In Ireland, about 1 in 3 businesses fail in its first 5 years – however 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.
Scale vs Grow are two terms often confused. Although scaling a business is related to growing a business, growth and scaling are not the same.
Growth refers to increased revenue. It could be as a result of new business acquisition, new contracts, etc. However it doesn't necessarily mean increased profit.
Scaling, on the other hand, means finding ways to grow more efficiently, so that your gains exceed your losses.
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.
Scale also means, flexibility, agility, versatility – all the things that equip your business for expansion but also prepare them for unforeseen changes that can and have blown many a business off course.
For example: You run a professional services company, and you won a €50k contract. However, to deliver it, you must invest in new employees and tools for €50k.
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 €50k contract, invest €5k and must only hire a part time support at €15k, you’re keeping €30,000 – and you’re scaling efficiently.
When every new business starts out they need to be looking at scalability, not just profit growth. Start with your business plan and your sales and marketing strategy, and determine how scalable these are. Think of scalability as the acid test on whether or not your business plan is achievable. It’s the reality check you need to make your business work, which should be closely followed and referred to throughout your business operation.
Every business starts out with the objective to grow. The aim is to get to breakeven point, where your costs are covered, and you can begin to make a profit. But this needs careful planning. If you don’t look at scalability then you are effectively taking a scattergun approach to your business plan. It may work, but it also has the potential to fall flat on its face.
Scalability is the capacity to be changed in scale or size. Rather than focus on the ‘change’ aspect, it’s about focusing on the ‘capacity’ element. Consider the key components that really drive the capacity. Here are some key steps to give you an idea:
Determine your milestones: Outline the objectives that will set you on a successful path for business growth. Know what it is you want to achieve and the effort level required to get there. Is this achievable under different conditions?If your business is ready and prepared to accommodate growth then your business is much more likely to survive. Not only will it have the ability to make it through periods of short-term growth, it will also have the durability and longevity to remain on the path to success.
Here are some of the benefits of having a scalable business:
Improved efficiency: Scalable businesses are more efficient because they plan for all eventualities and ensure they can operate in different circumstances.Scaling your business is a marathon not a sprint, consistency, hard work, re-evaluating status quo and set interim mile markers, so you can assess progress and learn how well you’re pacing towards the end state.
Scaling a business is all about 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.
Scaling a business is all about efficiency: the ability to get more output with less input. You can use the latest technology to automate certain tasks and make scaling easier, some examples.
Scaling is measurable. You need to start by digging into the numbers. Here are a few metrics you can look at:
Growth Rate: Measure the growth rate of either revenue or customer base month over month. Set high goals during the scaling phase.It's well-known 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 investment where they will provide the most return and help you scale successfully.