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 You Can Over-Deliver To Gain The Advantage
Go over and above for the people you serve, and you will enjoy the benefits of an abundant relationship.
Wise, established entrepreneurs know that over-delivering value — which simply means going above and beyond for the people we serve to deliver more satisfaction for our service and thus exceed expectations — is crucial to a business’s survival, growth and future. It represents the core of a company’s foundation. And without a solid foundation, a business is always vulnerable to a person or company that does over-deliver.
To ensure you don’t ever forget the importance of over-delivering value, here are three ways it will give you and your company a distinct competitive advantage:
1. Creates abundance
Success comes most to those who are surrounded by people who want their success to continue. When you over-deliver value, people may be sceptical at first, thinking that you are expecting something in return, but when you are consistent and genuine with your intentions, they begin to trust and appreciate that you are just thinking of them.
You never know the value of the value you are delivering. But I’ve learnt that if you are consistently delivering greater value to people, your value becomes more and more aligned with the immediate needs of the people and companies you are serving — and abundance in the relationship is created. This is what over-delivering value is all about.
2. Earns respect
Entrepreneurs who take the time to over-deliver value are the ones who earn respect. Typically early-stage entrepreneurs tend to find ways to be the recipient of someone else’s value in a search for momentum.
You never know which transactional seed is going to grow, but when adding value to others, this type of seed is never forgotten.
For example, every quarter, I deliver a white paper to clients with the intention to challenge their thinking. My goal is for them to know that regardless of whether I am conducting business with them or not, I am thinking of them and thus strengthening our long-term relationship. And since my white papers focus on predicting future leadership trends and business strategies, when a related topic arises in one of their strategy meetings, they don’t hesitate to call me to discuss an opportunity for us to engage.
3. Enables distinction
Entrepreneurs who add value to others create and sustain a distinction in the minds and hearts of those they are serving. After all, most people are simply doing what they’re told to do inside the box they are given. Entrepreneurs can’t afford to do that.
We are the originators, the innovators and the opportunity seekers. We live our lives constantly in search of ways to add value to make things better. We disrupt the status quo. We are not in the business of fixing the old ways of doing things. We create new ways of doing things. If entrepreneurs are technically the experts at adding value through our products, services and brands, why can’t we add value through the people we depend upon most for our success?
Over-delivering value is the key not only to being a successful entrepreneur but also to the entrepreneurial mindset we must continually cultivate in ourselves and others. No one is successful alone. We must see the value in over-delivering value by being other-directed and connecting dots of opportunity with focus and purpose to become smarter and wiser, while making ourselves invaluable to the people and businesses we serve.
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.
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