7 Factors to Consider Before Scaling Your Business Towards Growth
This is the main paradox the startup community faces when it comes to venture-backed businesses. For instance, angel investors expect a profitable exit within 5 years of the founding round, preferably sooner. Different VC studies report anywhere from 4 years to 6.3 years on average.
This requires a business growth plan that scales really, really fast, even at the expense of generating loss over the first couple of years. Loss is accumulated due to large hiring rounds, tons of marketing and ad budgets, a sales army, and different freemium offers or referral deals aiming at generating a massive user base early on.
The rapid scale-up is a dangerous choice affecting all internal processes, organizational hierarchies, and cross-department workflows. It presents challenges that will test the capabilities of a business and its adaptability to cope with significant changes.
How to scale a small business
1. Put together the right team.
One of the key components of scaling your business is increasing your headcount to support a larger operation, Gallagher said. There are a few ways you can add more people – adopting a franchise model, bringing on contractors or hiring employees, Gallagher said.
Check out industry benchmarks to decide how many people you need to handle the demands of your business. Recruiting tools and hiring systems may be a worthwhile investment as well.
Adding more members to the team can be frustrating for entrepreneurs who are used to doing things themselves or with a core group of co-workers, Guzman said. You’ll need to be patient when working with people who have varying skill sets, especially when they’re new and learning the ins and outs of the company, he said. We’ll discuss strategies below for how to budget for a bigger staff until new products or initiatives begin to pay off.
2. Develop your strategy for growth.
Although you want to stand out among competitors, you should also keep your offering concise, Gallagher said. If you specialize in a certain service or industry niche, you would have a better chance of connecting with customers and scaling the business.
3. Create a game plan.
4. Figure out how to pay for it.
When possible, it’s best for a business to fund growth internally, Gallagher said. You wouldn’t have to worry about borrowing money or bringing on investors. Being able to rely on your own revenue to scale would also indicate strength in your business, he said.
You could borrow money in the form of a small business loan or line of credit from a traditional bank or an alternative lender, or you could seek equity from outside investors to boost your scaling efforts, Gallagher said. Both types of financing come with costs, whether it’s interest on a loan or loss of total control of the company to investors, he said. However, borrowed money tends to cost less than equity in the long run, he said, as long as you can handle the interest rate and repayment terms.
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About The Author
Gennaro is the creator of FourWeekMBA, which reached about three million business students, executives, and aspiring entrepreneurs in 2021 alone | He is also Head of Enterprise Sales for a high-tech startup, which he helped grow at a double-digit rate since the onset | In 2012 Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.