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Businesses go through many stages throughout their life. Startups can move incredibly quickly between phases of development, growth, and preparation for the future. Although growth is a natural part of operating any business, scaling your company is what will help you take your ideas to the next level.
According to the Harvard Business Review, ‘organizational mayhem’ can occur when a company’s growth is poorly managed. To fix the problem, leaders need to shift from thinking about working ‘in’ the company to working ‘on’ the company. This means putting their focus on strategy and learning how to scale.
What Should You Consider Before Scaling
Before scaling your tech company, it’s important to recognize the difference between scaling and growth.
Growth occurs naturally in many successful businesses. With product-market fit, a company begins to add more clients and bring in more dollars. It needs to add resources in order to service these clients, so it hires more people or brings in better tech. With all these extra customers, the company is now earning more money, adding more clients, and has technically grown. However, because it did this at the same time as it added costs, it hasn’t really scaled.
Scaling is based on finding a way to add revenue without generating a lot of extra costs. This not only improves your profit margins it also makes it easier to expand. For example, a company can automate part of its customer service process instead of hiring extra people to meet rising demand. This step allows it to meet increased demand now and makes it easy to handle additional customers in the future.
Being able to scale is crucial to your company’s long-term growth. Putting a plan in place and getting the resources you need before you actually need them is one way to help your ideas take flight.
Here are 4 questions to ask yourself when getting your company ready for exponential growth:
1. How do you create the right team and culture for scaling?
Creating a great team isn’t just about hiring the right people. It’s also finding the best way to use them. Instead of hiring a lot of employees, focus on the quality and complementary skill sets of your core team. A marketer with strong business knowledge and relationship-building skills can work well with a tech whiz who solves product problems quickly but can’t deal with clients. Giving them work to fit their strengths helps you get more done in less time.
Your team should be flexible, knowledgeable, and have enough skills between them to handle the needs of your company as it grows. Delegation is important, and expanding at a fast pace means spreading the workaround. Keep crucial decisions for yourself, and focus on finding people you trust to take on the rest. Additional skills can sometimes be obtained through an advisory board, which can help you solve challenging problems, make introductions, or provide subject matter expertise.
Culture plays a big part, too. A team that feels valued and empowered is more likely to take ownership of their duties and their role. Good company culture leads to higher retention rates and better engagement. The opposite environment where employees feel micromanaged or overworked can lead to burnout, lost trust, and a high employee turnover rate.
2. How do you create scalable processes?
Scaling is all about doing more with less and designing your processes with efficiency in mind. Structured problem solving is one way to boost productivity for your team. Identifying and describing operational issues early on helps you resolve them before they get out of hand. When you’re getting ready to scale, you need to be prepared to handle larger volumes of clients or sales. By eliminating production bottlenecks, waste, overproduction, or wait times, you create a streamlined business ready to tackle new levels of demand.
Scaling your business also depends on knowing how and when to improve. Even small changes lead to big results, and monitoring your data helps you find room to grow. Benchmark your performance and gauge your progress through customer retention, acquisition cost, or burn rate metrics. Giving your team tangible goals to work towards and wins to celebrate will help build improvement into your company’s culture and business model.
3. How do you develop a strategy for scaling?
Understanding the difference between growth and scale is crucial for the longevity of your tech company.
While growth can happen organically with a product-market fit, scaling your business means having a strategy and making a plan. How can you serve your clients with the fewest amount of resources? Are there parts of your business that can be automated? Who do you need to hire in order to get the most done in the least amount of time?
Developing a strategy is the first step to answering these questions. A good strategy helps you know where you are, where you’re going, and what you’ll need to do to get there. Part of this includes setting out how you will define success. Is it hitting a certain number of customers? Or retaining control of your business? Or being able to sell when it’s time to move on? Knowing where you’re going will help you to plan stops along the way, as well as look out for potential pitfalls.
4. Where do you get funds to scale?
Whether you’re using the money to make critical hires, purchase equipment, or develop your product, being able to scale means thinking about how to obtain financing.
Your goals and strategy will help inform your funding needs. If one of your goals is retaining control of your business, venture debt is a good alternative to selling equity. As it’s non-dilutive, it keeps your company shares in your hands. Although venture debt can also be cheaper to finance and often faster than traditional equity, a 20-30% debt to equity ratio is ideal.
Another way to add scaling capital to your business is through programs like grants and tax credits. As these programs sometimes come with red tape and long wait periods, companies often choose to finance their grants and tax credits, giving them immediate access to needed cash flow. This method can help speed up your access to funds, allowing you to make hires, conduct research, procure materials, and develop your products more quickly. This capital can strengthen your product, team, and business model and potentially boost your valuation before your next funding round.
Your financing needs are as unique as your business and may change with your long-term strategy and how you see success. With the right team, the right strategy, and a plan in place to finance it, scaling your business can take your big ideas to the next level. The only thing left to do is get started!
