You're growing and getting more sales, but are you scaling? The terms "growth" and "scaling" are often used interchangeably in business although they mean different things. Scaling a business is all about growing your revenue while maintaining low operating costs.
This concept has become more relevant in recent years since technology has made it easier to reach a global audience, outsource services and compete with big companies.
Bigger Isn't Necessarily Better
When it comes to business, bigger isn't always better. In some industries, business growth doesn't necessarily translate into higher shareholder returns. A company that sells packaged foods, for instance, may find it difficult to reach a mass audience in a world of increasing media fragmentation. This would require heavy investment in advertising costs, which isn't feasible for small- and medium-sized enterprises.
A different approach is to scale your small business, which involves growing your revenue while decreasing the relative costs of production. Sustaining constant growth takes a lot of resources. A company selling packaged foods may be planning to create new products and reach a wider audience. However, this process requires increasing its production costs and hiring more people.
To put it simply, business growth comes at a price. The packaged foods company may earn $100,000 in revenue after launching new products, but in order to do so, it had to invest $50,000 in new equipment and hire two new employees, each receiving a $50,000 salary per year. Its investment may or may not pay off in the long run. A safer, more effective approach is to scale your business.
What Is Scalability in Business?
Whether you want to start a new venture or take your business to the next level, achieving scalability is paramount. A scalable company will be able to maintain or increase its revenue and performance while avoiding cost increases. This kind of business will grow exponentially, making it more appealing to investors. Software companies, for instance, can replicate their products over and over again and sell them to customers without extra spending.
Scaling a business means increasing profit margins quickly while adding resources at an incremental rate. Big companies like PayPal, Google and Expedia are all examples of scalable businesses. Take computer games, for instance — once a game is launched, it can be downloaded hundreds of times a day. The same goes for software programs, e-books, social media platforms, franchising, line production and most products or services available online.
When drafting your business plan, think about how you can increase profits without incurring significant costs. Although there is no one-size-fits-all solution to business scaling, certain strategies can make it easier to scale your startup and achieve sustainable growth. For example, you can automate production processes, outsource time-consuming tasks and identify new distribution channels.
Steps to Scaling a Business
Scaling a business depends largely on its capacity and capabilities. First, determine if your business is scalable and if it can accommodate growth. Consider the technology and resources that are already in place and seek ways to improve their efficiency. Modern technologies, such as automation and social media, can make it easier to scale up your business, gain market share and convey your message to the target audience.
Also, make sure it's the right time to take this step. Ideally, do it when you have a proven business model, predictable revenue, high customer retention rates and multiple streams of income. In general, it's recommended to scale a business when its revenue is stable or increasing while its operating costs remain low. If your operating costs grow proportionally with your revenue, then you're not scaling.
Ask yourself a few questions before getting started. Does your company have the capacity to grow? Is your team capable of handling the workload? What about your infrastructure and business systems?
Exponential growth is safer than linear growth, but it still carries risks. The only way to mitigate these risks is to plan everything in detail and set realistic goals. Be prepared to rethink your approach to selling and diversify your income streams. Follow these steps to successfully scale your small business and maximize profits.
1. Evaluate and Plan
The first step is to determine whether or not you have a scalable business. Conduct market and competitive research, study other companies in your niche and set clear, realistic goals. Next, develop a scaling strategy to get where you want to be. Think about what you need to do to gain more customers, increase sales or gain market share.
Say you are trying to sell more products. Make a sales forecast and break it down by the number of buyers, orders and revenue needed to reach your goal. Does your business have the people, technology and infrastructure to handle new orders? Try to estimate your expenses and see how they fit into your overall plan.
Double check every aspect of your business before trying to scale it up. Have you achieved product-market fit? Do you know what marketing channels will offer the best return on investment? Do you have the resources to scale, or is it necessary to seek additional funding?
Remember that scaling a business involves certain costs. Whether you're planning to buy new equipment, deploy new technology or hire staff, you will need money to support that growth. Consider applying for a loan or reaching out to investors to raise additional capital.
2. Automate to the Max
Speaking of investments, technology can make it easier to scale a small business and reduce your expenses. You may need to invest in new technology to automate production, marketing, order processing, help-desk support, payroll and other recurring tasks or processes.
Without automation, you may find yourself dealing with piles of documents, disengaged employees and missed deadlines. A labor-intensive business isn't scalable. Automation can significantly reduce manual work while increasing employee efficiency.
The whole point is to improve your systems and processes as you scale up. E-commerce automation, for example, can take many different forms, such as scheduling and tracking sales campaigns, tagging high-value customers or flagging high-risk orders. Furthermore, you may use automated systems to tag buyers based on order value, preferences or location for personalized marketing.
3. Hire Strategically for Business Growth
When it comes to scaling a business, you have two options: hire more people or outsource certain tasks. Either way, it's important to think strategically and invest in the right people. Focus on building a team with complementary skills that align with your goals. If you have a hard time finding qualified staff, consider working with independent contractors or part-time employees.
For best results, hire strong product-minded people who share your vision. Your team's performance and commitment can make or break your scaling strategy. If you have employees who only do the bare minimum, you will end up losing money. To prevent this issue, implement a strict recruitment policy and vet all applicants extensively.
One way to determine your staff requirements is to look at industry benchmarks. Check your competitors and other businesses in your niche to see how you compare to them. Consider outsourcing certain tasks and processes, such as HR, payroll, accounting and IT maintenance. Hiring staff for these departments may take too much time or money and hamper business growth.
4. Develop Scaling Strategies
Think about how you are going to scale your small business. Perhaps you want to get more sales, but how do you plan to do that? Depending on the nature of your business, you may use the following strategies:
- Create recurring revenue
- Set up packages for customers
- Team with other companies
- Leverage social-media marketing
- Set up an affiliate program
- Increase your prices
- Provide new services
- Add value to current offerings
- Improve your technology and processes
- Offer franchising opportunities
For example, you may create products or services that generate recurring revenue. If, say, you're a marketing consultant, consider writing an e-book or launching online courses. This way, you will build new income streams without spending thousands on a new office or costly marketing campaigns. Another option is to turn your services into packages so customers can sign up and pay up front.
A good example is Dollar Shave Club, which offers men's shaving products on a subscription basis. Customers can sign up for a starter kit to try the products in which they are interested. If they are satisfied with their purchase, they can opt to receive full-size products up to three times per year.
At the end of the day, there are countless ways to scale a small business. You may offer subscription-based services, engage in cross-marketing, embrace automation or leverage social media. Be flexible with your approach and take calculated risks. Keep your business processes as simple as possible and automate or outsource everything you can.
- Massachusetts Institute of Technology: Building Scalable Business Models
- Investopedia: Scalability
- Forbes: The Six Steps to Scaling a Business
- Entrepreneur: Tim Ferriss Explains How to Scale Your Business in 3 Steps
- Cox BLUE: How to Scale Your Startup – 5 Important Tips to Grow Your Business
- Dollar Shave Club: How It Works
- Entrepreneur: Choosing a Business Model That Will Grow Your Company