course, nobody can predict the future, so you’ll inevitably end up deviating from the business plan to some degree, but it will still serve as a backbone and guide.
As a startup or small business, having a month-by-month roadmap may help define what milestones and goals you wish to hit, and when.
Setting realistic goals and milestones for your scaling period is crucial – going in blind is definitely something you want to avoid.
Moreover, actually sitting down with this roadmap in front of you will give you a bird’s-eye view of your entire business and help you evaluate what resources you need to hit those scaling targets.
This could be anything from upgrading a SaaS subscription you have to hiring a key employee.
It will also help you identify pain-points that you should address before ramping up your operations.
You also need a product or service that stands out from the competition and has proven value.
In other words, the business has to fulfill a customer need adequately enough to warrant scaling.
Next, the business should be financially healthy.
Despite there being no golden rule here, it’s safe to say that positive cash flow is important.
Although scaling shouldn’t cost you much, as per the definition of the term, you should always prepare for worst-case outcomes and have cash on hand for unexpected costs.
Ideally speaking, you should have a stable and predictable revenue stream that justifies expansion.
If you haven’t achieved any traction in your initial market, you’re much better off focusing your time and resources there first before making big moves elsewhere.
Once the business is of a certain maturity, you’ll notice a bottleneck in your current, saturated market that prevents you from increasing sales and profitability – then it’s time to scale.
Another key factor is the inner workings of the firm.
The internal processes.
Amongst others, these elements need to be robust enough to effectively handle larger-scale operations, increased orders, a higher amount of bookings, more customer support requests, and so on.
Take customer support as an example.
If you run a SaaS company and only manage to properly solve 10 technical support tickets per day using your own CRM process, what happens when you need to fix 25 technical support tickets per day?
Staff is another crucial aspect to consider.
The last thing you want is to drive sales through successful scaling only to discover you are too understaffed to really manage it.
Only once you have the necessary total infrastructure in place should you contemplate scaling.
Again, there’s no one-size-fits-all formula that definitively shows that your existing infrastructure is adequate; making that judgment is part of the calculated risk entrepreneurs have to take.
It’s also worth noting that some businesses can scale faster than others.
If you’re a software company that doesn’t require purchasing many physical assets to scale, you’re in a better position than a capital-intensive firm that does need significant upfront investments.
That’s one of the main reasons why tech firms have been able to scale so rapidly.
First Steps In Scaling
Once you feel that your business’ infrastructure is solid and you are eager to take up more market share, you’re ready to start scaling.
As touched upon earlier, a few bases need to be covered as the first steps.
The ones we’ll cover here are: planning, funding, and software tools.
The first step, planning, sets the foundation on which to build on.
A detailed plan and roadmap will serve as a guide for your scaling efforts.
Firstly, start with the basics and break down your sales and costs forecasts on a monthly basis.
Using the sales data you have already, you can extrapolate revenue growth rates and make reasonable estimations for the future.
Likewise, look very critically at the costs you may incur over the forecast horizon.
Where can you possibly cut down, and where will they increase?
Which costs can you not compromise on?
How much buffer do I need to absorb unexpected costs (which almost always arise)?
Scaling will most probably come at a cost, no matter how small.
Account for rising charges for software tools, payment transaction fees, and new hires, for instance.
These are things you have to consider.
Beyond the financials, you should have a sales strategy that outlines how you’re going to go about driving scale in the first place.
You might need more extensive marketing campaigns or ads that are tailored differently to the specific new audiences you’re targeting.
If scaling includes entering new geographical markets, for example, your new marketing campaigns most likely will be different than the ones in your home market.
Identifying and being able to measure your sales funnel is essential here.
Cash is king when it comes to scaling.
You can have the best business plan ever, but without the finances to fund it, it simply won’t happen.
The type of business you are will greatly impact the level of costs you have to face; capital-intensive ones often need to pay for increased transportation costs and new equipment, while others may simply need to upgrade a CRM software tool subscription.
Raising funds is another topic of discussion altogether, but, long story short, you’ve got multiple options to fuel your scaling.
The first is bootstrapping – using your own cash.
If that doesn’t cover it, you’ll have to get it from an external party like an investor, bank loan, or crowdfunding.
Government grants are also potentially viable.
In any case, the costs you forecast to have should be covered adequately before moving forward.
Lack of cash flow is, after all, one of the biggest killers of companies.
Nowadays, almost every business will have some sort of software tools in play, regardless of industry or type.
Even your brick-and-mortar bakery around the corner probably uses bookkeeping software, for instance.
For tech startups in particular, these tools are part of the foundational infrastructure of the venture.
Investing wisely here can save a lot of time and costs down the road and even contribute to economies of scale.
Technology can replace humans nowadays, as you probably know.
That’s true for both hardware and software.
In other words, having the right tools in place allows you to scale enormously without having to incur equally huge costs, including more paid employees.
One sort of tool we touched upon earlier is that of CRM.
Having this set up properly and being proficient in the CRM process is vital as you ramp up operations.
You’ll hopefully be dealing with a substantial increase in data coming into the tool, which means you need to be able to track and manage accordingly.
If you don’t, you expect customer service – and hence your business itself – to deteriorate.
This often happens when you don’t have a good way of sorting contacts, assigning follow-ups, and jotting down relevant notes about the customer (and his/her issue).
Let’s say you run a boutique hotel or an Airbnb-type startup; first of all, you need to distinguish between guests and hosts on your CRM tool.
Ideally, you have an integration set up whereby if a guest subscribes to your website, his/her details are automatically stored in your database of guests and vice-versa when a host signs up.
Then, if a complaint is filed by a guest through your CRM tool, it should be redirected to the right person and properly tracked so that it’s solved on time.
Keeping track of your new and old customers, as well as tending to any queries or complaints, can make or break your business as you scale.
On top of that, you likely have multiple communication channels open through which customers can contact you: email, phone, Instagram, and Facebook, for example.
To avoid confusion, it’s advisable to have an all-in-one CRM tool where you can view your conversations across all channels.
Needless to say, smooth and efficient internal communication within the business is also highly important.
As workload and/or team size rises, so does the significance of effective communication within the organization.
Without a centralized platform, employees will be out of the loop on potentially important developments and tasks, leading to confusion, misunderstandings, and slowing progress.
Hand-in-hand with internal communication is task management.
SaaS tools like monday.com allow you to assign and manage your team’s tasks.
Setting deadlines and having a clear overview of what work needs to be done will become more and more important as you scale.
It will also allow you to gauge who has ownership of which tasks, so you can delegate accordingly and avoid overworking anyone.
Now that you have a basic grasp on what scaling is, as well as when and how to do it, we can explore a few tips to help you on your way.
In simple terms: you need to know who your customer is.
Really focus on their wants and needs.
This will help attract new customers and retain existing ones, which is ultimately what makes your scaling successful.
As a business founder, your perspective on your own product/service will naturally be biased to some extent.
Letting this bias creep into your thinking can lead to you projecting your own perception of what the product should look like rather than what the customers actually want.
Gathering feedback is the most common way to curb that issue and will be extremely instrumental to your scaling.
It sounds cliché, but you really should listen (very carefully) to your customers/clients.
When you’re aligned with your audience, you’ll be set for long-lasting and profitable business relationships.
Stick to your core business
When you scale, make sure your core product is the center of attention.
You may feel tempted to make all sorts of changes or additions to your offering, but for most businesses, that is avoidable during a scaling phase.
After all, you’re trying to establish brand awareness and highlight how your product stands out from the competition.
Making all sorts of changes might sound attractive and profitable, but all too often leads to consumers becoming confused.
However, once your core business is more established and gaining traction, you can gradually try making data-driven (e.g. from customers’ feedback) changes.
Learn from competitors
You don’t have to reinvent the wheel.
On the contrary, some of today’s most successful enterprises are “copycat” companies that essentially offered an existing product/service and improved it.
Facebook is an example of that; even though MySpace was launched before it, Facebook made a number of improvements that suited the target market better.
Eventually, MySpace fizzled out, and Facebook became what it is today.
Do some research into how your competitors scaled and find out things like the number of employees they needed, any marketing campaigns they utilized, and so on.
Maybe you’ll even spot something that you think you can improve on.
Strategically hire and outsource
Having the right people around you is critical.
Certainly, when you’re scaling a business.
Being understaffed will squash your scaling ambitions sooner rather than later, but over-hiring will cost you precious pennies.
So, what to do?
It comes down to planning and being realistic as to what you and your team can achieve.
If you know that your product is new, sophisticated, and likely to bombard customer service, you definitely want to ensure you have a high-quality employee that can manage that.
For functions that are less relevant to you and not worth spending a full-time salary on, you can consider outsourcing them.
Hiring freelancers to write SEO-oriented content or to do some graphic design work is an option here.
Scaling a company isn’t easy, but it sure isn’t impossible either.
It comes down to rigorous planning from the start, realistic expectations, and being adaptable.
First of all, make sure the business itself is ready to scale – having a robust infrastructure is an absolute must.
There’s no perfect time, in the chronological sense, to scale.
Rather, you’re “ready” once you have a detailed business plan/roadmap, are financially healthy, have proper internal processes in place and have a supportive team around you.
Once you have your roadmap outlined, ensure you have the finances to match and raise the capital you need.
Last but not least, you want to make sure that you have the right software tools in place to handle all that extra business you’re about to get.