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Beyond the balance sheet

Scaling a business - how to prepare for it

Simon Smith 26/6/2020 7 minute read

Simon Smith FCCA explains what needs to be considered and actioned in order to scale-up a business.

You've started out successfully. Amid all the tasks and the emotional rollercoaster of running an enterprise, soon you'll face a very important question, can you grow the business!?

The likelihood is your vision will be to become profitable and then perhaps scale-up. Or, you may not be sure where your ideas and concepts are heading. In reality, very few ideas translate into scaling a business successfully.

Have you considered how exactly this will happen? If your start-up relies solely on your knowledge and skill, then it’s unlikely to scale. There’s only one of you, consequently resources are somewhat limited. Not everyone wants to run a scalable business either, and that’s fine.

When the answer isn’t so obvious, you need to understand what it means to be scalable before you decide if you really want your business to take that path. It may not be possible to achieve. In this post we look at the key aspects of growth and what you need to think about.

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Achieving business growth with a small scalable business?

1. Scaling and the lifecycle stages

2. Business scalability factors to consider

3. Is your business scalable?

4. The dangers of trying to scale too quickly

5. Are you challenging and testing your assumptions?

6. Are you demonstrating innovation?

7. Achieving repeat custom

8. What's your end goal? How are you going to get there?

1. Scaling and the lifecycle stages

Consider the diagram below (the Stages Model, a concept originally developed by Shirlaws), It's around the stage marked "payback" where scaling starts to occur. It is at payback where owners find that their early stage risks and investments pay off. Income is likely to have reached a consistent high.

Consequently the owner reaps rewards for all their hard work. From here your focus may turn to accelerating growth.

The stages model

The problem is accelerating growth can become uncontrollable, which can impact on profitability. This makes the business become more stressful to run due to:

  • Increased financial commitments
  • The pressure to maintain the accelerated rate of growth
  • More potential operation issues around IT, staffing, and customer service

The point is such expansion requires establishing systems and controls that can be escalated to manage increased demand. This while the business also adjusts to evolving market trends and the changing needs of customers to maintain the rate of growth.

Business scalability factors to consider

Once you’ve survived the initial start-up stage, the expansion phase in your business lifecycle can prove somewhat tougher. Most businesses remain small because scaling requires more than just a great idea and quite often doing it successfully is what can potentially establish you as an industry leader.

 

Building up a business can reap significant rewards, but it’s not without risk. So, before scaling you need to ask yourself:

  • Are you designing and building systems that can expand with your business?
  • Do you have the right resources in place?
  • Do you have a viable plan to grow resources as your business develops?
  • How will you meet increased demand?

If your ambition is to change the world by disrupting a sector, then the only way to multiply your arms, legs and time is through scalability. Whilst it’s all well and good to have an idea solving a prevailing issue, you need to be certain that you’re setting up your business to meet high demand.

You'll also need to be confident that the business can handle increased demand in the form of higher trading volumes.

Is your business scalable?

Your business idea will need to be appreciated globally, providing a solution for more than just a limited issue. Many entrepreneurs find difficulty in creating a business that’s truly scalable because of how quickly technology evolves. You need to be visionary; what’s a common problem today might not be an obstacle of tomorrow.

This is where disruptive innovation comes in to play. Ever changing technology enables new businesses to disrupt existing concepts. A great example of disruptive innovation is Apple’s iPod which changed the way we listen to music.  Apple then disrupted its own iPod with the iPhone which also changed computing and how we communicate. You may decide to get into this mind-set if you want to start planning the next disruption and cause a stir in an industry!

According to The Clayton Christensen Institute “Disruptive innovations are not breakthrough technologies that make good products better; rather they are innovations that make products and services more accessible and affordable, thereby making them available to a much larger population.”

 ·

The dangers of trying to scale too quickly

Premature scaling is a common reason for the failure of many start-up businesses. After all of your hard work and an ingenious idea, the last thing you want is to grow too quickly.

Proving the benefit of your product/service in a small sphere is one of the most important steps, if not the most important step to becoming scalable. No product or service, however brilliant, is ready to scale until it’s been proven to work with a number of real customers paying the full price.

Once your product is established in that limited capacity, then you can invest the money to achieve significant growth.

Are you challenging and testing your assumptions?

It’s all too easy to go with your assumptions, but you need to test and challenge your presumptions to ensure you’re actually pleasing your target market. You can better your product or service through customer feedback, to test market viability and implement improvements. Only a proven concept will grow in the long run!

Are you demonstrating innovation?

If your business sounds like it’s a one trick pony then scaling won’t be feasible. You need to prove that your concept is ever growing with endless possibilities. This should be evidenced in your business plan.

Don’t try and solve everyone’s problems at once, but show that you’re certainly open to innovation, and further enhancing their experience well in to the future. That means considering follow on solutions or products which will compliment the existing offering.

Achieving repeat custom

How will you get customers to buy more of your product, or service? Can you establish a recurring revenue model? This will provide some clarity as to how the business will generate sales and growth moving forward. If a subscription model does fit your customers needs then the question is which one will work best?

What’s your end goal? How are you going to get there?

Too many entrepreneurs attempt to scale blindly – if you don’t have an idea of direction, then you’re going to get lost, and potentially fail!

Consider the possibilities of franchising and merchandising; have you also considered granting licensing for intellectual property?

If you have enough demand you can become scalable with a sufficient amount of the right resources in place. Review your goals carefully and break down into steps what needs to be implemented to get you there.

Remember, if you’re serious about going big, be sure to bear in mind the risks that can come with it!

 

This post was created on 10/10/2016 and updated on 26/06/2020.

Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.

 

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