Scaling a business is every entrepreneur’s dream. Nobody ever sets up a startup only to have it remain stagnant throughout its operations. I’m 100% certain that business owners have “how to grow my business” somewhere in their long list of Google searches.
The only problem is that scaling your business is hardly easy. It’s even extra challenging to do it effectively. A lot of times, growth in a company happens haphazardly. The company began with barely any planning, and just as it started scaling, so did the chaos within its chaos.
Scaling up doesn’t have to be that way. In fact, if you want your business to be successful in the long term, you need to be strategic. But how exactly does scaling work?
This article will discuss how scaling a business works and the difference between growing and scaling a business. Finally, we’ll discover the five steps in effectively scaling a business in 2022.
Business Scalability
Contrary to popular belief, scaling a business differs from growing. It’s paramount that business owners understand the distinction even before they take the necessary steps toward expansion.
A rough definition of scaling is an increase in output without an increase in input. In this context, scaling a business increases revenue or grows operations without significantly adding resources. By resources, we mean money, labor-power, time, or anything else used to produce a good or service.
In other words, scaling a business is about increasing efficiency and production to accommodate growth. The goal is to maintain the business’s basic configuration or architecture.
Scalability, however, is about a company’s capability and capacity to scale. It’s easy to think why scaling a business is a popular concept among startups and seasoned companies.
However, the question is: Is your business up to par in the scaling department? If not, Business Marketing Engine can help you scale your business through detailed, time-tested, and industry-specific marketing practices.
Growing vs. Scaling
As we’ve discussed above, scaling and growing a business differ. There are two truths about growing businesses that distinguish it from scaling:
- Growing is a linear process
- Growing is input-dependent
Growing is linear because it usually maintains a causal relationship between input and output. Your company adds new resources like people, capital, or technology, and your revenue increases.
Growing is also input-dependent because you can’t naturally anticipate an output boost unless these resources are present. For example, imagine an advertising agency that currently maintains 50 clients but plans on catering to an additional 20 more. Increasing clients will bring in more money and demand more employees to complete the work. That’s the grave truth about growing a business.
You earn higher revenue but also make considerable losses or pay additional costs.
On the other hand, as we’ve discussed above, scaling occurs without substantial resource changes. An example is a team that shifts into a cloud-based operation. You’re essentially scaling with systems, so it doesn’t incur that many costs, yet efficiency improves by a significant percentage.
When Exactly Is the Right Time To Scale Your Business?
Did you know that over a third of the entire U.S. workforce is employed by small businesses? It’s the little entrepreneurs that support the whole American economy. However, BLS reports that around 50 percent of small businesses fail in the first four years. Moreover, Forbes found that only two of three out of 10 businesses surpass the 15-year mark.
What does this mean?
It’s hard to experiment with scaling a business and gamble, especially if your business’s survival hangs by a thread.
It’s best to start scaling a business during startup. Scaling takes time and headroom. You want to ensure you have enough runway to support the transition. Your goal is to optimize your system efficiency.
However, if you’re not entirely sure whether you should scale or not, here are telltale signs to look out for.
- It seems like you’re turning down opportunities more and more
Opportunities don’t knock twice, so they say. But if you’ve been getting increasingly more chances that you turn down, it’s a signal for you to scale. You need to scale up on the area that limits you from acquiring more opportunities.
- You’re easily exceeding your set goals
Some businesses take months, if not years, to achieve goals. However, if you’ve been breezing through and achieving your goals, your company has peaked at your current level. You need to scale up to expand your horizon and improve your targets.
- Solid cash flow and good profitability
Profitability is a good metric for your company’s longevity, but it’s also essential to have a good and positive cash flow. That is the measure of your business’s health and short-term survivability. A good cash flow ensures you have the chops to remain operational. It’s your runway when business is dry.
- Your business architecture is proven and reliable
Suppose a solid and reliable team surrounds you. Your business model and processes are industry standard. You have room to make adjustments that will take your business up to a notch.
- You have room for error
Scaling a business is not equivalent to committing errors. Frankly enough, entrepreneurs want to eliminate errors when scaling a business. However, there are extremes where mistakes and inevitable, especially if they can make or break your business. Unless you have room for error like cash and assets, you can’t gamble security for a wavering promise of fortune.
5 Effective Steps To Scaling Your Business
If you have the chops, resources, and headroom to scale a business, here are the steps you can take:
1. Commit to Continuous Growth
First and foremost, entrepreneurs should know that growing pains are not fun. While they pack so many lessons, they can demotivate business owners from committing to growth.
According to the Scale-up UK report, many early ventures lack the will and ambition to scale. Of course, scaling a business is not necessary for companies that are only after a particular lifestyle. However, the more ambitious class of entrepreneurs should know what’s at stake when scaling a business.
For this reason, creating realistic scaling goals, setting a curated plan, and preparing actionable steps for scaling are imperative.
2. Develop Your Company Guiding Principles
Here’s what most entrepreneurs often overlook: scaling a business is not always about processes and systems. It’s also about principles.
How?
Well, think of it this way. Anyone who wears your company’s uniform is expected to operate by the company’s standard, both internally and externally. That means your employees should embody and represent the ideal persona you set for the entire company.
This information is written on your guiding principles. In other words, it’s the scripture that they must strive live by. And you should include values related to scaling a business among those guiding principles.
3. Determine and Highlight Your Core Competency
“If you know the enemy and know yourself, you need not fear the result of a hundred battles.” -Sun Tzu, The Art of War
Delivering the best solutions to customers is always a two-way street:
- Knowing your customer’s felt needs
- Understanding your core competence
You can’t remove yourself from the path of scaling a business. Your core competence involves what makes your system different, what makes your team better, and what you possibly lack.
Entrepreneurs need to identify their core competencies. Scaling a business based on its core competence means investing in focused growth and reinforcing what’s already strong. That makes you more competitive and desirable.
4. Build a Team with Diverse and Complementary Competencies
Scaling a business is tightly knit with networking, which goes both within and outside the organization. For businesses starting, proper staffing is one of the most critical aspects as lackluster performance can have detrimental effects.
As mentioned earlier, employees that emblazon your uniform should reflect your guiding principles. Moreover, they must embody your company’s mission and vision as well. If you don’t have reliable and loyal employees, scaling a business is difficult, not to mention expensive.
Your team should be diverse and complementary because they have varying focuses but are receptive to collaboration. Unless you have this, reconsider scaling your business.
5. Build a Network of Partners
The other side of the coin of networking is building external partnerships. Scaling a business is more manageable when there are people outside your circle of influence that can lend a hand.
Outside networks can be investors, service providers, suppliers, or even your customers. Linkages with other established businesses and entrepreneurial firms can give you a competitive edge within your industry.
Any information they can provide is experiential and was tested by fire. Value your network of partners when scaling your business.
Common Pitfalls in Scaling a Business
Again, scaling a business comes with growing pains. These distressing touchpoints may sand your business off wrong practices or break the business altogether. It’s critical to keep in mind why failures happen, so you can avoid them once you fully commit.
Here are the most common pitfalls businesses face when scaling:
- Scaling without a solid foundation — those who scale without setting a curated scaling plan or strategy in mind
- Overemphasis on marketing and selling — scaling a business is not profit-centric. Revenue is only a by-product of effective scaling.
- Not paying attention to your customers — scaling is meant to streamline processes that support your business’s primary objective, which is solving your customer’s problem.
- No proper criteria when hiring — your internal network matters. Hire an intellectual and cultural fit from the get-go.
- Too rapid scaling — scaling is not rushed. It may take time. That’s why a good runway is necessary prior.
- Ignoring your culture and people — scaling a business is not about the business entity per se. It’s also about improving your constituents’ lives.
- Short-term growth at the expense of long-term growth — stick to your endgame objectives.
- A mismatch between gross sales and profit — increasing revenue doesn’t necessarily mean an increase in profitability. You want to trim down the associated costs.
- Not knowing your company’s economic drivers — understanding the external factors and economies of scale affecting your business can help you plan your scaling strategy better.
- Being trapped on the product roadmap with no room for creativity — creativity is equally important, and diversity helps in this regard.
- Expecting your investors to let you play your own game — investors rely on the performance of your financial statements, make sure your business is attractive.
- Failure to record your company procedures — systems and processes are part of your business architecture and core competencies.
- Running out of resources as the company grows — a good runway is essential when scaling a business.
- Putting risks on consumer experience — whatever happens, your customers must never suffer the short end of the stick if scaling your business fails.Having too many goals at once — stick to sequential and successive goals rather than hitting two birds with one stone.
Scaling a business is not a one-and-done ordeal. It’s a constant decision you must make daily. It can be daunting at first but with expert guidance and a pool of professionals to guide you.
That’s what we’re here for. Contact Business Marketing Engine today and start scaling your business.
