Scaling is one of the most discussed topics among entrepreneurs. However, it is a term that often being confused as growing. So what exactly is scaling?
Growing a business is not equivalent to scaling one. To grow a business, it can be done by investing more resources such as staff and raw materials to increase output. Both revenue and cost, in this case, will grow proportionately.
Scaling, on the other hand, is about being able to grow the revenue while keeping operating costs low. It is not just about selling more products and services.
This article serves as a guide to scale up your business, be it for a small business owner or someone who is managing a multinational corporation.
Four key factors of scaling
Premature scaling occurs in 70 per cent of companies and is responsible for the failure of 74 per cent of tech startups.
To ensure that scaling is not done prematurely, you must first understand the four key factors of scaling. The four key factors are: Market, cash flow, internal control, skills, and attitude.
- What are the key cultural factors in your new market do you have to be aware of?
- What is the demographic of your target audience?
- What opportunities does this market have that can be exploited?
- When is a good time to enter this market?
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These are some of the questions that you should think about before scaling. Be it entering a new market or expanding within the current one, you should have in-depth knowledge of the dynamics of the target market, and the taste and preferences of the consumers. You will then be able to position your company better to reach out to the target market.
2. Cash flow
Without money, a company cannot survive. As scaling aims to keep the operational cost low, cash flow management is essential. Having strong credit management and tight control of overdue debt allows companies to constantly track their cash flows in and out of the company, minimising unnecessary loss.
3. Internal control
Scaling allows the company to become bigger. In a small company, internal control may not be such a big of a problem as everyone is kept updated all the time. Once the company grows, there will be more people to handle and internal control becomes increasingly complicated.
Proper documentation must be done; policies and procedures need to be put in place to provide guidance for the employees. Stricter management standards and quality control systems are needed to ensure that the company is running effectively and efficiently.
4. Skills and attitude
Companies at different stages of scaling would require people with different skill sets. Initially, companies will need generalists with strong problem-solving skills. When the company grows bigger and segregation of duties occurs, specialists are required.
Companies will need to hire more specialists along the way and be able to assimilate them into the team. Messaging of the scaling activities of the company has to be clearly communicated to team members to ensure attitude alignment.
Three ways to scale your business
Here we have three common ways to scale up a business.
1. Market penetration
Market penetration is about selling more of the existing products to the existing clients/markets. To sell more you will need to look at four elements: business model, distribution network, marketing, and operations. Some ways that you can do so is by modifying the business model, building partnerships and alliances, or enhancing distribution deals and marketing efforts.
Before deciding to scale the business in this manner, you should ask yourself these questions:
- What is the current size of the market? What is the potential size of the market? Will it grow or contract?
- How much of the market share can we take?
- How well does your product fit into the current market?
2. Introduce new products
The second method is to introduce new products. This does not mean that companies have to spend big bucks to develop totally new products to existing clients. It can be about making modifications to the existing products, repackaging it to increase value to clients for their purchase.
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This can be done through the enhancement of the product by eliminating obsolete features and adding new innovative features. Alternatively, companies can create and launch a completely new product that is related to existing products.
These are the few questions that you can reflect on:
- Will the new product address the unmet need of customers?
- Will the product make money?
- How will your new product fit into your core competencies?
- Is this new product a complement to your current offering? Or is it a replacement?
3. Add a new target market
The last method is to add a new target market. This is done by selling the existing products to the new markets. To do so you can reach out to new customer segments or expand outside the home country. The easiest way is to identify a market that is geographically close to the home market and has a relatively close culture to the home country.
Think about these questions:
- Do you need a new set of strategies?
- Can the same value proposition be applied to the new target market?
- What is the market size you are looking at?
- What are the environmental factors that can affect company performance in this new market?
- Who are the main competitors in such markets?
Four scaling strategies
With the understanding of the way to scale a business, you can now proceed to adopt one of the four strategies that are classified based on two attributes – efficiency vs. speed and level of certainty.
1. Classic startup growth
For the classic startup growth model, efficiency is prioritised in the face of uncertainty. You will be aiming to minimise uncertainty while still growing. You will need to be resource efficient and need to learn about the market, technology, and team before commencing on scaling. In this controlled and efficient growth, you can work to minimise the uncertainty while trying to seek for product/market fit.
2. Classic scale-up growth
Classic scale-up growth focuses on growing efficiently once the founders have achieved certainty in the environment. Typically, founders will only begin scaling once they are sure of the environment. This strategy is good if you are maximising the return of investment in an established and stable market and it is usually done in industries where there is no need to grow quickly.
3. Fast scaling
If you are adopting the fast scaling strategy, you will usually give up efficiency for growth. Fast scaling takes place in the environment of certainty, which means that the cost is well understood and predictable. This is a very good strategy to gain market share or when companies are trying to achieve revenue milestones.
Blitzscaling (a term coined by Reid Hoffman and Chris Yeh) works only if founders are willing to give up efficiency for speed but without waiting to achieve certainty. The aim of blitzscaling is to gain market shares quickly to become the market leader. This approach is a “do or die” method in which the company either succeeds or dies within a short time. The team has to accept the risk of making wrong decisions in exchange for the ability to move faster and achieve success.
Five steps to minimise the risk of scaling a business
Scaling a business has never been an easy task and many organisations had to learn in a hard way to get it right. Here we present five steps to minimise the risk of scaling:
- Evaluate & plan: Identify a strategy early in the planning and often evaluate the plan.
- Find resources: Ensure that there are enough funds and internal capability and capacity to support the scaling plan.
- Upgrade technology: Start to automate the processes to make things easier to execute.
- Revise processes: Automate and add more processes to support the scaling plan.
- Leverage on Strategic Business Relationship: Identify and work with current or existing partners and clients that can assist with scaling the business
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