Scaling a business
As Tony says, “Business is a sport for gladiators,” but in this arena, there is one metric that stands above all others: growth. Even stock market giants like General Electric and ExxonMobil are under pressure to achieve growth – and not just any growth, but scalable growth.
Scaling a business is a measure of success no matter your size or industry, but it becomes even more important for small businesses and startups. About 20% of businesses fail within the first year – but if you can scale successfully, you’ll set yourself up for the future. In today’s fast-paced landscape, it’s more essential than ever to not only know how to answer the question “What does it mean to scale a business?,” but to be able to apply it.
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What does scale mean in business?
In business, the definition of “scale” is to increase 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. Businesses that are able to add revenue and increase operational demands while maintaining the same costs – or even lowering costs – will be able to scale successfully.
Think of it this way: You run a professional services company, and you just won a $100,000 contract. However, to fulfill that contract, you must hire two new employees at salaries of $50,000 each. You are adding to your revenue, but you’re breaking even in terms of profit margins – you’re growing, but you’re not scaling.
If you win the $100,000 contract, invest $5,000 in a new enterprise resource planning software, and therefore must only hire one employee at $50,000, you’re saving $45,000 – and you’re scaling efficiently.
Growth vs. scale
These two terms are often confused: What does scaling a business mean versus growing a business? Although scaling a business is related to growing a business, growth and scaling are not synonyms.
Growth refers to increasing revenue as a result of new business acquisition. Growth also refers to secondary occurrences that happen due to this acquisition: hiring more employees, expanding office or warehouse space and so on. Growth typically results in even losses and gains. Scaling, on the other hand, means finding ways to grow more efficiently, so that your gains outpace your losses.
Why is scaling a business important?
Understanding growth vs. scale is essential for all types of businesses. You’ll need to do both in order to succeed. Growing companies experience increased sales volume. Scalable companies are able to improve profit margins even as that sales volume increases. If you grow without scaling, it’s ultimately your customers and bottom line that suffer.
By way of metaphor, think about the process of remodeling a restaurant that’s outgrown its space. The goals of the expansion would be to increase the restaurant’s square footage to accommodate more seating (growth) and create an efficient workspace (scaling). Without both in place, the staff won’t be able to provide flawless service that attracts and retains customers, which defeats the point of growth in the first place.
Determining your business’ scalability
Now that we’ve answered “What does scale mean in business?,” we’ll apply it to the real world. When is it time to begin scaling a business? And are there some businesses that are easier to scale than others?
When are you ready to scale?
Scaling a business isn’t something you need to do right away. If you’re in the infancy stage of the business cycle, you need to set a solid foundation before you start to think about scaling. First make sure that you have a product or service that will make your business talkably different from others and that you are filling a certain client or customer need. You have to continually add real value that creates raving fan customers. And you’ll need a solid business map and the determination to make your company a success. Only then can you move on to answer the question, “What does it mean to scale a business?”
Will your business scale easily?
Some organizations will scale more easily than others. Businesses with less physical inventory and low operating overhead are more scalable because you won’t need to build infrastructure or even invest a lot more money in order to scale. This is why tech companies are able to grow so rapidly. But you don’t have to be a tech company to be able to scale like a pro. There are tips anyone can follow for scaling a business mindfully.
Tips for scaling a business
What’s the difference between the 20% of businesses that fail in the first year and the 80% that survive? Much of it has to do with successful scaling. These tips will help you not only survive, but thrive.
1. Transform your mindset
Scaling a business really centers on your strategy and mindset, which are much more important than your sales model, industry or current business phase. Scaling requires flexibility and problem-solving so you’re able to overcome any obstacle you encounter. To achieve explosive business growth, you must develop the mindset of a champion. This doesn’t mean achieving perfection – it means accepting failures as stepping stones to success. With an attitude of mindful scaling and a thorough understanding of best practices, you’ll be set up for business success.
2. Get the right tools
Scaling a business is all about efficiency: the ability to get more output with less input. Anyone can use the latest technology to automate certain tasks and make scaling easier:
- Digital marketing strategies for customer acquisition
- Email and social media automation for lead nurture
- Chatbots to handle queries and requests
- Customer relationship management (CRM) systems to manage your customer database
- Enterprise resource planning (ERP) cloud software to streamline operations
- Warehouse and inventory management technology for saving time and labor
3. Learn the key metrics for scaling a business
Every business owner must eventually stop wondering “What does scale mean?” and take massive action. Start by digging into the numbers. As with everything else in business, scaling – and whether you are doing it successfully – is measurable. Here are a few metrics you can look at:
Customer acquisition cost (CAC):
The total cost, in labor and materials, of acquiring one customer. Businesses must find ways to lower CAC as they scale.
Lifetime customer value (LCV):
The predicted total value of a customer over their lifetime. Businesses need to focus on increasing LCV as they scale.
Measure the growth rate of either revenue or customer base month over month. Set high goals during the scaling phase.
How many of your interested prospects are actually signing up for your service? It’s essential to get this number as high as possible.
4. Focus on the customer
It’s a common adage in business that acquiring a new customer costs five times as much as retaining an existing customer. Because scaling a business is all about efficiency, customer retention becomes as vital as gaining new customers at this stage. Delivering on what your customers want is the only way to keep them coming back – and keep your acquisition costs down.
How do you know what they want? Ask them, and make sure you are listening to your customers, not falling in love with your product and ignoring feedback. Do your research and create buyer personas so that you’re targeting high-value audience segments. These strategies will allow you to direct your dollars where they will provide the most return and help you scale successfully.
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