Written by: Dr. Douglas Kong, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
When an entrepreneur starts on his journey of founding his small business, the passion that drives him is the desire to impact the world positively with his offer and the hope that as he does so, he will get appropriately rewarded until the business that he founded has grown into a large financial empire.
There are good examples of such businesses succeeding from all corners of the world, from Amazon to Google, Ikea to Tesla, Tata to Alibaba, and so on. The list does seem somewhat endless. Surely, you want to be on this list, right?
Well, that’s the dream part. We also know that large numbers of small businesses all over the world are struggling and a sizeable portion of such businesses do get abandoned.
Only 9% of small businesses make over $1 million, whereas 16% of small business owners are less successful, making less than $10,000 per year. That’s reality.
Consideration for scaling
For the small percentage that is profitable enough to succeed and grow because of a positive cash flow, perhaps a few can make it to become large corporations, while the majority will survive as small businesses only.
If you then are one of those businesses that survive and are now on the threshold of further growth, should you then scale up your business and let it grow to become a large corporation?
That decision depends on several factors. If you are taking advantage of your growing business to further expand larger and faster by scaling, and you have resources that can be made available to you as well as a capacity to tolerate risk, then scaling is a viable consideration.
Risks of scaling
Scaling a business can help your business increase its capacity and reach, leading to growth in revenue and market share. In the process, you will streamline your processes, automate tasks, and reduce costs, which will lead to greater efficiency and profitability.
Oftentimes scaling requires the injection of capital typically loans from financial institutions, an external investor, or a merger (including acquisition) by another business.
Organic growth, on the other hand, is growing a business gradually over time by reinvesting profits back into the business. This will involve expanding your customer base, increasing sales, and improving your products/services. Organic growth allows business owners to maintain control of their company, whereas an external investor or merger would dilute that control.
However, the constant change of business climates the disruption by new technologies and increased competition are challenges you still have to face should you choose organic growth to build your business.
To adapt is a necessity. Failure to adapt could easily mean that your business will slide into its twilight years.
Scaling, therefore is risky, but the upside of scaling is that you can grow very rapidly in size and scope as well as profit. It, therefore is a business decision that will depend on your objectives, resources, and risk tolerance. For scaling to be successful, you will need a significant investment of time, money, and resources for planning and execution.
Because scaling requires the business to take on debt or external investment, scaling must of necessity focus on efficiency, productivity, and cost-cutting. This will mean an emphasis on keeping the business lean and agile, which increases profitability.
On the other hand, organic growth is more sustainable and less risky. The growth is slower and gradual, though. The focus is on increasing the customer base by improving products and services. Costs would be higher(you forego economy of scale, for example) but there is no added debt.
Getting your business ready for scaling
Before you embark on your journey to scaling though, it is important to review various aspects of your business to assess their readiness for scaling. Shortcomings identified in the review will allow you to address them as you position your business to scale up.
Finance is an important factor as cash flow is the lifeblood of a business. Pay particular attention to your cash flow especially when the business has already taken on some debt.
At some point, a financial assessment of the business's financial health should be completed. Various financial ratios will give you a good idea of where the financial weaknesses are for you to address.
Listed below are some aspects of your business that you must review as you prepare your business for scaling.
1. Market research and marketing strategy
Once the decision to scale your business is made, determine whether there is a market out there to sustain your scaling efforts. The existing market that you are serving; is it large enough to sustain your enlarged business? The presence of competitors is encouraging as it indicates that the market can sustain everybody, but is there room for growth still?
You can determine the market size by extrapolating from your customers and estimating the size of that target audience from actual statistics that are publicly available. You can also engage your current customers, by evaluating what factors influence them to be your customers, and then estimate how extensive these factors are in the community at large. This will help you to refine the definition of who your target audience is so that you may exploit growth opportunities that may be present.
Your research may also help to find related audience characteristics that your product/services can satisfy. Alternatively, based on your resources and capabilities you may be able to produce related products/services that can satisfy an entirely different market. These are options that you can explore as you scale.
You can optimize your marketing strategy by refining your business branding and then aligning that with the characteristics of your target audience. With an existing customer base, you can test out your branding and your value proposition by using design thinking techniques. This will help you to improve your product/service so that you stand out from the competition.
Be mindful of changing customer trends and fads so as to respond to them proactively. With a large enough potential market of customers, go boldly to design a marketing campaign to target your intended audience. I have in a related article, explain how you can increase the marketing ROI using similar principles.
2. Operational readiness
Your business organization has to be prepared to scale. As your business expands rapidly in a short space of time, your business structure has to be organized into systems so that growth can be achieved coherently. Further, if you are offering a service or information products, you need to document all the steps that go into your workflow as you serve customers.
These steps, operationalized as Standard Operating Procedures (SOPs) do provide you a training manual to duplicate more operators. If you are digitalizing, SOPs provide a basis for process improvement. Hence SOPs allow you to monitor the efficiency and effectiveness of your business processes and serve as a benchmark for the implementation of technologies for process improvement (such as Lean Six Sigma or Business Process Automation)
3. Supply chain
A supply chain is the sum total of all the capabilities and resources that are needed to produce the products that consumers want. For a service professional eg., such as therapy providers, consumable resources may not be an important part of the supply chain, but marketing, appointment system, payment system, consultation rooms, and service support may all be important supply chain resources and capabilities that a service business needs.
Ensure that your supply chain is reliable and that it can be elastic enough to cope with variable demands. That is to say that whatever the resources needed for your business must be always available and in adequate amounts for your business to proceed smoothly.
4. Human Resource
You can scale up the company without scaling up your human resource. This can happen if you change the business model such as by digitalization and automation. In a service industry, if you serve the customer 1 to 1, you can scale by changing your business model to 1 to many. Whether you scale up your human resource or not, this is clearly an organizational change, and change management principles must be applied here.
Therefore you have to continually engage your people to make sure they are on the same page. Proper communication can allay a lot of anxiety and fears associated with change. A constant dialogue will help your people understand what this change is about, and their role in it, and your leadership will enable them to trust you to care for them.
5. Optimize your organization structure
You most probably would need to redesign your organizational structure for any scaling exercise. Whether you scale with digitalization and automation or change the business model, structure must support and facilitate the function of your business, which is to give value to customers. This is particularly important in service industries.
For service industries, it is important that the organization design, like its operations, must be customer oriented. It must prioritize innovation, teamwork, collaboration, and accountability. Using sound organization design principles build your business structure in systemic ways that allow your operations to be seamless and efficient and poise for further growth.
6. Leadership team
Besides implementing all the above, your leadership team must be ready to take on the challenge of growing into a larger business. Evaluate whether leaders at various levels have the skills and experience to lead a larger organization. Determine whether you need to hire fresh talent or develop in-house any new leadership role that you may need. The leadership must be able to facilitate a culture of innovation, collaboration, and continuous learning. Their ability to encourage employees to be at their best and their coaching ability must be such that they can inspire every employee. Perhaps the leadership team needs coaching support as well to bring out the best in them.
7. Financial Control
If you have done an assessment of your business's financial health, you should have an idea of how firm is your business' financial stand. From these, you can work out your financial projections when you scale.
Do make sure to identify any potential risks and areas that need improvement. Be sure the financial systems that your accountant set up are capable of accurate accounting, reporting, and budgeting processes. Regular monitoring and analyses of financial performance allow you to make informed decisions whenever you need.
Since you are scaling up, secure in advance funding options from various financial institutions. This can be in the form of pre-approved loans, lines of credit, grants, or external investors to secure the funds when you need them. Work with your accountant to identify the best financing approach.
After going through the 7 preparation steps, you need to make to prepare your small business to scale, you may be feeling somewhat intimidated. That is perhaps not unexpected.
When you look at the upside of scaling, here’s why businesses want to scale. It will bring your small business to a whole new level. Whether your goal is to do a public listing, dominate your niche, or go global, this is the way up. But there are risks, quite severe risks and you can end up in failure. Hence the need to prepare and make sure your business can be resilient enough to handle the risks.
Take courage, strengthen yourself and your business, and bite the bullet and run. Work hard and work safely. You will make it most of the time unless a black swan event overtakes you. Good luck and blessings!
If you are ready to scale your business, you should talk to a Business Coach/Consultant. You can talk to me here.
Download my free ebook, The 5 Alignments that Unlock Your Business Growth
Dr. Douglas Kong, Executive Contributor Brainz Magazine
Dr. Douglas Kong is a Business and Performance coach. His mission is to help entrepreneurs, small business owners, CEOs, executives, and professionals to be resilient and function optimally, achieving optimal business growth by achieving profitability and scaling therefrom. He is a Certified Executive Coach and a Certified Master Life Coach. His background is that of a consultant psychiatrist and specialist in stress management, psychological trauma, psychoanalytic psychotherapy and has completed non-graduating courses on MBA topics in business management and leadership. He is a best-selling author and has written books on personal self-help and 2 books on business growth and scaling.
