How To Know When To Scale Your Business

 

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We’re dead certain that you’ve come across an article or two that talks about scaling your business. You see, those articles all speak about the “how” of business scaling. What to do, precisely. But rarely will you find an article telling you when scaling is right for your business. Luckily enough, that’s what you’ll be reading about here; knowing when it is the right time to scale your business. 

Why Do Entrepreneurs Want to Scale?

At any given point in time, an entrepreneur could have several things inspiring them to scale. It could be one, two, or five things - the numbers don’t matter. What matters most is having a tangible “why”. 

As you read this, you may be contemplating if your reason for scaling is valid or whether it is even important that you do so. We want to first of all affirm that scaling is okay. And to talk about whether your reasons make any sense, we’ll let you decide that after reading through this section.

The Mere Opportunity to Scale

Entrepreneurs are innovative opportunity seekers. Having said that, it is not unlikely to find one jump on the idea of scaling simply because an opportunity to do so has surfaced.  Let’s explain using an example. 

Say that there is a stable but unscaled business around the corner and there’s a competitor business just nearby. The competitor has a viable market proposition. Unfortunately, poor management leads it to wobble and nose dive. The failing situation in one business means an opportunity for the other. The unscaled business can take advantage by performing a merger or acquisition - whichever one suits best, therefore initiating a scaling process. 

Switching Business Roles

Another scenario that may lead an entrepreneur to scale their business is stepping down or switching to a less active role. 

It’s no secret that entrepreneurs get burned out so badly that they sometimes decide to take a back seat in their own business. Doing this works the charm but it's not as easy as it sounds. In many cases, having to change roles, especially at the management level requires bringing on board a handful of new staff, performing training, or even entering into partnerships with other businesses. 

Essentially, the entrepreneur usually has to scale the business (new hires, business partnerships, larger organisational structure or review of business plan) to get the ball rolling, while they take a more observatory position. 

Expanding Service 

The urge to provide service solutions to a new audience, especially one that is completely alien to such solutions, drives entrepreneurs to scale. 

It is not always about money for business people. Instead, it is also about providing access to technology or introducing products/services that improve the lives of people. 

Expanding one’s business services to benefit a larger audience will automatically invoke scaling. This is because the business in question will have to upgrade its infrastructure (occupying new buildings), get extra hands for its new locations, and even perform other relevant setups for the market it is entering. 

There are countless other reasons why an entrepreneur may want to scale. So if you feel like you have the right reasons to scale, go on read the “when” and “how” in the next two sections.   

When To Scale Your Business

Honestly, knowing why you should scale is not enough. What should come first is being certain that you know when the time is right. Scaling too early is dangerous while scaling too late will cost you opportunities - there’s no way you would want that for your business. 

Given the situation, we’ll say that the right time to scale your business is when you assess that your business has a good hook on the following:   

Effective Financial Management

The thing about finances is this; if you’re bad at managing little, you’ll surely not do any better with large sums. This explains why a core sign for knowing that you’re ready to scale is being able to effectively handle cash. 

Scaling is a complex process. Founders clearly understand this. The only problem is that they think of this complexity in terms of increased service or production processes. This blatantly neglects the financial side of things - talking about the complexities that stem from earning higher revenue and having to manage increased cashflows. 

So you find that a business begins to scale and then boom! Several accounting and monetary challenges surface.

Another perspective to effective financial management before scaling is the consideration of how much cash is readily available. Why is this important? Because the early stages of scaling bring very high expenses and low income. This means a business will have to fall back on its reserved funds, with catastrophic results if such funds are insufficient or unavailable. 

Pre-exposure to financial computations is the only way to avoid this kind of incident. 

Healthy Market Demand

Quite literally, a business must be existent within a booming market before it will be liable to scale. There’s no debate on this. An analysis of the business market must reveal both interest and engagement from players. Additionally, there must be a high demand for whatever products or services the business sports. 

The existence of a high demand - forecasted to last for a long time into the future - is what signifies to a startup that it can go ahead to scale. Simple metrics to measure here are the number of customer orders received, frequency and quality of customer feedback and suggestions, and rate of partnership deals happening. 

 

Scaling without any indication of a high market demand will very likely lead to a waste of resources. 

Flexible Infrastructure

The time to scale is when your business infrastructure can comfortably and consistently endure pressure. Will your systems crack or fall apart under sudden high demand? Or will they perform optimally? These are the questions you need to ask. 

Better still, instead of asking, find out for yourself by performing pressure tests. Plan and simulate high demand scenarios, carefully examining the response of your team and technical resources over different periods. 

It is important to say that scaling relies on maintaining consistent expenses while achieving higher output. By implication, your manpower and hardware systems must deliver excellently well during scaling - with little or no cost to the business. This is the only way in which the process will be a success. 

Establishing flexible infrastructure saves business costs. Moreover, it also ensures that a business can swiftly respond to market opportunities, earning more revenue in the process.  

Stable Customer Base

Two things come into play here - customer acquisition and customer retention. These are two pieces of a puzzle and having them within your grabs tells that it is time to scale.  

Client acquisition talks about acquiring a new client or customer the moment a business goes in search of one. It is like mastering the art of making friends; being at the right events, participating in activities, and communicating fluently. 

But this alone does not suffice. 

Without customer retention, businesses will work to attract customers over and over again. Clearly, this consumes valuable time and resources, and that is not how scalable businesses operate. Instead, like in friendship, these businesses know how to kick things off (with new customers and clients) and how to keep them going smoothly. 

Together, customer acquisition and customer retention help businesses build a solid customer base. This, in turn, ensures continuous and increased business interactions which is what scaling businesses are built for.  

Consistent Revenue/ Increased Revenue Sources

Because of the high costs associated with scaling, your business must be consistently hitting reliable revenue figures before you make any move. Your overall process also has to be assessed for issues of cash burn and other factors that might stall growth or crumble the entire setup. 

Overall, you are ready to scale when a suitable product-market fit has been found and, secondly, when a sales or client acquisition process has yielded enough positive data. The setback with this is that validating the market reportedly takes two to three times longer than most entrepreneurs expect. 

How To Scale 

Let’s go on to talk about the “how” now that we know the “why” and “when”.

Franchise

The one thing better than a successful business is having as many outlets (of it) as possible. Luckily, franchising is a cheap and easy way to get this going. The entrepreneur (known as a franchisor) simply gives a directive to another business person (known as a franchiser) who agrees to run an outlet of the franchisor’s business - using its brand assets and other properties. 

This practice serves to grow the physical presence of a business across different locations, implying scaling.  Read more about it in our blog article titled Understanding Franchised Businesses. 

Build a Positive Work Culture

Scaling takes every aspect of a business and stretches it out wide. Operations, finances, resource management - you name them. 

To keep the ball from spinning out of control during this stretch, the business must keep an eye on the prevailing work culture. This makes building a positive work culture an integral step in scaling.

Employees, customers, and the business management must buy into a positive work culture. They must express skills such as communication, teamwork, critical thinking, and even optimism. Moreover, they must be responsible, respectful, and promote the safety of everyone in the business. 

Generally, the atmosphere must be one that encourages and supports everyone to play their roles and be the best at what they do. 

Get Into New Locations

Another way to scale is to get your business into new locations. Franchising does this automatically. For instance, the McDonald’s brand has seen explosive growth, garnering outlets in over 100 countries simply through franchising. 

The alternative to this is personally purchasing or renting landed properties and office structures for your business. Whatever the means, getting into new locations is a sure way to start scaling as it opens the business up to new markets with potential customers and brand-new opportunities.  

Create Partnerships

Interestingly, franchising serves as a form of partnership - although an unpopular example of it. Aside that, however, regular partnerships also indicate the start of a scaling journey. For instance, you might need a new supplier for raw materials considering an increase in your manufacturing or production service when you eventually scale. 

Creating partnerships ahead of your scaling journey should be done carefully. An evaluation of each potential partner; in terms of their competence and required contribution; is mandatory.    

Get Appropriate Licenses 

Scaling takes a business through new levels of partnerships, operations, and the like. With this, there’s usually a need for the business in question to acquire a new license or renew an existing license. 

Some things to consider regarding licensing just before scaling are whether a license is needed to; operate in a new location, serve a particular class of customers, or deliver your service. Ensure that your license comes from authorized government or regulatory bodies and remember to keep a copy of every license document for reference sake.

Create Advertisements and Promotions 

Among the many ways to initiate scaling are advertisements and promotions. For a start, we should highlight that the two terms mean different things. 

Advertisement is a one-way activity that has long-term effects. It serves to build a brand image and also increase awareness of a brand’s products and services. On the flip side, promotion is a short-term activity that pushes for immediate sales of a specific product or service. Promotions end after the sales goal has been achieved.  

Both advertisement and promotions serve to pave the way for market entry, customer acquisition, and sales, thereby making scaling a piece of cake. They can happen through billboard placements, email marketing, etc.

Round-Up

In summary, scaling helps businesses achieve increased output and earn more revenue. Scaling-up could happen in a variety of ways depending on the business industry and the management’s specific objectives. However, timing is a factor that many businesses fail to prioritize. This is a critical mistake that could impair stability and ultimately cause a complete collapse.