Anyone running a serious business has heard of the term “Scaling a Business”, but what does this actually mean?
How do you scale a business? By stepping back and looking at the business as a whole, you identify the areas that need to grow and the impact it would have on the other areas of your business. As an example, you don’t just grow your sales without being able to fulfill the demand.
You might think that scaling a business is the same as growing a business. In a way this is correct. The difference is that scaling keeps the dimensions of each aspect of the business. This means every part of the business grows the same without distortions.
Just growing business might relate to any part of the business to become larger while others stay the same. Overall the business grows, but out of proportion. In a way scaling is a more controlled form of growing.
How Does Scaling A Business Work?
Of course, scaling a business can come with some unwanted effects. If the core of your business is not set up correctly, those problematic parts grow as well and this can cause some serious issues as the business scales-up. Setting your business up the right way is vital if you want to scale your business.
The following graph illustrates a scaling model:
This is a scaling model of normal business selling products or services. The lines define the percentage of the total effort in each segment in relation to the produced turn-over. The dotted line defines the percentage of the overhead to be deducted from the profit. The overhead is the only part that does not contribute to the turn-over.
In this example, the lines (percentages) might be moving, but the relation to the overall business stays the same.
The most inner circle is your core business. The second circle is your waterline. Every aspect of your business should be above that waterline. The outer ring is the current scale level. Your job is to make sure every area of your business is as near as possible to the current scale level and never below the waterline. Both circles grow as the business scales up.
If you compare this to a simple growth model, the sales efforts might grow out of proportion while the rest stays the same. This can cause real problems. If you sell more than you can fulfill you won’t be able to deliver and you will run into serious problems at one stage in the future.
How To Prepare Your Business For Scaling?
If you design your business from day one to be scalable, you create an environment of controlled growth. This means you will see straight away in which area of the business you will need to work on to keep it all in balance.
As I mentioned before, the percentage of each section might change, depending on the market, season or any other factor related to your business. This is part of scaling your business.
In the beginning, you might have to put more effort into marketing and sales and after a while, once you got your clients coming in, these parts will become less important and the fulfillment part grows. This is important because if you keep your sales and marketing up to bring in more and more orders without being able to deliver, you have a problem.
In the model above each section is depending on each other. You can’t grow fulfillment without affecting the others. This is the kind of control every business should have.
What Do You Need To Look Out For?
As mentioned, scaling impacts all areas of your business. This starts with money, continues to staff, and all the way to production and sales.
For most businesses, scaling also means an increase in investment. How much that is, depends on your business, your current infrastructure, the market and on the speed to you want to scale.
If your finances are tide or if you want to scale with the lowest possible risk, you will need to look at a longer time-frame. If, because of the market, you need to scale faster, the investment will become a major subject in your plannings. Also, the risk of scaling fast is much higher.
Good planning is vital, whatever your investment. But this has to be more than just scribbles on paper and the hope it will work out. A great way to do this is to map out all areas of your business. Look at the impact you might be able to foresee in each area and identify the points which are not clear and you will need feedback on during the scaling process.
You will find lots of unknowns and that is normal. You just don’t know it yet. Fill in the gaps as you find the answers and adjust your processes accordingly. How to do this exactly varies from business to business, but knowing your market well is a MUST if you want to scale your business.
Scaling a business is a big investment of either time or money or both.
But How Do You Set This All Up?
In its core, you can use the model above from day one. You might have to adjust some of the sections to fit your business. If you are a manufacturer, the fulfillment part might be much larger. If you are a coach or sell online courses, marketing and sales might be more dominant. It also depends on your business model or strategy.
The important part is to set up the circle so it will work for you. The percentages of each section will change regularly anyway.
There is one section often forgotten, the overheads. Overheads are the regular costs and the money needed to run your business on a day to day basis. This is often not fixed. But these overheads can spiral out of proportion in no time. I’ve seen this in almost all businesses I’ve been involved in. It goes quicker than you can look at. Keep an eye on those overheads.
How Much Money Do You Need To Scale?
I know you will hate this answer, as you probably look for something more precise. But it really depends on your business, your current and needed resources, your market and the time you have available.
As less time you have, as more money you will need, to scale your business and as riskier it is. You will take a lot of wrong decisions on the way, and with little time available, to correct those mistakes will be costly.
The best way to scale a business is to set it up from day one to be scalable. This makes your scaling process continues. It’s the least risky way to run your business. It forces you to look at your progress with a growth mindset. From this perspective, your focus is on growing and less on securing your current status. I found this a much better way to look at any business.
Scaling your business can be a very stressful process. But there are things you can do to reduce this factor and the risk at the same time.
- Identify the reason for scaling
- Set a clear goal
- Make sure the market is ready
- Don’t just look at the numbers, get your staff and shareholders on board
- Be aware that there is a lot to learn to get this right.
- There is always more than one way to get there
I could extend this list on and on, but I am sure you get my gist.
If you have an established company, proceed with caution and leave any stubbornness at home. It won’t help.
If you’re just starting out, develop your business with scaling in mind.
Is your business scalable?