The Challenge of Scale: Does Your Business Model Support Growth?
By Laura Livers
In my last two posts we dissected the various types of innovation that help drive business and the processes needed to align your organization to innovation. Assuming that innovation is ultimately a driver of business growth, the next challenge is how to scale what you have done to support that growth strategy.
But what do we mean when we talk about scale? Isn’t it just a fancy MBA term for growth? The answer is no; scalability is about an organizational system and process. Growth is a financial outcome of the system.
The most dominant companies to emerge from the past decade’s tech boom have proven that healthy growth is all about scaling. By adopting a scalable business model, these firms have generated huge profits without all the budgetary strains that plague traditional growth models.
A replicable system for delivering a product (whatever that may be, from services to technology) allows businesses to increase their customer base without having to increase their overhead at the same pace. By contrast, the traditional growth model (especially in the insights industry) has fostered a vicious cycle of inefficiency–a company gains a few new clients, so they hire more people to service those clients, adding costs at nearly the same rate that they’re adding revenue.
Scalable growth is all about pairing exponential revenue growth with incrementally increasing costs. Software companies offer a strong example: once the development stage is complete, they can infinitely replicate their end product and sell to the customer at little or no additional cost to the business.
In short, the more efficient the mechanism for mass production, the more scalable your company will be.
Scaling too Quickly
After optimizing your business model to be prepared for scalability, it next comes down to good old-fashioned sales; scaling might not be the same as growth, but you can’t scale without growth, and vice/versa.
Even if you manage to sell like crazy, you’ll soon have another problem: you have to be able to deliver to all those new customers.
Scalability is about capacity and capability. Does your business have the capacity to grow? Will your business systems, infrastructure and team be able to handle growth?
If growth causes your company to stumble because of confusion, opportunities falling through the cracks, insufficient staff, miscommunication, not enough delivery capacity – you’re going to have unhappy customers. The manual processes that were fine when you were small now won’t let you move fast enough. You’ll either be putting out fires or desperately trying to keep your head above water. All of which is stressful.
5 Steps to Power Successful Scaling
Scaling a business means setting the stage to enable and support growth in your company. It means having the ability to grow without being hampered. It requires planning, some funding and the right systems, staff, processes, technology and partners.
Here are five critical steps to scaling your business:
1. Evaluate and Plan
Take a hard look inside your business to see if you are ready for growth. You can’t know what to do differently unless you take stock of where your business stands today.
Strategize what you need to do to increase sales. Then assume your business doubled overnight. Does your organization have the people and systems to handle that growth, without failing or damaging your reputation? This is where a good plan is essential.
The best planning starts with a detailed sales growth forecast, broken down by number of new customers, opportunities, and revenue you want to generate. Include a spreadsheet that breaks the numbers down by month. The more specific you are, the more realistic your sales acquisition plan can be. Then do a similar expense forecast, based on adding technology, people, infrastructure and systems to handle all those new sales orders. Look at every line item on your current P&L to see how it might be impacted. Expenses will go up — you have to anticipate where and how.
Try to think of everything. You’ll need to do some hard thinking and research to come up with proper cost estimates, but doing so will make your plan better.
2. Find the Money
Scaling a business doesn’t come free. Your growth plan may call for hiring staff, deploying new technology, adding equipment and facilities, and creating reporting systems to measure and manage results. How will you find the money to invest for growth?
“There are very few big businesses that are self-funded,” says Jeri Harman, a founder and managing partner of Avante Mezzanine Partners, with almost 30 years of experience as an investor. “Whether you want to expand your employee base, buy a new facility or develop a new product, one of the key elements in taking a company to the next level is knowing the kind of capital you need to support that growth.”
So what do you do? You need a high-level finance person by your side who can open up your eyes to the possibilities of growth and expansion. Consultants, advisors, board members, investment bankers and others who are well versed (and networked!) in various aspects of growth capital are all examples of the types of people you need to cultivate and have on your team for when the time comes to seek some kind of growth capital.
It’s also helpful to identify potential bank funds to accelerate growth such as a loan or a line of credit to draw on – start with how much you’ll need. And get started applying.
3. Secure the Sales
Scaling your business obviously assumes you will sell more. Do you have the sales structure in place to generate more sales? Look at sales from end to end. Do you have:
- A sufficient lead flow to generate the desired number of leads?
- Marketing systems to track and manage leads?
- Enough sales representatives to follow up and close leads?
- A robust system to manage closed sales?
- A billing system and a receivables function to follow up to ensure invoices are collected timely?
4. Invest in Technology
Technology makes it easier and less expensive to scale a business. You can gain huge economies of scale and more throughput, with less labor, if you invest wisely in technology.
- Automation can help you run your business at lower cost and more efficiently by minimizing manual work.
- Systems integration is a prime area for improvement in most businesses. Companies today don’t run off of a single system — they may have a dozen or more systems. If those systems don’t work together, they create silos, which in turn multiply communication and management problems as your company grows.
Now’s a good time to evaluate new products on the market that save time and money, yet accommodate much higher volumes in every part of your business. Look at CRM, marketing automation, sales management, inventory, manufacturing, accounting, HR, shipping and other technology systems.
Evaluate not only software, but also networks and hardware such as servers, computers, printers and telephony equipment.
5. Find Staff or Strategically Outsource
Last but certainly not least, are the hands needed to carry out the work. Technology gives huge leverage, but at the end of the day you still need people.
- Do you have enough customer service staff? Look at industry benchmarks to determine a rule of thumb for how many customers one service rep can be expected to handle.
- What about the people who are responsible for you’re the development and delivery of product or services? How many are typical for your industry per customer, and how many will you need?
- How do you find qualified help quickly? Recruiting and hiring systems are important, as are benefits and payroll.
- Don’t forget management. The importance of a management bench grows as your business grows. You won’t be able to oversee everything.
Sometimes the answer is to outsource or look to partners, rather than hire internally.
Scaling requires that you make tough choices. What functions can and should you perform — or not perform — internally?
Third parties may have the staff and investment in systems that enable them to be much more efficient in handling a function than your company. Trying to replicate that function internally may take too much time or money. Instead, find a reliable partner to outsource, thus positioning your business to scale better, faster and cheaper.
Test, Refine & Implement
Everything outlined here is part of a process, and it will change, sometimes rapidly. Scalability requires flexibility and a commitment to ongoing change in order to adapt to new realities. However, these basic steps should be a good framework for continual support of the business to maintain scalability.