Building a highly profitable organization isn’t just about growth – it’s about scale.
Companies like Google, Netflix, Zoom and Paypal have not achieved great success by coincidence. Instead, they’ve learned how to create business models that easily generate massive revenues without adding massive costs and resources along the way.
Business growth vs. business scaling
A growing company and scaling one may sound like the same thing, but they actually have very different meanings.
What is business growth?
When companies grow, they are increasing their revenue equally as fast as they are adding resources (people, technology, capital) to enable that increase. For example, a company may gain $100,000 in new revenue, but in order to do so they had to hire new team members for $100,000. The company's gains and losses are basically net zero.
Related resource: understanding cash flow
What is scaling a business?
Scaling growth, on the other hand, is adding revenue at a faster rate than costs.
Businesses achieve this in a number of ways, from adopting new technologies to finding “gaps” in their operations that can be streamlined. Those that add revenue and increase operational demands while maintaining the same costs – or even lowering costs – are considered scalable. Put another way, scalable business improve profit margins even as sales volume increases.
Scaling strategy is about creating business models and designing an organization in a way that can generate consistent revenue growth and avoid stall-points, all while avoiding adding a ton of extra costs.
Determining a businesses' scalability
Now that you know what it means to scale in business – how scalable are you?
Inherently, some industries are just easier to achieve scalability. That said, it doesn't mean that not making this list doesn't mean you can't achieve scalability - it just means it takes more insight and revenue to get there.
Moreover, even the most scalability companies can still run into issues ramping up to scale. More on the pitfalls for scaling later.
Related reading: 5 signs you're ready to scale
Industries that are easier to scale
- Professional services
- SaaS (software as a service)
- Digital products or software
- Subscription services
- Content creators (blog, video, writers, etc.)
- Basically any industry that does not require major infrastructure
Case study: Achieving SaaS growth with accurate financials
Scaling mistakes that can make or break a company
Focusing on short-term sales vs. long-term growth
Many startups rely on sales of products or services adopted by early adopters or month-to-month subscribers that don't convert to annual sales. The downside is these are a subset of a customer base and can skew projections. First establish stability, then scale.
Poor operational planning
Going from a small organization to a large corporation naturally requires change. While running a five-person company, management probably knows exactly what each team member is doing at any given moment in time. Many of these team members probably where multiple hats and cross departments and teams seamlessly.
The reality of a larger organization is much different. As a company grows, having proper communication, processes and people in place is critical to the success of the entire organization. Failing to build this from the start can have drastic consequences.
Choosing the wrong partners and team members
The people there for a startup aren't necessarily going to be the same people who will expand its growth. Whether it’s adding suppliers, staff and/or investors, not picking the right people (or putting them in the wrong position) is a common mistake founders make. It’s easy to simply let responsibilities or positions grow, without purposely thinking about how they fit into a bigger vision.
Replacing employees is expensive. Research suggests a new employee costs between 6 and 9 months of their annual salary in hiring and training costs.
If possible, hire right along the way. Remember that a strong culture fit and competence in skills you need down the line is just as important.
Disorganized financials and accounting
One of the biggest scaling mistakes growing companies make is losing track of accounting and drowning in disorganization. Not only is this frustrating, but not having proper financial data can lead to poor decisions about the direction of the business. It can also have serious tax repercussions and legal consequences.
Clear financial records provide significant peace of mind. When finances under control, business leaders are freed up to focus on the big ideas for their business.
Scaling too quickly
It's wrong to assume that scaling a company as quickly as possible is the best bet for success. While growth is good, a "too fast, too furious" approach exposes the weakness in a foundation.
As an entrepreneur, it’s normal to get excited when a sales are up. But prior to immediately launching more offerings or locations, it's important to step back and assess. Nothing about scaling a company should be done quickly.
Related reading: 5 signs you're ready to scale
Make sure your capital matches your growth and your day-one customers are happy. Create a plan for years ahead and predict growth before it happens. It's always better to estimate costs being too high rather than too low. Acting without careful planning will cost you time and money and prove detrimental to the company's growth.
By scaling up, it's possible to take your company to the next level. With proper planning that is possible by avoiding the mistakes mentioned above, and by growing at a pace that’s purposeful, strategic, and steady.
How to scale your business
Other than avoiding common mistakes, scalability is about capacity and capability.
If you have made the decision to grow your business, the next challenge is how you'll be able to deliver to all those new customers. Does your business have the capacity to grow? Will your business systems, infrastructure and team be able to accommodate growth? What efficiencies are created by exponential growth?
Do these questions keep you up at night? We can help audit your company and prepare you for success.
There are a few things an organization can do to make scaling a bit easier.
Strategies for scale
- Reduce costs of incremental sales: If your business sales model requires too much time and effort, then the model is not scalable. Find the aspects of your business that can be replicated quickly and cost effectively. Think about how product delivery can be automated or produced faster and cheaper for every additional customer who buys it.
- Establish standardized processes: flexibility and complexity is the enemy of growth. If a company is going to scale, processes must be standardized and repeatable, with proper delegation. This may require auditing, and investments in support systems including IT and training as well as delegation from senior management.
- Invest in employees that can drive the vision: Companies invest a great deal of money in their employees for good reason — it helps them grow by retaining and attracting top talent, who are more loyal and engaged, have achieved a good work/life balance, and as a result, work harder.
- Avoid shortcuts and hacks: Someone who takes shortcuts, makes compromises. It could be in your ethics, your values, and the integrity of your business — or even just in the time and diligence afforded to solving customer service issues or the mundane, necessary housekeeping task. In the end, however, someone always pays for these shortcuts.
- Always be optimizing: Few solutions, even Sass, are "set it and forget." This is true not only for the produces and services you provide, but also for a company's internal operations. If a company wants to be in it for the long haul, continuous improvement is key.
- Value your time: Time is a precious resource. Are you putting yours to the best use? How about your upper management? If you are focused on chasing fires, or people are coming to you to fix problems, chances are you don't have time to focus on the real issues in your business. Instead, delegate where needed, focus on the important (vs urgent) problems, and pay for the expertise that is missing. This will give you freedom to scale and support your growth.
Are your operations and financials working together? Learn how we can connect the dots.
Following our tips will help a company scale with more profit, more ease, and less stress. That's a win-win in our book.
Achieve scale faster with outsourcing
There's no one-size-fits all approach to scaling a startup, but gaining expert advice to avoid pitfalls and maximize the opportunities is a great place to start. Even better? Gaining those insights from a fractional CFO by Focused Energy, where services grow with you.