Having decided to scale your business, the next chapter you face can be daunting. Overcoming this phase and its challenges could be a determining factor for how far your business progresses.
Is your business positioned to actualize such growth? Are there processes in place to support the business to help pull it through these upcoming challenges? Have you put together a framework and a dedicated team to accommodate this expansion? There are notable differences between scalability and growth, and they become evident when you use the right strategies. Do you have the proper structure, team, financial capability, and infrastructure to accommodate scalability? Congratulations! We will help you with the missing piece: the right business scaling strategy. Read on to learn more.
1. Scale Your Costs: Economies of Scale
As a business expands and has to produce more of a product, the average cost of producing each item should decrease, resulting in increased revenues per unit sold. Similarly, if a company purchases a raw material in quantity, it may negotiate a discount from the seller and, as a result, offer the item for less than its competitors. This process and the effect on the business refers to economies of scale.
So, while you may incur significant upfront expenditures for new machinery, additional personnel, or additional raw materials, you save money on the average cost of each unit you create as you scale. There are two types of economies of scale to consider:
Internal Economies of Scale
As the name implies, it refers to a company cutting costs internally. Internal Economies of Scale can happen due to the company’s change in size or positive managerial decisions. For instance, a company may have a patent on mass production equipment, allowing it to cut its average manufacturing cost more than its competitors.
External Economies of Scale
External economies of scale occur when businesses gain from the industry’s growth as a whole. Better infrastructure, access to specialized labor, and strong supply networks are all external factors affecting your businesses. For instance, your supplier may reduce the price when there’s a decrease in demand for raw materials. External economies of scale arise when a company benefits from events and advances in its industry and the larger external environment.
2. Scale Your Revenue: Customer Acquisition Costs
Recruiting and Revenues
If, for instance, a company plans to increase yearly revenue from $40MM to $80MM, and its sales team rakes in around $1MM per person, the company will need to recruit and train another 40 salespersons. These recruits will need to get on board, become thoroughly trained, and be ready to close sales before the year in view kicks off. That means about 3-6 months of mentorship, a probationary phase, and then becoming full-fledged company sales representatives.
Market Scale and Market Share
Where a company belongs to an industry with four key players with a total market cap of $280MM, it most likely would do a maximum of $60MM in revenue. If there isn’t any more addressable market, the solution may be to introduce various products or services that will increase its addressable market. From the early stages of idea conception to the final product, developing new goods, services and categories can be time-consuming.
Notice how proper planning and timing are necessary to scale revenue in either of these two ways. If you want to scale revenue next year, you should have started last year – this year is too late. The possibility of reaching set targets increases the earlier the plan is mapped out.
3. Scale Your Operations
Many consider scaling operations the hardest part of the process. This is something Amazon has done – setting a new standard for operational excellence. Here are some ways to think about how you can scale your business operations.
Allow operations leadership to focus on operations
For most startups and businesses exiting the startup phase, the operations team mostly takes on many tasks aside from heading operations. For instance, they may juggle finance, marketing, and sales tasks while still leading the business’s daily operations.
When the business begins to go through the scale-up process, it becomes impossible for one person – or a small team – to handle all that diverse responsibility. This stage requires the operations manager to be exclusively involved in the business’ oversight and operations – and nothing else. All other duties should be delegated to the relevant departments and headed by their various team heads or managers.
Create and maintain a list of operations processes
Another strategy that can help scale your business is creating and keeping a record of operation processes. Start by detailing every procedure carried out by the operations team. It will serve as a framework for improvement and highlight how the day-to-day business runs.
Detailed descriptions should accompany these highlighted daily processes. Details of the team in charge and the frequency with which such processes play out in a month should be precise. While documenting these processes may seem tiresome and unnecessary for startups, it is crucial for companies looking to scale up their business. If a business encounters rapid growth when its processes are yet to be documented, it might result in significant setbacks, financial losses – or even bankruptcy.
Rank and prioritize operations processes for automation
After the operations processes are documented, it’s time to automate them. More often than not, the operations manager may increase the human resource within his team. It may pose a short-term solution. But in the long run, and with a growth in the business, automating processes will guarantee smooth operations.
The company can eliminate human errors by automating the day-to-day processes while improving output. The focus should be on those processes that require the most workforce and take up the most time. You can start by streamlining your entire operations processes into two groups:
Automation Maturity – rate the degree of manual coordination load from 1-5:
Example: “1” being fully manual, with emails, phone calls, meetings, and no automation, and “5” being fully-automated, with automated notifications, handovers, system integrations, and no manual coordination requirement.
Business Criticality – rate the potential for serious business outcomes from 1-5:
Example: “1” where quality and process performance have limited impact on business success, and “5” where the process has a high cost of failure, and getting it right (or wrong) directly impacts business success, costs, and performance.
4. Scale at the Right Time
Scaling your business has to be done at the right time. Here are some key indicators that show it might be a perfect time to scale your business.
Rejecting Business Prospects
You should consider scaling your business if consumers and clients are being turned down due to a shortage of products or when the company is becoming understaffed. Also, in instances where the business running hours cannot handle all requests, it is time to scale the business.
Exceeding Prior Targets
By applying previous methods from successful businesses, entrepreneurs can forecast the future of their company and develop goals that reflect that forecast. If you keep setting and exceeding your goals – it might be time to scale.
Consistent Sales and Steady Cash Flow
When you fully understand your business model while keeping track of all your processes, you can make better-informed decisions and forecast its future potential. When the cash flow model is consistent and predictable, you have the reliable data to assume that will continue as the business gets larger.
Dependable Infrastructure and Trusted Concept
Can your business concepts be proven? Have you come up with a product or service that is sure to sell? Have you put together the necessary infrastructure needed to scale? Will the product break if too many people try to use it – or even buy it? These questions help you uncover apparent issues before you can expand, like a poor infrastructure or a product that’s yet to develop fully.
Don’t forget that part of your infrastructure is the human capital you hire to run it. Putting together the right team is vital for every small organization. Everyone’s position is essential, and poor performance may be costly. Failure is bound to happen when there is a shortage of dependable and committed employees. These employees are an important aspect of the company’s foundation as they can outrightly influence its growth and goals.
A Safe Business Environment
Although there is no certainty in business, limiting risks should be a top concern before expanding. Only scale up when the business is ready! Avoid putting your firm in danger, especially when it is just beginning to move from the startup phase. Many company leaders make the mistake of attempting a scale-up only because the company’s earnings increased or the workforce proved reliable. Surpassing one or two set goals is not enough indication of scalability.
5. Follow Scalable Business Examples Like Slack
Many factors contributed to the growth and success of Slack. An outbound sales crew or sophisticated marketing is not one of them, especially not in its early years of operation. Slack omitted the usual processes of most high-growth SaaS businesses. There was no emphasis on cold calling, lead generation, or lead nurturing campaigns. Yet, they grew from zero to roughly $4 billion in less than four years. How did they pull it off? This feat can serve as a framework for any business looking to scale.
An Experience Founding Team
Butterfield founded Slack alongside Eric Costello, Cal Henderson, and Serguei Mourachov. They were all involved in a previous successful startup: Flickr.
In 2012, Slack was founded by Butterfield and his co-founders Costello, Henderson, and Mourachov. The year is particularly memorable because people’s irritation with native email reached new heights.
The following year, 2013, the following made headlines in the business world:
- “Flickr founder plans to kill company emails with Slack” – CNET
- “Flickr Cofounders Launch Slack, An Email Killer” – Fast Company
- “The Co-Founder Of Flickr Wants To Replace Email At The Office” – Business Insider
The timing was perfect because the company started right in the middle of the anti-email fury. They were a young firm with some significant IT street cred who had just released a product that claimed to eliminate workplace communication issues – and their rapid scale reflected that.
A Product Which Sells Itself
Recently, some firms have embraced a product-driven strategy for sales and marketing. Examples are Slack, MailChimp and Asana. Rather than focusing on Sales and Marketing Qualified Leads, these businesses are concentrated on Product-Qualified Leads. This strategy involves encouraging your target audience to utilize your product as soon as possible to have first-hand experience of the product and its advantages.
Thus, delivering a free version of the product is a part of the strategy. For instance, anyone and any team can download and use the Slack app for free and for an indefinite time – the more you use it the more valuable it becomes. Essentially, Slack is not just concerned with making its product great; the entire experience behind the brand and its customer service must also be great.
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