In the initial stages of a start-up, the primary goals are around defining the market problem, defining the value proposition and coming up with the disruptive innovation that creates a defensible basis around which to build a business. Eventually, and often very quickly, the objective then turns to a start-up’s ability to execute the business plan and having the right tools to scale.
An injection of growth capital is crucial for a start-up and venture capital investors’ eyes light up when they see start-ups with clear scaling potential. If you are looking to take on equity funding then at some point you are going to have to make a mind shift and be able to show your potential investors that you can scale fast and effectively.
It is the great start-ups of the world that know when and how to scale. Being the first to market with a new innovative product or business model just won’t cut it anymore. It is those start-ups who master the art of rapid scaling that outlast the mediocre ones.
Okay, so you know you should look at scaling your business; but how do you know when and how to scale? Timing is very important. Too early and too fast could hurt your business’ cashflow and create unmanageable liquidity problems. Leaving it too late, could open the door for competitors to gain that hard-to-recover market share
A reputed website geared towards entrepreneurs, Start-up Secrets, developed a framework they call the “Deliberator’s Dozen”. The framework is a questionnaire to help take out some of the guesswork, and I think it’s really effective.
According to Startup Secrets, a business that is ready to scale can be characterised by the following:
- You can package your product or service and sell it repeatedly without major modification.
- Your marginal cost of customer acquisition is reducing.
- Time and cost for customers to adopt and deploy your product or service is lessening, and the engagement from your customers is increasing toward a long life-cycle value.
- The servicing costs for your customers are reducing.
- The upgrade cycle for your customer is shortening and the money generated from upselling is increasing.
- Your ability to meet market needs, innovate and create differentiated IP is validated by customers and partners who are themselves building on your products and services and investing in your ecosystem.
- You can develop disruptive and defensible business capabilities in things such as your go-to-market model.
- Your business model is showing real leverage and a potential path to profitability that will attract the funding necessary for continual growth.
- The time and cost involved to attract and get people on board in all major areas of the company to support productivity and growth (e.g. sales, services, R&D etc.) is coming down.
- Your management team is successfully developing and promoting people, resulting in a cohesive culture. They have the ability to effectively manage both obstacles and successes, and is respected as such inside and outside the company.
- Your market opportunity is continuously validated as large enough and is considered to be growing at such a rate that you will be able to meet stakeholders’ expectations for years to come, as you scale successfully.
- Even if you are “changing the world for the better”, you have learned not to “drink your own Kool-Aid” and instead validate your metrics from the outside in. Furthermore, you’re still excited to get up every morning and do it all again – faster, better, cheaper!
Once you have established that you’re ready to scale and have the funds available to launch your big market attack, you need to start thinking about exactly how you will do it.
Here are a few pointers to help you on your way:
Specialisation: hire and appoint experts
Typically, start-up founders are “jack-of-all-trade” entrepreneurs and usually try to do everything themselves at the start. This is fine for the beginning stages, however as the company develops and matures, the new levels of complexity require the founders to define and assign tasks more formally.
Founders need to be able to trust the individuals they delegate and cede tasks to, and employ and appoint specialist agents and employees to ensure effective scaling of the business.
It is pivotal to cultivate a healthy, formalised relationship between the company and its employees and agents (i.e. sales agents, franchisees, resellers and distributors). This entails the proper negotiating and signing of employment agreements and the appropriate SLAs (Service Level Agreements). As these agreements generally also protects the company’s IP, you can’t afford to not have them in place.
Effective management structures
Again, start-up founders cannot possibly run every aspect of every department within a growing company. Founders need to carefully balance their desire to maintain control with the risk of being a bottleneck for effective information flow, decision making and execution.
A couple of people at top management can’t effectively supervise everyone’s increasingly specialized and complex day-to-day work; in such a system, accountability around specific goals become a challenge and employees find it hard to remain focused and engaged when they don’t have managerial guidance and processes in place.
Having the appropriate management structures and reporting lines in place, will relieve pressure from the founders and allow them to focus on more important high-level issues.
Company culture is key
The culture of a start-up is what keeps the employees motivated and on course. Company culture is not just about the game room in your building, free snacks or casual Friday. It is the unique way in which your team works together. It’s what your team believes in and what they value the most.
Make sure you have clearly defined your culture and that you regularly drip-feed it into everyday conversations and team moments.
A strong, growing company culture is especially important in the area of effective collaboration between departments, as well as the relationship with your agents.
In conclusion, the process of scaling a business is an art. Ben Horowits, well known venture capitalist, described it as ‘black art’, that needs a lot of challenging work and attention to get right. Scalability is not just implementing the right management tools and processes, but also having the right mind set. It is a shift from a short-term focus, to a long term, bigger-picture vision. Be clear on what you want to achieve and always think big. Set periodic goals, push towards meeting them and keep your employees motivated for the future you have envisioned them for.
Taking Care Of Business
Do you want to grow your business in 2019? Bear these tips in mind.
SMEs are the lifeblood of the South African economy, accounting for approximately 29% of employment in the country and forming a critical pillar of the government’s 2030 National Development Plan. With funding scarce and the economy volatile, small businesses remain increasingly vulnerable to economic pressures, with many failing to last beyond the five-year mark.
Thanks to the abundance of new and affordable technology, bringing with it the potential for new industries and market gaps, there has never been a better time to conduct business without crippling costs. It is not all doom and gloom in the small business sector, despite findings in the 2018 SME Landscape Report that suggest that a meagre 6% of all start-ups have received government funding.
Do not be afraid to delegate
Many entrepreneurs are so passionate about their own undertakings that they are unable to simply let things go. Rather than empowering and enabling others to take responsibility, many Type A business leaders instead opt to do it all themselves – usually with disastrous consequences.
Learning to delegate is key to alleviating bottlenecking and freeing up capacity in your business, so make sure to utilise all your available resources if you want your enterprise to expand.
While billboards and TV ads are expensive, marketing a business can now be done quite cheaply, thanks to the abundance of relatively affordable digital channels. So while you might not be able to have your brand staring out at you from the pages of a glossy magazine just yet, digital channels like Facebook and Google now allow you to achieve the same audience reach for a fraction of the cost.
Offering the best service in town is one thing, but it is worth nothing if nobody knows about it. So make sure to pay close attention to your website and its search engine optimisation (SEO). By using the correct keywords and even putting a small investment into Google Adwords, you will ensure that people who are looking for what you offer are able to find you easily.
With over 50% of all web traffic in South Africa coming from mobile devices, businesses simply can’t afford not to take a mobile-first approach to business. If you are offering an online service, make sure it is optimised for a mobile experience and ensure that any communication touch-points – be they blogs, social media posts or online check-out pages – are designed with mobile in mind.
One of the key advantages SMEs have over their larger counterparts is their ability to be flexible. Without outdated systems and reams of red tape to wade through, small businesses are far better able to adapt to market conditions and revise their offerings based on consumer needs. So make sure to listen to your customers and be willing to accept that some of your great ideas simply are not feasible.
Your willingness to accept failures and move on, will ultimately be what gives you the edge over your competitors.
Plan your finances
Cashflow is king when it comes to entrepreneurship and many a micro enterprise has come undone thanks to their inability to manage it. As such, financial planning is a critical tool for any business, especially for those operating without significant investment capital. Understanding potential pitfalls and keeping tabs on your profit margins will help to ensure you keep your pricing realistic and enable you to avoid finding yourself in the red.
Operating in isolation can only get you so far, so it is important that you put yourself out there and make proactive attempts to connect with other like-minded businesses. By joining a business network or attending industry events, you will be able to arm yourself with useful contacts, handy insights and perhaps a few new clients in the process.
Remember that owning a business is like raising a child – it requires constant supervision, nurturing and care if it is to succeed to its utmost potential. So make sure to look after your business and one day it will end up looking after you.
MiWay is a licensed Short-term Insurer and Financial Services Provider (FSP. 33970).
How Taking Risks – And Failing – Can Lead To Business Success
Don’t let fear of failure stop you from taking the risks you need to, to carry your business forward. But as your business grows, you’ll have to re-evaluate what risks you can take.
Innovate, innovate, innovate. The war cry is so often repeated that it has become something of a bore. Yet, true innovation remains a rarity – and to our huge detriment. As South Africans, we seem to carry a deep shame associated with failure. Yet, facing the very real possibility of failure is the only arena in which a culture of innovation can take root.
The biggest business failure of my life was an investment into a software company that wrote a piece of software that was set to revolutionise the mobile landscape. It was going to be huge. It was going to take the world by storm. But unfortunately, we backed the wrong horse.
We developed the software for the Symbian platform because Nokia was way ahead of the pack. Nobody else even came close. But, given the fact that there’s a good chance you currently have an iPhone or Android device in your pocket right now, you know how that story ended. Nokia seemed untouchable, then almost collapsed. We lost a lot of money.
Get back up
But, we learnt valuable lessons from that. Of course, there’s the general lesson that everyone should take away from failure – to get up and try again. As General George Custer said, “It’s not how many times you get knocked down that count, it’s how many times you get back up.”
The other lesson was more specific to our business. In developing the software, we learnt a lot about different technology platforms and those lessons were invaluable as we took the next steps in Fedgroup. The same people who built that software helped in the initial stages of developing Azurite, which today is the backbone of our company’s entire operation.
Because we’d been involved so heavily in developing for mobility and the future, our minds were opened to what technology could do. It gave us the mindset to get where we are today.
Investing in education
It sounds like a terrible cliché, but there’s value in failure. Take the lessons you learn in failure – the genuine lessons – because even if you lose money, consider it school fees, and cheap at the price. Arguably, our failure was the “fees payable” that bought us our competitive edge.
In the United States, they are less afraid of failure. They wear their failures like a badge of honour. Elon Musk, for example, misses his targets, but he’s always pushing the boundaries. Recent (questionable) antics aside, Musk’s risk-taking drives innovation.
If people in an organisation are terrified of failure, they don’t try new things, they don’t innovate, they don’t move forward and they certainly don’t disrupt. Even though now, as the CEO of a large financial services company, I can’t afford to bet the whole business on a risky proposition, I still encourage risk-taking and a spirit of adventure – within reason.
Reckless vs reason
This is not to say that we can – or should – be reckless. There should be accountability, and the reasons for making the mistake should make sense. And, you shouldn’t make the same mistake twice. But if you take risks within those parameters, you’ve got a better chance of making a real difference in your organisation.
We have recently launched an app that is fairly disruptive, and as far as we can tell, the first of its kind in the world. Before we launched, we put our personal money behind the idea to test it. We had done our homework, but it was still a risk. If it hadn’t worked, we would have lost our personal money, but because we took that risk and proved it worked, we were able to launch it safely to the public one year later.
Parameters, limitations, and the ethics of risk
When you’re an entrepreneur, when you’re just starting out, you can bet the farm. You can take risks on new ventures and potentially build something out of nothing.
Once you’re an established organisation with staff and clients – and in our case, clients who have invested their pension with us – the scope of risk takes on a new set of parameters. When you are dealing with a client’s security, it is simply not acceptable to expose them to additional avoidable risk.
However, because risk taking is where the magic of innovation happens, encouraging a framework where creativity, experimentation, and risk is possible within your organisation, is critical. One of the ways to encourage this is to examine your attitude towards failure. Build an environment where failure is not taboo, but presents a strong learning opportunity, and ring fence those areas within the organisation which absolutely cannot be jeopardised. This is risk in a helmet – you might get a roasty, but you could win the race.
Proven Strategies To Grow Your Start-up On A Scale Following These Guidelines
The following strategies can help you make the start-up scalable and grow it to accommodate a larger demand.
Scalability and flexibility are important properties of any business. Let’s say you’ve managed to build a successful start-up. It’s profitable and promising, but you want it to become better. The scalability of a business involves its ability to adapt for bigger workloads without losing revenue.
Even if your business is currently small and doesn’t generate huge profits, scalability can help it turn into a large enterprise. The wrong approach to developing a start-up can deprive it of an opportunity to become better.
The following strategies can help you make the start-up scalable and grow it to accommodate a larger demand.
Scaling Vs Growth
Many companies make a mistake of thinking that scaling and growing a company is the same thing. In fact, growth involves increasing revenue or the size of the company (the number of employees, offices, clients).
Constant growth requires numerous resources and may not always lead to a proportional revenue increase. In many cases, the growing number of services or products needed to boost revenue involves high costs related to the growing number of employees and equipment.
On the other hand, scaling allows you to increase the revenue without the costs involved in growth. You can handle the extra load and boost your profits while keeping the costs to a minimum.
At some point, a successful start-up needs to make a choice between growing at a constant rate and switching to the scaling business model.
Even though a single clear method for scaling your business doesn’t exist, there are some guidelines you can follow.
1. Get Ready To Be Patient
Scaling is not a quick process so you have to be patient. The overnight success story is not about you. In fact, scaling too fast usually results in unfortunate failure.
Allow yourself to spend the time to understand who your ideal customers are and how you can solve their problems in a better manner. Make sure you understand how to be confident about the new volume of your work.
Do research to find out how you can find the right resources to achieve scaling rather than growth.
2. Choose The Right Software
The lack of time and team members is a common problem for a startup looking for scaling methods. That’s why they need to try and automate as many processes as possible. This can be done with the assistance of the right software.
- Trello – to simplify in-office and remote teamwork
- MailChimp – to improve marketing campaigns
- Brand24 – to get insights about your business
- Survicate – to collect customers’ feedback
- Voiptime – to increase connectivity.
3. Take Advantage of Outsourcing
Since you are hoping to limit the expenses while growing the revenue, you have to find ways to spend the revenue in the right manner. The biggest mistake made by business owners who think they are choosing scaling is hiring a big team. By doing so, they turn scaling into growing.
Your best bet to avoid hiring a large team and paying large salaries while achieving your plans is to outsource. Using your resources wisely involves finding freelancers and remote employees who are willing to work for a lower pay on a one-time (or several) contract bases.
For example, you don’t need a lawyer or a computer specialist sitting in the office all day long. Why should you pay them a monthly salary?
4. Don’t Do It Alone
Even though certain team minimisation is necessary to improve your scaling efforts, don’t try to handle everything on your own. It’s important to have at least one person you can rely on to manage the business-related problems.
Scaling your start-up is possible as soon as you understand what scaling is in detail. You need to be careful not to start growing your business instead of scaling it in the process. Once you have all the fundamentals figured, resources managed, and the right people in place, you are ready to start.
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