How to scale a business is a perennial question in entrepreneurship circles. Not only is the answer different for every company and every industry, it’s also fairly tricky.
Growth leads to increased revenue, profits and valuations. But spending aggressively on scaling anything from adding staff, regions or new products can lead to pitfalls, pains and sometimes the end of a business.
As a business owner, knowing when to grow can play a major role in your company’s long-term sustainability.
The key is to find the right balance of acceleration to maximise the business and capture market share without breaking the bank.
Here are a few tips to grow your business.
Know when to scale
Founders going for growth need to consider the market’s own growth rate or the expansion of total spending in a given space. This is basically the pace car you need to beat to gain a share.
While it may be enticing to jump into the land-grab race, it’s important to focus on your product and the interest of target customers rather than growing too fast. Once you’ve nailed the product and caught the audience’s attention, then it’s time to go big and fast.
Understand your cash flow and budgets
Here’s a scary thought: High growth businesses can easily go bankrupt. That horrible outcome of great product, bad business happens when growth consumes cash. Get intimate with your cash flow statement.
Understand when money comes in, where it goes and when, as you don’t want to let your bank balance fall below zero. As for your marketing budget, expenses should be targeted towards activities that generate customers quickly and inexpensively.
Also, try to direct more of your budget toward clients who will stay with you long enough for you to recover your initial customer-acquisition costs. This way, you’ll have a more consistent flow of money coming in.
Recognise the trade-offs
Continue to manage the balance between growth and profitability. If you raise prices too high, too early, you could curtail growth while widening profit margins.
Further, if your prices are too high, you could lose market share, as a more moneyed competitor that can afford to undercut you for longer could step in. It’s a tricky balancing act but one that needs constant attention. Remember that you must continue creating value to outpace the market.
Get the capital
Being able to sustain a company while generating losses requires capital. If you have a business that is venture-fundable, gaining VC investment provides long-term capital to continually invest in differentiation and growth.
To have a top returning venture-funded company, you probably need to be at least doubling revenue every year for many years. If your company is going to grow more slowly, then seek other forms of capital, such as loans or sweat equity from yourself and your partners. Either way, you need to focus on having a stream of capital to keep your business afloat.
Hire, hire and then hire some more
Before you decide to go full-speed ahead with your growth strategy, make sure your business is prepared for scaling with human capital. Do you have the team to execute in a high-growth environment? If not, the best advice is to hire well. Look for folks with senior-level experience.
You will have to make some hard calls, not just in hiring but also in letting go of employees who’ve been with you since the early days but haven’t grown with the business.
Handling rapid expansion
Undoubtedly, a rapidly growing business is a great problem to have. It means more market penetration, increased customer reach and ultimately, greater sales.
But there are also many challenges to address and overcome to effectively manage the infrastructure of a business that is flourishing quickly. Get it right and you’re building a R100 million business. Get it wrong, and your flourishing SME might still fail.
Customers come first
As with any business – especially one focused on emerging technologies – it’s important to not only understand trends in the marketplace but to keep up with them. (If you can’t effectively satisfy numerous and varied consumer demands, you will lose momentum and expansion will fizzle quickly.)
The consumer and market dynamics can dictate what strategies are necessary for a successful business and being able to assess the initiatives and changes you choose to implement will benefit you in the long run.
Consumer shopping patterns and expectations have also changed. Focusing on exceeding those expectations through offerings such as expanded store hours, increased product knowledge and expertise and unmatched in-stock inventory can make you a vital resource for your customers – ensuring they get the products they need, when they need them.
Be flexible and willing to adapt
As with many things in life, it’s important to embrace change and be willing to adapt. In fact, continual evolution can signify your ongoing commitment to serving an ever-changing market. Continue to innovate and progress through new partnerships, products and services to survive a rapid expansion.
Reinvest in your brand
It’s important to continue investing resources to protect your position in the marketplace while you’re growing. To meet consumer demand and improve service levels, introduce new products and services, improve in-store technology, increase omni-channel marketing efforts, add training programmes, and be willing to dedicate time and money toward solidifying operations and boosting sales.
In addition, by expanding your staff and keeping your supply chain and distribution centre consistently functioning, your business will run smoothly while growing rapidly.
Maintain your company ethos
When a business faces rapid expansion, it can be easy to lose sight of its core principles. A good company mantra that can keep both you and your employees grounded and focused is the acronym H.U.M.B.L.E.: Hard workers, Urgent, Mutually Accountable, Brand Builders, Loyal, and Execute with Excellence.
In business, growth isn’t possible if you rest on your laurels, but it can be equally detrimental if you spread yourself too thin. Stay humble through rapid expansion and your customers and investors in your brand will appreciate you that much more.
Communication is key
Constant communication among key stakeholders, the exchanging of ideas and feedback and making sure you’re aligned toward achieving the same goals is critical.
Whether you’re hosting a company convention, participating in a franchise council, executive meeting or simply taking a phone call from a customer, the line of communication throughout your business should always be open.
Incorporate a consistent and streamlined process for connecting with everyone in your company to relay key messages, major milestones, goals, company changes and plans for the business. You must all be on the same page in order to move forward collectively
How Netflix Is Now Disrupting The Film Industry By Embracing Short-Term Chaos
One wrong move and Netflix could have been nothing more than a footnote in the history of entertainment. But by staying ahead of the curve and embracing disruption, the company is threatening some very entrenched competitors.
Attendees of the annual Cannes Film Festival are typically not afraid to be vocal in their dislike of a new film — booing and hissing are both surprisingly common — but the recent film Okja possibly set some sort of record. The crowd was booing and jeering before the film had even properly begun. In fact, all it took was the name of the studio behind the film: Netflix.
Why the animosity? Netflix is disrupting the film industry, and the traditionalists aren’t happy. After debuting at Cannes, Okja wasn’t released in cinemas. No, instead it was released right to Netflix, free to stream as long as you have an account.
Of course, few would have guessed a few years ago that Netflix would ever get into the business of making its own television shows and movies. According to industry lore, entrepreneur Reed Hastings launched Netflix because he was annoyed with the exorbitant late fees of video/DVD store Blockbuster.
Instead of having to return a movie once you’ve watched it, he conceived of a business that would ship DVDs right to your door through the mail.
It was a clever idea, but not one that seemed terribly disruptive. The whole process could be a bit of a hassle, and it required you to schedule your entertainment well ahead of time. Blockbuster even had a chance to buy Netflix, but decided that it wasn’t worth it.
The rise of streaming
Even as Netflix was hitting its stride in the early-2000s, the tide was already turning. It was becoming increasingly clear that the Internet was going to be an incredibly disruptive force, but many companies failed to notice. Or, if they did notice, they failed to take adequate action.
By 2007, the potential of streaming TV shows, films, music and books online was clear, but the DVD business was still doing well. However, Netflix decided to prepare for the future (and disrupt its own operations) by launching a streaming service. It did this by going to the traditional movie studios and television networks, and asking to licence their old content.
In the view of these studios and networks, old pieces of entertainment had run their course, so they were pleased with the new revenue stream.
This brings us back to Okja. Netflix has been creating its own content for the last few years because it realised that studios and networks would eventually catch on. At some point, they would understand that they were giving Netflix the ammunition needed to disrupt the industry. Why have Netflix stream your content if you could create your own streaming service?
“The goal is to become HBO faster than HBO can become us,” Hastings said of one of the most popular American cable channels back in 2013.
In a mere 20 years, Netflix has gone from a low-tech operation that sends DVDs through the mail to one that not only streams content online, but is also producing its own content — content from some of the most respected actors, producers and directors in the world. All of this is costing Netflix hundreds of millions of dollars, and it remains to be seen if this strategy will ultimately pay off, but betting against Netflix is risky.
Netflix has shown itself to be uniquely capable in drastically shifting its business model. Here is how Hastings explains it: “Short-term optimisation about being efficient is the death of long-term success and innovation. Building Netflix, we created a company that tolerated some short-term chaos, and we manage right at the edge of chaos. The value of that is keeping and stimulating the amazing thinkers, so when the market shifts, like DVD to streaming, or licence to original content, we have in Netflix all kinds of original thinkers, and that is the long-term optimisation that all of us in organisations want.”
SME Leaders: How You Can Manage Growth
Fresh growth is all around us this Spring – find out how you can powerfully manage growth as you provide leadership to your SME.
In the transition from start-up to scale-up, a critical factor for a growing business is the quality and strength of its leadership team.
Learning to trust and empower staff is a crucial step for SME leaders who wants to grow their business upwards.
As a business grows, one of the biggest challenges for the business founder and leader is the hand-over of an idea from the founder to the people who work there, The brand moves from being one person’s idea to being the professional focus of a whole group of people.
Without effective leadership, small businesses will be held back, more than three-quarters of SMEs provide no leadership development for their staff. What does this mean for you?
If you lead your business with vision and clarity, you set yourself apart from your competition. Here’s how.
Lead the pack
A growing business creates more work than a leader can handle alone.
As the team grows, founders often react by micromanaging the details of their business. In trying to take on everyone else’s job, the founder often leaves the most critical position vacant: strategist and vision-setting.
Learn to trust and empower others in the organisation and you will find you have room to innovate, which is critical for business growth.
Steady the ship
An effective leader will also engage others in the business to embrace and adapt to change as growth continues.
- Vision: First, plot the course for where the business should go in the short term, and the long term.
- Change: Understand what needs to be put in place to grow the business. You might need to source better business operating systems to streamline this growth, or change a few internal business processes, or rethink how you calculate your hourly rates.
- People: Growth equals change, and change equals pain, so if you want growth, budget for pain. Understand that you will need to guide and coach the staff into changing their mindset and adapting to these growth changes.
We Went up Against A Highly Regulated, Entrenched Industry. Here Are 4 Tips For Getting Your Foot In The Door
Focus on creating value, not disruption.
Multibillion-dollar legacy industries don’t make it easy for entrepreneurs to step in and create value. There are huge barriers to entry – licensing, pricing, regulations, and cultural/brand significance – that come with being around for a century or more.
However, those barriers shouldn’t stop you from innovating.
Take the utility sector for example, which is perhaps most frightening of all: A trillion-dollar taxpayer subsidized network of poles and wires set up through franchised municipal monopolies. Otherwise known as, our power and energy industry. It’s a mouthful of protection, and as a result, utilities make for a great investment (just ask Warren Buffet), since the likelihood of disruption is tough to even think about. To most reasonable entrepreneurs, the regulated utility sector, similar to the financial and healthcare industries, is tantamount to a “NO TRESPASSING” sign.
But, that is exactly what makes the effort so worthwhile. If you can successfully work with or alongside a monolith industry and produce value, instead of being focused on “disruption,” you’ll be able to achieve massive results.
When we first started trying to provide consumers cleaner and better energy options, getting to market proved difficult as we were trying to break into a utility-customer relationship (paying a power bill) that hasn’t really changed for the last half-century. But, with a clear mission in mind and the understanding that we would have to work in unison with utility providers, we were able to start making our mark.
Here are a few tips for getting your foot in the door:
1Create value, not disruption
There are some industries where the Silicon Valley catchphrase “disruption” falls flat. Some industries just aren’t meant to be disrupted in the way that people in the tech community are used to. Nearly our entire economy depends on the power grid and we couldn’t come in and totally upheave that. When you’re going after a big industry, you first need to provide value to the customer or the provider.
Show instead of tell that you have a strong customer base and that people need what you’re offering. And build relationships – working together with the big players in the space will get you much faster and better results for your company and your customers.
2Focus on the customer experience
When you’re a startup, you already have the advantage of being years ahead in your digital experience compared to traditional companies in your space. Own that and hone in on it to make it the best customer experience possible. We looked across sectors to bring modern design, UX and data elements to the home energy experience.
Traditional companies aren’t necessarily thinking that way, and you’ll win people over by offering self-service customer tools, easy payment options and notifications they actually understand. Good communication with your customers goes a long way.
3Start small, build toward the vision
A lot of start-ups begin with very lofty goals – disrupting whole industries and changing the entire way a process is done. We certainly had a broad vision to be the trusted home energy advisor for everything from solar to batteries. But, you’ll never be able to achieve anything if you try to tackle everything all at once in a highly regulated and old-fashioned industry. Instead, to get started, focus on one thing.
For us, it was offering clean energy via renewable energy certificates (REC). By starting small, you’ll be able to learn about and understand the space you’re going into, and will be able to see if there’s a market for what you’re offering. As you learn, you can slowly expand step by step and tackle more complex products in the industry.
4Use best practices from other innovative industries.
No industry has a monopoly on good ideas, and the boom in direct-to-consumer brands across apparel, food, finance and healthcare provides a great roadmap for how to build a modern customer experience. Look to other industries that have been there and done it. For example, Mint.com has created an innovation through the consumer interface – in their case to manage finances – while leaving the existing banking and credit card infrastructure in place.
While the thought of breaking into an established industry is definitely intimidating, in today’s entrepreneurial environment it is definitely possible and innovation is desperately needed. Success depends on the ability to shed your typical idea of disruption, and stay patient and persistent.
This article was originally posted here on Entrepreneur.com.
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