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Beyond the balance sheet

Why scale up and growth is a bigger challenge than starting out

Ercan Demiralay 05/3/2018 7 minute read

Ercan Demiralay FCCA on the challenges of expanding and 3 tips to help owner managers achieve sustainable growth. 

Moving from the start-up phase into growth and scaling will present many new and complex challenges. As an entrepreneur, prior to embarking on plans for expansion you should first and foremost check that you have a business model capable of scaling up.

 

Are you genuinely solving a problem experienced by many people?

Is your product or service a significant (or potentially significant) issue in their lives?

If the answers are clearly yes, then you need to think about how exactly you're going to expand the business. Similar to when you started out, much of the success in the growth phase will rest with you as the owner and your shift in strategic direction and priorities.

The financial back office systems you need to scale up sustainably

What is needed to grow the business

As your business develops you'll likely need to embrace a very different mindset in how you go about running it. At this stage in the journey it's no longer just about product market fit. A good product alone will no longer suffice. For that reason growing the business is actually even harder than starting out. Why, we hear you ask?

Consider the video below where Hubspot's Brian Halligan recounts the advice he'd provide himself if he were attempting to scale the business again. The point he makes is that starting out today is cheaper than ever. Halligan provides the example that when Hubspot started in 2006, the set up cost came to $200,500. Fast forward to today and that has reduced to $1,019!

 

Therein lies an important point because starting out today is easier and cheaper than ever before. There's a plethora of free and/or very cost effective tools that have been enabled by the internet. Whilst this may appear great news from an entrepreneur's perspective, the downside is you likely face more competition than ever before. When it becomes easy, more people do it.

Prior to the rise in UK business rates, new start-up numbers increased every year from 440,600 in 2011 to 657,790 in 2016 according to Startup Britain's Startup Tracker. Whilst sole proprietorships (think contractors and freelancers) may be reflected in some of these statistics, it still adds credence to the notion of there being a general abundance of competition.  

Consequently, differentiating yourself in customers minds as you attempt to scale has never been harder!

1. Delivering an exceptional customer service

Sounds obvious and in many ways it is. However, in the starting out phase almost all your efforts will likely revolve around creating a product or service to fit a market, fine tuning the offering, marketing to establish your brand and making sales. As you start to generate more revenue, decision making will continue to be about sales and achieving growth in turnover.

Consider the stages model below courtesy of Shirlaws. After the first brick wall (which usually represents an injection of finance), you'll probably take on staff and be making more sales. With growth however, represented by "payback", can come anxiety about whether the investment is paying off.

For a business owner, your time is likely to be split between customers, staff and strategies to generate growth. The last point is interesting, many entrepreneurs would consider that to mean generating more leads for winning new business. However, you already have a customer base, an active source of revenue, people who already buy into your business and your brand. This is why the growth phase is all about customer satisfaction. 

The stages model Shirlaws official version.jpgIf you have people who know you and trust you based on their purchases and interactions in the past then you have a captive audience. They are potential testimonials and referrers in waiting. When it comes to sales this is the equivalent of discovering gold. Furthermore, their established emotional connection to you makes it far easier to get this audience to buy more from you than to convince would be buyers to purchase for the first time.

To maintain fast growth, focus on customer service and getting them to a point where they become advocates of your brand. Their word of mouth will be worth far more than the pitch of any sales person. To look at it another way, the recent history of businesses that were disrupted and failed often reveals that these organisations lost focus on their customers as much as succumbing to technological change.

2. Creating a culture in the organisation

Delivering an exceptional service means satisfied customers and to achieve that first and foremost requires happy employees. As the business expands you'll probably become more and more reliant on your people to operate, run and help grow your enterprise. If they're unhappy, if they lack purpose in their work and struggle for aspiration, this will translate into how they deal with your customers.

Why wouldn't you do everything in your power to create a great working environment for staff? After all they're crucial to the success of your business. They create the customer experience, they are the charming person that your customer comes across every time they make a purchase. If business is about people then the ones that succeed are where customers encounter the same, friendly names and faces every time they interact with your brand.

 

This means your employees hold the power to improve the customer experience and with the right knowledge and skills, they can use that to drive more sales and/or cross sell. Hiring people with the right attitude and values that fit your own is critical. It also requires putting in place training and development plans so that staff see your investment in them and their career, which in turn engenders long term loyalty to you and your business.

Disconsolate employees on the other hand, have the potential to ruin customer service. Here's the rub of it, staff well being is a cultural matter and culture starts with you as the leader at the top. If employees are unhappy then at best you have an organisation that might just about work in better economic times but will likely eat itself from the inside out during a downturn.    

People don't tend to stay in an environment they don't enjoy let alone have any allegiance to such an organisation. Keeping their head down and eventually moving to the next job opportunity, not customer service, will be uppermost in their minds. Thus organisations with high staff turnover struggle to maintain good customer relations which is fatal to long term survival and growth.    

3. Financially managing expansion

Scaling and in particular fast growth, will result in more transactions and greater financial commitments. This will place greater demands on your back office however, financially managing growth is vital. You'll need to keep a watchful eye on your cash position, your debtors and cashflow projections. That way you can anticipate working capital requirements and when to invest in the business.

Additional sales and invoices will likely require a more sophisticated finance function at some stage to ensure the business doesn't grow too quickly and run out of money. Check these 5 warning signs you may need new software. Remember what served you well in the early days can soon end up being obsolete for today's more complex requirements.

As part of this, make sure you put in place a system that helps you manage the credit lines you extend to customers, how you issue invoices and the chasing up of overdue debts. Here are 18 things to implement in a credit control system. Finally, recruiting employees will require you to operate a payroll. The legislation around this has become increasingly sophisticated of late, so be sure to read the 5 key elements that make up a full service payroll system. 

No guarantee of success but...

The above recommendations are exactly that, suggestions based on observing things that worked for our clients over the years as they grew their operations. Very little in life is certain so whilst you can't guarantee success, doing these things will at least put you in the best possible position to manage expansion and take advantage of the opportunities that come your way. 

Financially managing your scale up business, free guide Wellers

The content of this post is up to date and relevant as at 05/03/2018.

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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