Scaling your business is one of the most romanticized parts of being an entrepreneur. Yet, it is also the most serious and difficult one. It is important that you do it right in order to create a solid business that will experience growth well into the future.
If you are about to scale your business or are already in the process to, we recommend that you read below where will be explaining how to scale your business correctly.
Product-Market Fit.
Before you even consider scaling your business, you have to make sure you have ‘product-market fit’ (PMF). It may sound like a very technical and complicated term on the surface, but do not worry because it is not.
Instead, it is a simple way to find out if there is actually demand for your product or service. All you have to do is to stop advertising your business for a short period of time, such as a month, and see whether your business continues to grow at a healthy rate.
If your business continues to grow organically without any advertising, then that is a very good sign, it shows that there is a strong demand for what you are offering. Although it may sound like a quirk it is not, you won’t be able to build a successful business if there is no strong demand.
Of course, it will be difficult and demoralizing if you discover that your business lacks product-market fit. But you should look on the bright side, it is better that you found this out before you started scaling.
Seek Funding.
Growth requires funds. Often, founders will develop a wrong way of thinking, where they want to retain high percentage ownership of their business. In reality, this way of thinking does not make sense, it is better to have a slightly smaller share of a larger pie than a large share of a small pie.
For young startups that lack a track record, the best way to raise capital is through selling shares to crowd investors. There are a number of licensed crowdfunding platforms, where anyone from the public can invest towards a business’ fundraising goal.
For example, you can set a goal of selling 10% of your business for $100k in a funding period of two months. Based on the popularity of your offering, you can then sell less or more of your company. This form of fundraising is good for raising money without diluting your ownership too much.
Alternatively, you can turn to professional investors in the form of venture capitalists as well as angel investors with business experience. They will be much pickier; it is not rare for expert investors to invest in just four to five companies in a year.
The main thing that they will be looking for is a company with a track record of consistent and fast growth. Therefore, no point in contacting them if your business is just at the idea stage or has no evidence of great demand.
Form a Good Team.
Once you have begun the scaling process, you always have to have on top of your mind potential candidates for your management team. Scaling can be done competently while your business is small. But eventually, there will come the point where you need to delegate, this moment often hits you quite abruptly.
The general mold of what you should look for is someone who is willing to learn and also be objective. Being passionate is great, but you cannot make decisions simply based on emotions in a serious business. You also must be able to trust that person. Delegating means that you are not constantly babysitting or worrying whether they will carry out their tasks correctly.
Eventually, you will also need to create a system for advancement in your company. This is for rewarding your best employees and also for adding credible individuals to manage the different parts of your company.
Be Different.
Being different is important, and is something that should be kept in mind when thinking about how to scale your business correctly. Picking a point of differentiation means that you will be providing in-demand value in some other way.
The reason why this is important is that when there is no real difference between businesses, all they can compete on is price. Over time, this will lead to lower and lower profit margins.
Therefore, when you are scaling you have to know what part of the market you are going to target. As well as have already identified in what ways you will provide value. Competing in price is not a bad thing, but you must keep in mind that it requires vast scale. Furthermore, competing in price is a risky strategy when you are a startup, as large businesses will have no issues out pricing you.
There is no need to make it complicated. Often, a simple idea can be the driving force behind your business. Such as running a car repair business, where you come to the customer rather than they spending time driving to your repair center.
Long-Term Plan.
Thinking in the long term is a must when scaling. You must have goals that you want to reach in the future that will provide an extra opportunity to grow your business.
Every business starts off small. However, this does not mean that you can’t dream big. You may start a small shop, but in the future, you would like to have multiple locations. Furthermore, over time, you may want to host a pharmacy and a bakery inside of your stores. All of these ideas are something to aim towards. Moreover, they will be an opportunity for further growth.
In addition, businesses with long-term plans tend to be more stable. They are less likely to make big risks that put the firm in danger. As well as being much more sensible with the assets and funds that they hold.
Reinvestment.
No matter how large your profit margins may be or how much funding you have managed to secure, you have to reinvest in order to scale. It is very appealing for you to begin buying luxuries as soon as your company achieves a bit of success. This is the wrong thing to do.
Money is an asset, that by itself holds value, but does not directly produce value. Yes, it may produce interest while sitting in your bank, but this rarely covers inflation. Smart entrepreneurs will put money to work by investing in their businesses.
A common excuse for not reinvesting your company’s money is that you do not know what to spend it on. This mindset must be overcome. It is better to risk not getting value from your money by investing in new technology than leaving your money to essentially burn away in your bank account.
Another aspect is cash flow, in order to be able to reliably reinvest you need to have cash flow. It is an aspect that many companies overlook when they shouldn’t. Cash flow is important to the very survival of any organization; if you don’t have the money at hand to pay your liabilities, then your business can be forced to shut down.
Solid Foundations.
You must create a business and business model that is sustainable. This is the last point that we are going to cover in our article about how to scale your business correctly.
The worst possible thing that you can do is to build your business on top of a short-term fad. A fad is generally a want rather than a need, that is currently popular due to a change in taste. In the short-term, trends can be very profitable, but in almost all cases they are not sustainable.
Even if your company is not involved in exploiting current demand trends. It may still not have solid foundations if it is reliable on just one source of income. Diversification into other industries is the best way to ensure the longevity of your organization. Although industries such as shops will likely never disappear, they will still go through major disruptions.
Ultimately, the industry will recover, but not all the competing firms will. This is part of a long-term plan, as you should not diversify when you are just starting out.
One of the examples of when you should do it is if you have a lot of cash that you don’t know what to do with; you can boost your company’s growth by entering other industries.
It is also important to note, that you do not have to completely reinvent your company. You can enter related industries, for example, if you run a restaurant you can expand into food manufacturing where you sell ready-made food in shops or online.
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