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Scaling up is just one among the many goals of an entrepreneur. Indeed, if you own a small business, you’ve likely thought about the idea once or twice. It’s tempting to imagine the level of success and growth that scaling up can bring. On the other hand, the possibility of failure or even going bankrupt can be quite scary.
This is why you should conduct a thorough evaluation of your business (and yourself) before you do any scaling up. It goes beyond doing market research and preparing your tools for scaling business operations. You have to be bluntly honest with yourself as you evaluate your business from inside and out. The process will help you figure out if you are indeed ready to scale up or if you actually need to scale down.
That being said, here are 10 important questions you should ask yourself as a business owner before you scale up.
As an entrepreneur, you’re probably already familiar with the terms revenue and profit. To refresh your memory, revenue is the income you generate by selling your goods or services. Profit, on the other hand, is the money that remains after deducting your expenses, debts, and operating costs. Some might call profit as either net profit or bottom line.
To scale up your business, your revenue and your profits should BOTH be increasing. If your revenue is growing but your profit is not, there’s something wrong going on. It could be that you’re spending too much on marketing or paying high overhead costs. Check your expenses and see where you can cut back. You should also consider how your expenses will change once you DO scale up your business.
If you’re currently losing money or breaking even, you’re likely not ready to scale up. Find out what’s causing the losses and prepare a strategy so you can increase revenue and profits. Once they do, it’s time to consider scaling up again.
To scale up your business, it’s not enough that your revenue and profits are increasing. You also need to think about financing options. It’s simply not wise to use up all your profits solely for the purpose of expansion. What’s more, you have to remember that scaling requires a LOT of cash, whether it’s to pay for new equipment or hiring more people. Your profits alone may not be enough to cover all of these new costs.
When you first started your business, you likely saved up for the capital or maybe even applied for a micro-business loan from a bank. When you scale up, however, you can’t rely on just your savings anymore. You need to look at bigger loans, or perhaps get in touch with venture capitalists or private investors. The idea might be a little intimidating at first, but it’s important to consider all your financing options before you take the leap.
Scaling up can mean different things for different businesses. Thus, for you to be able to scale up successfully, you must first figure out what aspect you want to scale up. Do you want to scale up in terms of products, technology, or people? Once you figure out your goals, then you can make more definitive plans.
Scaling up on products is a good idea if you have a large enough consumer base that you want to keep hooked. New products can also attract new customers. Meanwhile, a new payment solution and other digital tools can help create a smoother workflow. Hiring more people, on the other hand, can help you deliver products and services faster which can then improve customer satisfaction.
Depending on which aspect you want to scale up, you may need more money, more time, or both. For example, developing new products requires a lot of research as well as testing. Getting new equipment is considerably faster but you have to account for the learning curve of your staff. Again, make sure to do your homework before you scale up. You’ll find yourself in a lot of trouble if your actions don’t match your business goals.
These two questions go hand-in-hand, especially if you’ve been operating your business by lonesome for a long while. When you scale up, you’re eventually going to need more people to help you. You have to be ready to relinquish some of your duties. You can maintain a supervisory or overseer role, but you have to learn how to delegate. It’s tough, but it needs to be done. If you aren’t ready to do this, then you aren’t ready to scale up.
At the same time, to be able to entrust your business to your team, you need a reliable team in the first place. Thus, you need to dedicate time and energy for recruitment. Don’t just focus on hard, technical skills. Look for people you can get along with and who share the same vision and values. You should also look for people who are honest and won’t hesitate to tell you if you’re doing something wrong. Groupthink is a dangerous thing in business and you need people whom you can trust to point out the flaws in your plans.
If you can’t figure out in which manner you want to scale yet, consider investing in technology first. Indeed, there are times when it’s wiser to scale up in technology first before scaling up on personnel. This is because technology can help you serve your personnel better (even if the personnel is only yourself and a couple of employees). It can also help streamline your operations, reduce risks, and even help you generate more revenue. Don’t believe the notion that you have to choose between business needs and technological needs. Technology is a business need in and of itself. You just need to figure out the timing.
Before you scale up, another critical question you need to answer is whether or not you understand who your customers really are. Remember the “target market” section in your business plan? This is where you should have described the segment of the market you’re aiming to convert, along with the reasoning why you were targeting them.
When you’re planning to scale up, go back to that section of your business plan. Ask yourself if you truly know your customers, especially what they like and dislike. More importantly, ask yourself if you’ve accomplished your goal as indicated in the business plan. You should also consider the impact of the adjustments you made over the years. Perhaps you targeted a wider scope or maybe you did the opposite and instead hyper-focused your reach.
Be honest in this regard. If you feel like you still don’t have a full grasp of your customers’ sensibilities, then take the time to do more research. When you fully understand your audience, you can better accommodate their needs.
A good indicator of whether or not it’s a good time to scale up is to check whether the industry your business belongs to is booming or not. There are certain exceptions to this “rule,” but for the most part, scaling up is best done when the sector is experiencing an uptrend. Essentially, you’ll be riding the waves of growth.
If your industry isn’t currently booming, consider branching out to other markets that are. If you’d rather stay in your current sector, however, look at certain trends that you can make the most of. For example, if your business is selling imported cosmetics, see if you can procure organic, sustainable personal care products. This way, you won’t go completely off-brand and still be able to scale up. You may also consider non-product options such as rewards programs, improved customer service, or customization.
When you scale up your business, the logical (and desired) progression is that you’ll get more orders and more customers. Simply put, you can’t scale up successfully if you can’t accommodate the growth in demand. You have to be prepared for success. You have to make sure that you have sufficient product and warehouse capacity. Your fulfillment and payment systems on your website should also be ready to handle the influx of new orders.
You should also take a look at your business operations workflows, IT solutions, accounting, administration, and other back-end systems. If you haven’t worked these out before you scale up, you’re likely to suffer the consequences of poor planning. You may even experience losses and end up scaling back again instead of growing your business.
You can’t scale up your business without a plan of action for growth. If you prepared a detailed business plan at the beginning, your growth plan should be as detailed or even a step higher. You need to look at every angle to see where you’re spending money and where you have opportunities to earn more. You should also check how you can more effectively market your new products and services or if it’s indeed wise to add new products and services.
Other things you need to consider will be the addition of sales channels, procurement, and logistics. Run the numbers and see if scaling up would indeed result in growth. You should also think about how big your team will be in the future and make the necessary adjustments to accommodate their needs. What’s more, you need to develop new processes to ensure a smooth workflow.
Preparing your business for scaling up should also mean preparing for an exit strategy. It seems contradictory, yes. It may even feel like you’re jinxing your success before it happens. However, having an exit strategy is necessary so that you don’t get surprised or overwhelmed if things go wrong. Remember that things will not always go your way, especially when it comes to business.
The first thing you need to do is to create a list of possible issues that can be caused by the scale-up. Bad hires, cash flow challenges, and loss of focus (and thus, brand identity) are just a few things that you could possibly deal with when you push for growth. You may also potentially be caught in a “tidal” market. This is the type of market where there is rapid growth but also rapid decline, just like an ocean tide. With temporary growth, you may end up scaling down soon after scaling up. This simply emphasizes the importance of due research, as well as preparing an adequate exit plan to recoup any losses.
If you’re a sole proprietor, you may want to ask for advice from a mentor or even a business consultant. If you have a business partner, work together to come up with a list of potential problems and realistic solutions. As you scale up your business, your activities will also ramp up. You need to be prepared so you can address issues or pull back if need be. The key is to be prepared for any outcome, and that includes failure.
If your answer is an honest “yes” to most or all of these questions, then you can safely say that you’re ready to scale up. If not, then take the time to analyze your business. Take note of particular weaknesses, especially in relation to the questions mentioned above. The practice can help strengthen your business and your team, even if you don’t end up scaling up your business just yet.
It also pays to remember that scaling up is a risk. Even if you think you’re as ready as you can be, there’s still the possibility of failure. Still, you won’t be able to succeed if you don’t take that risk. What you can control is how well you prepare. Use this questionnaire as a guide to help you through the first stage of planning.
Good luck!
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