By now you’ve been in a business for a few years.
Maybe 5, maybe 10, but it’s felt like a lifetime since your startup launched. Since then, you’ve had your head down, working the daily grind.
You’re finally seeing genuine growth. Not that little 2-3% per month increase – I mean now things are getting serious.
If you weren’t spending so much time working client jobs, sorting out team issues and getting bogged down in operations, you’d ‘pull the trigger’ on that new marketing campaign or game changing strategic partnership and send this thing into the stratosphere.
So now you’re wondering, When is it time to scale?
Everything feels prime for scaling up, but your company’s readiness to scale depends on timing – not a gut feeling.
Timing is what matters, and that’s the message Scale My Empire wants to emphasise today.
We’ve all heard the stories – growing too fast without the right foundation in place ends in disaster.
From businesses that simply can’t deliver on the volume to Founders that have lost their family due to 80 hour work weeks, growing too fast can be deadly.
So before moving up, you need to be absolutely certain that your business is ready.
Do you know which signs to look for in order to know it’s time to scale up?
How can you avoid collapse when scaling quickly?
And, what can you do to ensure that your company is prepared to scale?
Let’s dissect each of these questions.Ready to scale up your business? Check out our latest post. Click To Tweet
How do you know when your kid is ready for a new pair of shoes?
You don’t just buy a pair that is too big for her knowing she’ll eventually grow into them with time. Absurdly large shoes will only make your child trip and fall. In fairness, that’s funny to watch, but not great for her.
Rather, you wait until there are signs that the current pair doesn’t fit well anymore. (Her complaints might be a good indicator!)
Your company needs similar care. You can’t neglect it and ignore the need to scale. But, neither can you force the growth.
Premature scaling is a frequently overlooked startup killer.
Too many new CEOs make the mistake of thinking that scaling will encourage growth. In reality, it’s the other way around. You should scale in response to growth.
Buy your company bigger shoes when it shows signs of outgrowing the old ones.
So here are a few signs that your business is expanding and ready to stretch its wings a little further.
Often the first thing we hear from business owners that are ready to scale is – “There’s a whole new level of business we can start doing, I’m just scared to even start until we are ready”.
Maybe you’re marketing funnel is easily delivering the leads you need to make bank with the current team. Perhaps you have a whole other marketing strategy, such as a partnership, that you’re ready to kick into gear if only you were confident you could deliver it.
Important note – if this is the case, great. But read the next 2 points first!
One of the biggest challenges with services businesses is consistent lead flow.
If you’ve managed to nail this and you can feel confident that you are getting enough leads month on month to make profit (considering the down periods – usually over Christmas) then you are in a comfortable place to scale.
The constant lead flow is good, but when the team are starting to book work out weeks in advance (or complaining that they have too much on their plate), it might be time.
This is particularly true if point 1 is the case – there’s a whole new ball game ready to start.
This might show itself as missed deadlines, increasing errors in your teams work (because they are cutting corners to deliver) and clients feeling like the experience has been rushed.
If you already have a resource planning system in place, your capacity plan should be showing your team is consistently sitting at 80% commitment. More on this later in the blog!
As you’ve probably gathered by now, you should never jump at the chance to scale up without first ensuring that your company is ready. Timing is everything, so you need to be careful that you don’t attempt premature scaling.
Here are the key things to avoid when scaling:
We’ve written whole articles just on this topic.
Increasing revenue but taking your eye off margin is a sure fire way to collapse. In fact this one of the top causes of why 8 of 10 business fail to scale.
Don’t get me wrong – you need to invest in the business to grow it.
But during this investment cycle, pay very close attention to your net margin as a % of revenue.
You may be using cash reserves to fund scale, but if you margin is getting smashed then your entire business model might need to a review. It can be hard to recover once the growth has been made.
Scaling up is great, but don’t let overconfidence skew your view of market demand.
Take Internet security startup Dasient as an example. It’s now owned by Twitter.
Co-founder Ameet Ranadive admits that the company made a serious mistake early on that led to them burning through cash and unable to adapt to a changing market and customer demand.
Sales were trickling in at a painfully slow rate. Under investor pressure, the CEOs mistakenly identified the problem as a sales issue. In response, they hired an expanded sales team to address the matter.
In reality, their issue boiled down to a marketing problem. The original team – very lean to begin with – had not yet discovered a reliable model for making sales and steadily growing.
How could they expect a new sales team to work a miracle with the same conditions as the original team?
Dasient wound up essentially begging potential customers to try their product. They struggled to make the product fit customer needs.
By the time they realized that it would be best to focus on developing a different and more useful product, it was too late.
The sales team was already on task executing Dasient’s previous vision. There was just too much weight on-board to change the company’s direction.
As a result, Dasient spent way too much trying to pay a sales team they couldn’t afford to fix the wrong problem.
Moral of the story? Don’t stop evaluating the market. Your brand and your product to market fit is a never ending evolution.
Your team might be stretched and the lead flow is constant, but now is NOT the time to double the size of the team.
You have to prepare first (read on below!). Failure to do this is going to dramatically increase your most expensive cost centre – wages.
Labour cost is the #1 cause of ruined margins in a services business.
Knee jerk reactions to hiring can cause you to bring on the wrong people at the wrong time. Not only could it mean having people ‘on the bench’ but with skills and experience that won’t hope to be filled in the near future.
The good news here is that you do have some control over when your business is ready to scale up.
First, check to make sure that you have all of the right elements in place.
Lets take a look at what that means
Remember what we said earlier? You need to a resource planning system to monitor the utilisation of your team.
Resource planning is the act of visualising your team and their capacity against your projects and effort requirements to get a ‘utilisation’ figure.
This is usually a %. For instance, your project manager might be across 10 projects, each at 3.5 billable hours/week. They work a 40 hour week, thus they are 87.5% utilised.
You have to be able to dice this by skill (or role) as well as person.
Once you are at +80% utilisation of a particular SKILL/ROLE, its time to hire for that skill or role.
There are plenty to systems out there to help make this a very simple exercise. Mavenlink for instance, have a great visual planner that make what can feel like an overwhelming activity quite simple.
The goal of systems is to empower your team to deliver your product/service for you, in line with your brand and vision, so that you can work on the business instead of in the business.
Ultimately, systemising the business the #1 key to enabling you to scale.
What do we mean by systems? Your processes, procedures and platforms.
What kind of systems are we talking about?
Well that depends where exactly in business you are, but overall – your customer experience:
Empower your team to deliver your vision and automate the repeatable tasks.
It may take a little time and expense to set up these systems, but once in place, they’ll save you so much time. An automated process is easy to predictably scale up.
You’ll also save on funds that would otherwise go to paying staff to take care of these tasks. The money you save can be invested back into the business.
Take a good look at your hiring process, as well.
Aim to hire people to fill only tasks that a machine can’t do.
Hire based on unique skills that can transfer or apply to a variety of areas. Hire people who can contribute fresh ideas. Hire those who will fit in well with your company’s culture and who believe in your business’ mission.
The goal of having the right systems in place is to increase marketing spending or to trigger a strategic partnership that will generate a lot more business.
If your systems and process can scale up properly, you’ll see these benefits.
Before you even think about who else to hire, carefully reassess who you have on your team right now.
The right staff will accelerate your growth because they’ll be ready to grow with you.
Really understand and appreciate and strengthen the core team you currently have. You’ll want to have at least a few individuals on your staff who are committed to the long run, who are personally invested and reliable.
If you doubt your current team’s ability or commitment, then now is not the time to add overhead and scale up by hiring more. Establish your core group before scaling up.
You have to pay out a good deal of cash to ensure that your team, processes, software, and hardware are ready to scale up.
Growth and scaling are an investment, and it may take months to see a return on the investment.
In the meantime, you need to be certain you’ll have the funds necessary to keep things afloat during the transition period. You shouldn’t have to exhaust your account and put your company in danger for the chance to scale up.
If you face that prospect, then you aren’t ready to scale. This means that you need to pay attention to increasing your funding. One way is by looking to increase your net profit margin.
As we touched on earlier, another way to grow your funds is to show investors your worth and the value you bring to the table.
Having a solid game plan is the way to win them over. You’ll gain more support if you can show proof of meeting your business’s goals and of a scalable model that’s already in action.
You can wind up wasting valuable time and precious resources if you aim for short-term, money-making gains, instead of long-term, consistent revenue.
Focus on developing a reliable and repeatable model for creating slow and steady growth, and you’ll see your funds gradually increase. Be patient and don’t randomly decide to scale just because you’ve suddenly stumbled across a pretty chunk of change.
You need to be able to point decisively to specific metrics and say “this will win us 5 new customers.” Or, “spending X dollars means we will earn Y dollars.”
The model must be functioning, successful, dependable, and scalable. You should be able to project its success down the road with larger numbers.
Having wide margins to work with are a sign things are working out for you. But, you also must be able to identify your business model and what processes keep it in motion.
Brian Hamilton, Chairman at Sageworks, recommends having a “company ethos you’re comfortable with.” Keep your company culture strong. This will factor into the decisions you make as far as when to scale up and how far to go. Your culture drives your business’ purpose.
Focus on your existing customers, don’t neglect them – pay into keeping them happy.
Scaling too quickly often leads companies to neglect their customers and lose that special touch they had as a startup.
If you lose that connection with your customers, then it doesn’t matter how much you’ve grown. You can lose credibility and gain a bad reputation in your industry.
On the flip side, consider a great success story shared by Jerry Murrell, CEO of Five Guys Burgers and Fries. His is a perfect example of successfully scaling up because he placed so much value on a quality customer experience.
From the very start of Five Guys’ humble beginning, Jerry has held his ground and refused to budge when it came to giving customers what they expected.
Even when the customers themselves beg for new services, he’s very deliberate and slow to incorporate new changes. Jerry wants things to stay as close to his original dream as possible because he wants to preserve that customer experience and keep his loyal patrons coming back.
Jerry puts it this way:
“We figure, our best salesman is our customer. Treat that person right, he’ll walk out the door and sell for you. From the beginning, I wanted people to know that we put all our money into the food. That’s why the decor is so simple–red and white tiles. We don’t spend our money on decor, or on guys in chicken suits. But, we’ll go overboard on food.”
For the first 16 years that Five Guys Burgers and Fries was in operation, it wasn’t even franchised. It operated out of six locations from 1986 to 2002. But since 2002, it exploded to over 750 locations across the United States.
They don’t seem to spend much on traditional marketing. Jerry just knows his success is due to “sticking to his guns” when it comes to preserving the special experience he set out to create.
Be adaptable and pivot early on.
Stay attuned to the need to change directions and make those needed changes. It’s easier to do so when you’re startup is still small.
Grow strong before you grow up. Make sure you have a great product, a loyal and skilled team, reliable systems, and streamlined processes that are all well-established before you attempt at expanding your company.
Lastly, be reasonable and know when to say no. It’s okay to say no to the chance to scale up even if you are planning to do it eventually.
Have a modest and realistic view of what you can afford and what your business’s infrastructure can handle.
Don’t just go for it because there is funding, an invitation, an opportunity. You need to be ready on all accounts and scale up when your business is truly ready.
Are you wondering when is it time to scale? Get personalised advice by consulting Scale My Empire.
We’ll help you assess every aspect of your startup and point out areas that could use more reinforcement with systems and automation.
Contact us today to talk about determining the perfect time to scale.