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What is scaling?

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What is scaling?

Scaling is different from growth.

Growth is when a company is growing and increasing its revenue at an equal rate to adding new resources to achieve this growth. The company is in fact growing and making more money, but it is also spending that money at an equal rate. Thus in real terms, it is not increasing its profit margin. At least not short term.

Scaling is when a company adds revenue at a faster rate than its overall operating costs. So, a company that increases its income stream by $100,000 a month, with only an increase in new costs of $10,000, not only is growing it is scaling its business too.

You will need to reinvest profits and trim costs constantly. If you wish to scale your business you will really need to make sure income is never wasted and only spent in the areas that will help your business hit its milestones and get to the next level.

Always be looking to grow your business, but at the same time how to scale.

For example, every time we look to add a new section to our websites, we look at how much that section will cost to create and maintain and if this section will result in more income well below the cost to hire someone to run this section.

Which famous companies scaled fast?

Here are two recent examples of companies that had to scale their business in a very short time period due to customer demand.

Slack social media platform

Slack is an app that helps companies set up team communications.

Slack founders were taken a little by surprise at how fast Slack needed to scale as a business. This was due to companies from all over the world embracing their platform.

Slack became so popular that in 2014 alone they needed to hire 60 new engineers. Their business went from a $1.2 billion valuation in 2014 to a $3.8 billion valuation in 2017. Fast forward to 2020 and their business is valued at near $20 billion.

Snapchat social media platform

This is probably the perfect example of a business that needed to scale in a very short time period.

In 2012 the app had 100,000 daily users. Fast forward 4 years to 2016 they had over 161 million daily users.

Steps you will need to take to scale your business

1 Ambition
As an entrepreneur, you need to have the drive to want your business to grow and scale-up. Many business owners are happy with slow and sustainable growth or are simply happy to have a good income coming in and do not want to become the next big company. If you want to scale your business fast you will need to put a lot of work in, set growth targets, and develop workable and ambitious plans in place to hit your goals.

2 Management
You will not be able to grow and scale your business on your own. You will need to build a team that has broad and complementary skills in the areas you need to help your company scale up efficiently. Many businesses also hire experienced directors, accountants, bankers, and project managers that can help advise you along your path. Each time you hire a new person you will need to keep in mind how you can scale your business to afford this new employee.

3 Create procedures
You will need to manage every aspect of your companies operations. From the day-to-day running to expanding into new areas, creating new products and services, and more.

You will need competent managers to implement standardised and repeatable processes. Some of these procedures can be supported by software systems.

4 Build Collaborations
Over time you will need to look at creating outside partnerships with people and organisations. This is why networking is so important. Not only to find potential new clients and customers but also to help you build a network of partners and suppliers.

5 Identify milestones
You need to plan what your companies most important milestones are and ensure you have the team and budget to successfully hit them.

Once a milestone is hit you will need to immediately start on your next milestone, so it pays to plan these important milestones ahead of time. With tech startups, you will often see a “road map” on their website outlining the milestones they aim to achieve and a guide to the timeframes they think this may take.
Hitting a milestone on time or even earlier than expected really increases investor confidence in your company and often makes it easier to look for new investor money to help you achieve your next milestone. Missing any milestones in the time allotted will of course have a negative effect on your brand.

Milestones are very important. They show you have a plan to scale up your business and always keep looking forward. Hitting a milestone demonstrates you and your team are organised, well-funded, have great project managers and this can really set you apart from your competitors. Don’t be surprised if investors and larger companies come knocking on your door once you hit a milestone.

Milestones cost money and you need to keep in mind the entire time how you can increase revenue to not only cover these new expenses but also scale them.

6 Transparency
Be transparent with your customers and clients. The more they trust you to run your business well the more confidence they will have in continuing to use your products and services and not start looking at your competitors. If your business makes a mistake, address this mistake immediately and give a clear explanation as to why this occurred and how it will not reoccur in the future.

If you want to scale up you need to ensure your core business structure is very well managed and maintained.

7 Identify your ideal client or customer
This does not happen overnight. Over time you will be able to identify which customers spend more, their demographic, their age range, their income range, etc.

Once you know this you can target your audience and start to scale up fast. Simply put, identify your ideal buyer, find out what their needs are, optimise how to market and sell to them, and then create services and products that meet your buyer’s needs.

A product costs money to create, you need to ensure that these new products bring in overtime more money than they cost to implement.

8 Budgeting and hiring employees
As with all businesses you will need to budget. Moreover, if you wish to scale fast you will need to be very efficient with your budget and spend it only in the areas that will help your business grow and become more profitable.

Many businesses waste money in the early stages by hiring the incorrect people for the job or your companies scaling needs. Some even hire employees in sectors of their business well before they are really needed and so reducing their budget in the areas that initially need more resources available.

Each employee has to be hired for a reason and they need to increase your business earnings more than your costs.

9 Increase efficiency
You will need a really efficient team with no dead weight. The more efficient and organised your team is, the more prepared they will be to help you expand and scale your business to the next level.

10 Go digital

Businesses can use a combination of social media and an online presence (website) to really help them attract new customers and clients. Both of these can also be achieved with relatively low overheads and result in a significant increase in your turnover.

Bricks and mortar businesses

If you have a traditional business you can not only make money from traditional foot traffic coming into your store but also look to create a dominant online marketplace to attract customers worldwide. This combination can be very effective in helping you grow and scale up.

Online businesses

Digital (online) businesses can grow and scale at an incredible rate as they have fewer overheads than traditional brick-and-mortar businesses.

Scaling a business

The most important stage a business will face in scaling is when it is no longer a startup, but has not yet become a large business. This is a critical stage that the owner will need to decide between growing organically at a steady rate or scaling up. It is also a great position to find yourself in as your business now has a core structure, solid foundation, and income.

Scaling up is also the stage where the owner needs to stop being directly involved in the little parts of their business. This is the time to look at the bigger picture. If you are still needed in the day-to-day running of your business, including the small parts, then you are probably not yet at the point where you should scale up.

It is advisable not to add a new product or service until your business and you as the owner are ready. The more efficient and profitable your foundation and core business is the more you are ready to scale up. All your employees should be running at full capacity and know exactly what they are doing. If your business is struggling with 1000 customers, how do you expect your business to cope with 10,000 new customers? It is tempting to jump the gun, but only you, your accountant, and your managers will know when the time is right.

When you are ready to leave the day-to-day operations of your business to your employees and start putting your attention more into strategy building and expanding, then your business is probably ready to scale up.

Find new investors, or have a fair amount of capital ready as this is not a cheap process. You will also need to spend a lot of energy and time at this stage and so whatever else you have going on in your life, you must be capable to focus a lot of time on your business.

We wish you the best of luck with your business journey and we also hope that you have enjoyed reading this article and found it helpful. We would be very grateful if you would kindly share this amongst your friends. Thank you.

We have a group of very experienced small business and start-up consultants who will work on setting up and improving your business. Please visit our start-up and small business services here.

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