These days, more and more small businesses realize that the road to success depends on one’s ability to scale rather than merely “grow.” What Harvard Business School calls the growth mindset—that is, a company’s internal drive to maximize profits—has actually caused confusion regarding what it takes to turn a small business into a global enterprise.
If you want your company to succeed, you must have an actionable plan to scale your business. By focusing on scaling rather than merely “growing” your company’s finances, you can generate greater revenues without ramping up costs or diminishing resources along the way.
We are often asked by first-time entrepreneurs: what does scaling a business mean?
The answer is simple. The term “scale” is used as an abbreviation of the phrase “scaling up”, as in scaling a staircase, ladder or mountain.
In a business context, scaling is solely about increasing the size and scope of operations. However, without a clear direction, attempting to ramp up production can backfire and end up costing your business through exhaustion and reputational decline.
When scaling your business, you should have the following long-term goals in mind:
- An established value ladder of products/services
- Available subscription packages
- High customer retention rates
- Diverse income streams
- Predictable revenue
Each of the above targets are known predictors of a sustainable and scalable business model. If the above conditions are met, chances are your business model is scaling properly and efficiently.
Does Your Business Have Scalability?
Scalability refers to your business’s capability to perform well under an increased workload or an expanded scope. For a business to be able to scale, it must be able to maintain its standard performance level when tested by increased market demands.
Small businesses with low operating costs and little overhead benefit from the ability to scale more than larger companies that are weighed down by inventory and warehousing. This is because it’s now easy to leverage technologies that make increasing production cost very little, therefore heightening profits.
The best businesses to scale are those that are based around intangible assets. Think of books, movies, photos and music—digital technologies have rendered all of these virtually free to reproduce thanks to peer-to-peer distribution channels. Modern giants such as Airbnb, Snapchat and Dropbox have all leveraged technology to deliver intangibles at scale.
Method 1: Develop Management Skills
Developing a wide-ranging management skillset is essential before you learn how to scale your business. The skills you need as the founder of a startup are not the same as those you’ll need to bring your company to scale.
As your company grows, knowing how and when to delegate authority and decision-making power is imperative. Scaling in business is an impossibility without bringing new personnel on board to avoid bottlenecks and optimize workflow so tasks aren’t concentrated in your hands.
Although founders are used to wearing many hats during the early days of the business, knowing how to effectively teach and train employees are mission-critical skills for scaling.
However, one critical mistake that many entrepreneurs make when they first start to scale their company is that they ignore the difference between being a leader and a boss. For companies looking to scale, you need to be prepared to lead by example to create a winning workplace culture that generates trust and mutual respect.
Method 2: Collaborate
Scaling your business starts with identifying potential partners in the market. According to Ernst & Young, a company’s ability to scale depends on their capacity to “catalyze the companies’ growth by building and fostering critical relationships.” In other words, scaling is largely a matter of who you know.
As a business owner, you naturally understand the value of building out your professional network. But few entrepreneurs understand the importance leveraging other people’s talents and expertise when it comes to executing a scaling strategy.
Take a critical look at the talent pool in your company—are you missing a high-level finance person, or a marketing team leader to help drum up business? Be prepared to either hire internally or outsource other key players to construct a team that’s able to sustain an increased workload.
Method 3: Standardize Processes
Whenever we’re asked “what does it mean to scale a business” we fall back on the same answer: to standardize workflows so that they’re able to cope with increased market demands. Although it can take the fun and unpredictability out of daily operations, it’s important for businesses beyond the startup phase to implement repeatable day-to-day strategies.
Leveraging technologies and full-suite solutions like QuickBooks can help business owners grow their company while saving time and keeping upfront costs low. Software tools like QuickBooks can automate your company’s accounting and payroll needs, which can streamline operations and leave you with more time to handle higher-order tasks.
Aside form automation, standardizing your business processes is another essential element of scaling. When you bring in new team leaders and middle managers, you must document and distribute a clear set of instructions to the personnel responsible for handling a certain activity.
These instructions should be repeated regularly and will ultimately convert an otherwise complex task into a structured regimen. Whenever confusion arises within the team, they can refer to the process checklist rather than you.
Method 4: Focus on Core
To operate at scale, business leaders need to concentrate on mastering the company’s core competencies. Focusing on the wrong aspects of the business results in delayed growth at best and a fracturing of the team at the worst.
In every company, there are daily or weekly tasks that generate more leads and greater revenue than others. These are the tasks that must be prioritized on your business’s schedule, as they are the ones that stimulate growth.
Knowing how to scale a business begins with being able to identify where you offer the most value to clients and customers and aggressively ramping up those specific operations. If these key operations are unclear to you, speaking with an external advisor can offer a fresh perspective and key insights in this regard.
Method 5: Capitalize on What Sets You Apart
For your business to be successful, you must have a competitive edge over other companies in your market. With a critical eye, assess what exactly your business brings to the table that other businesses don’t. While it is important to continually build on strategic weaknesses, it is equally critical for scaling businesses to identify, develop and effectively market their strengths.
Method 6: Put a Strategy in Motion
Devise an endgame scenario. If you want to scale your business, you need to be able to draw up a big picture strategy that envisions where you want the business to go, target revenues and what share of the market you want.
Your Big Picture should also include an exit strategy. Formulating a plan for leaving the market after you’ve scaled, whether you want to cash out, go public, or make the company your personal cash cow, you need to have this endgame vision clear to you and your partners.
Method 7: Overcome Cash Constraints
To execute your plan, you need funding. There are several ways to secure funding for small businesses, including some of the more standard options:
- Traditional term loans
- Short-term loans
- Business lines of credit
- Business credit cards
- SBA loans
However, there are also alternative options that can help you overcome cash shortfalls more creatively. Today, an increasing number of businesses are relying on alternative funding mechanisms to finance their scaling plan. Some of the more popular funding sources that small businesses are turning to in order to scale their operations are:
- Kickstarter and crowdfunding
- Joint ventures with established players
- Selling invoices
- Creating new predictable revenue streams
Wrapping It Up
To truly reach new heights with your business, all of these methods should be practiced in succession. Once the first five methods are taken care of, creating a strategy and securing the financial means to execute your plan won’t seem like such a daunting task.
It’s best not to start firing on all cylinders too early, however. Allow your company the time it needs to grow and develop to the point where scaling seems more like an imperative than an option. When the time is right, scale your business effectively by following the proven methods listed above.
In short, the crucial elements required to bring your business to scale are: bringing in the right team, developing leadership skills, delegating and systematizing processes, playing to your company’s strengths and securing reliable financing.
With this checklist accounted for, you can develop a scalable company that has all the predictors of sustainable growth—minus the tired “growth mindset” formula.