How to scale 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, knowing how to scale a business is more essential than ever. But what does it mean to scale a business? And how can you do it successfully? Like many other business strategies, you’ll want to be mindful and avoid unnecessary risks, but also ensure you’re not operating from a place of fear. Let’s dive into everything you need to know about business scaling.
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What does it mean to scale a 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.
When we talk about scaling a business, we’re referring to strategies for growth that align with your original business vision while managing the impact of growth on your company. Learning how to scale a business is not easy to do, which is why it must be done as thoughtfully and meticulously as possible.
Scaling a business vs. growing a business
Scaling a business is also often confused with growing a business, but although they are related, they’re 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. Business scaling, on the other hand, means finding ways to grow more efficiently, so that your gains outpace your losses.
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 scaling the business. So what does it mean to scale a business? It means you’re growing, but you’re doing so efficiently and intelligently.
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.
8 steps to scale your 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 steps to scale your business will help you not only survive, but thrive.
1. Develop the mindset of a leader
Every business is only as strong as the psychology of its leader. While it’s important to understand the terminology and strategies for how to scale a business, ultimately your success 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 leader. This doesn’t mean achieving perfection – it means accepting failures as stepping stones to success. To scale successfully, your business doesn’t have to be perfect, but it needs to add real value that creates raving fan customers.
2. Wait for the right time to scale
While your business doesn’t need to be perfect in order to scale, it does need to have a solid foundation you can build upon. Many people think of the first stage of the business cycle as “hockey stick growth,” where there is an initial period of linear growth and then revenue shoots up sharply. The period of linear growth that comes before the rising handle of the hockey stick – that is, the blade – is as essential as scaling. The blade typically lasts about three to four years, and it is where the most important work is being done.
Scaling a business means utilizing this “blade period” to put systems and procedures into place that will prepare you for lasting, profitable development. The blade period is where you establish your core values, your company culture and your brand identity. It’s where you develop the product or service that will make your business talkably different from others and create a solid business map. Only then can you move on to answer the question, “What does it mean to scale a business?”
3. Determine your business’ scalability
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.
Other indicators of your business’ scalability include customer loyalty, which can be measured by your rate of churn or repeat buyers, as well as employee loyalty, which you can measure by your turnover rate and, less concretely, by the passion and innovation your employees bring to the workplace. Employees can spread the word and pass their enthusiasm for your company on to those they serve – one of the oldest strategies in the book for organic growth.
4. Implement the right tools and processes
Tony often says that success in life is 80% psychology and 20% mechanics. That 20% is essential, especially when scaling a business, because it’s 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
Business scaling also means ensuring that your internal processes and operations are functioning seamlessly. Keep in mind that some of the systems and processes that work when your company is in its early stages won’t work on a massive scale. Establish a framework of what works and keeps your business running smoothly in the early years, but be sure to remain adaptable and flexible so that you can tweak processes as you grow.
5. Learn the key metrics for scaling a business
Every business owner must eventually stop wondering “What does it mean to scale a business?” 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 signing up for your service? It’s essential to get this number as high as possible.
6. 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. Delivering on what your customers want is the only way to keep them coming back – and keep your acquisition costs down. 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.
You also need to build client-centered practices into every facet of your business. You want every member of your team to demonstrate empathy, respect and open-mindedness internally so that a collaborative culture of innovation emerges. From there, everyone on staff is able to build rapport with your client, creating connections that will help your product sell itself and make scaling a business effortless.
7. Ensure you have a strong team
It may seem obvious that establishing a strong team is a prerequisite for scaling a business – you can’t handle everything on your own. Developing a management team that is flexible and can grow with the company is an important component. Your team is not just about your employees, though. To master how to scale a business sustainably, you must work on developing external relationships with suppliers, partners and other outside organizations who will be part of your overall growth.
Remember, the community that you create around your business can bolster your foundation so that you have even more strength and leverage as you grow. You become whoever you spend the most time with, so surround yourself with good people and build the “team” that will propel you into the future.
8. Commit to CANI
Everybody hits plateaus – in relationships, in fitness and in business scaling. Yet knowing how to scale a business sustainably so that it continues to grow even when you’re not there means fully committing to constant and never-ending improvement, or CANI. When was the last time your business focused on innovation? When did you last assess what’s holding your company back and tackle those barriers head-on?
In business – and in life – if you’re not growing, you’re dying. But don’t change your company just for the sake of change. When you strategically align your choices with your ultimate purpose, scaling your business will come easily. Take the time and do it right. Remember that massive growth is one thing, but it’s sustainable growth that makes for a lasting company.
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