It’s easy to make a business bigger, but it’s a lot harder to scale.
Scaling your business: What’s the difference? Scaling is a special kind of growth. It’s when you create more revenue without adding a proportional amount of resources. It’s when you create revenue exponentially.
Obviously, that’s a much harder task than simply acquiring more customers and hiring more people to serve them. You have to keep your business in a state of continuous improvement, constantly making incremental tweaks to your model and your processes to accommodate your growth.
It’s a difficult endeavor, but the results are worth it.It's easy to make a business bigger, but it's a lot harder to scale it profitably, Click To Tweet
Unfortunately, there’s a lot of bad information floating around about scaling businesses. We’d like to take a moment to bust some of the popular misconceptions.
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Myth #1: “More Customers Will Solve My Cash Flow Problem.”
Finding more customers won’t necessarily fix your cash flow.
To fix your cash flow, it’s important to first ask yourself if your business model is sustainable. Look to your margins: Do you collect enough from each customer to pay your team, your overhead, yourself, and make a profit? Do you actually make money?
If your model isn’t sustainable, attracting more customers won’t dig you out of a cash flow hole. In fact, each new customer you onboard can actually make the problem worse.
Vic William, a business growth strategist, warns that massive or rapid growth could exacerbate an existing cash flow problem. “Any business growth comes with inherent risks, including increasing stock holding, increased staff costs, there may be additional infrastructure and other associated costs. As these cost inevitably increase, your already tight cash flow will become even tighter and your challenges will increase.”
Be careful if you expect economies of scale to save you. As you grow, your margins may narrow before you reach a money-saving threshold. For instance, if you hire a manager to oversee your frontline workers, there will be a period where that manager costs you money until they’re up to speed and you find ways to create value with your new free time.
Myth #2: “Scaling Your Business Means Hiring More People.”
There’s a temptation to grow by hiring more people because that’s often how to gauge the size of other companies. We think, “They have 200 employees. They must be a big company.” That isn’t always the truth.
Early on at Bean Ninjas, we made the mistake of hiring too many part-time staff. We thought the flexibility would give us room to grow, but the overhead to manage all those people became unsustainable. We switched to using fewer, high-performing people who don’t need much oversight.
Sure, you’ll need some people, and they may be expensive (due to their skills and experience), but you can reduce the number of people you need by hiring the right people. We call these type of people A Players because they aren’t satisfied with mediocre.
Hire A Players for your core function (the thing you do best). Give them autonomy to experiment with new ideas and improve their jobs and your company. Be honest about your metrics and the state of the company. If you hire the right people, they’ll help you grow.
Myth #3: “My Business Can’t Be Scaled.”
While it’s true that some businesses are more scalable than others, every business can be scaled at least to some degree. Scaling isn’t just for tech startups or companies.
“This is a self-limiting belief that will only hold you and your business back,” says Blair Nicole, CEO and founder of a white label public relations service for agencies. “In reality, there are thousands of entrepreneurs around the world in every industry imaginable that have developed sustainable, rapid growth for their businesses.”
How to Scale a Business
Our favorite example of someone who scaled a traditionally unscalable business is Russ Perry, the founder of Design Pickle. Russ turned a service business that’s typically expensive and labor-intensive into a productized company that generates $400,000 of monthly recurring revenue. He’s proof that you can scale service business greatly with the right model.
Meryl had the fortune of meeting Russ at the DCBKK 2017 Productized Services Meetup.
Myth #4: “My Product Must Be Perfect Before I Scale.”
Here’s a truth about growing a business: Your product will be never be finished.
When we started Bean Ninjas, we launched in a week. In one week, we set up our packages, designed our logo, built a website, and found our first customer. We figured out how to make it work from there.
Over time, we’ve worked through many iterations of our product, including how we package our services and how we deliver them. Each version of our product is based on customer feedback because we started with our customer.
If you spend six months creating a product before releasing, you risk wasting a lot of time building something nobody wants. The quickest way to scale is to start collecting feedback from real customers as soon as possible.
Myth #5: “I Have to Build Support Services.”
As your business grows, you’ll be required to address challenges outside your core functions.
For instance, hiring people means you’ll have human resource needs. One contractor or employee isn’t a big deal, but as your team grows larger and more diverse, you’ll find yourself spending more time shuffling paperwork and learning about human resources than you spend improving your product or growing your business.
Unfortunately, there are several non-core functions you’ll have to deal with that can tear you away from your core business – like legal, bookkeeping, IT, etc. If you commit yourself to managing them in-house, you’ll overwhelm yourself and your budget.
The solution is to outsource these non-core things so you can focus on scaling your business.
If you’re scaling quickly (perhaps you’re in a monstrous growth phase), you may not be able to rely on your own employees to keep up. Your in-house bookkeeper can manage the books for a $500,000/year business, but do they have the skills and experience to handle a $5 million/year business? By using outsourcing providers, you can scale certain functions up or down depending on your needs.
Is there a risk that the outsourcer won’t keep pace with your growth? Yes, somewhat. But there’s a much higher risk that in-house employees will fail to keep up (remember, this isn’t your specialty). Outsourcers have the experience, tools, and the drive to grow themselves.
MYTH #6: “Scaling is Steady and Predictable.”
One of our earliest observations as we scaled Bean Ninjas was that growth doesn’t climb consistently. In our experience, growth isn’t a linear curve. It comes in spurts and plateaus.
We’ve come to accept this pattern and use it as a tool. At any given time, we’re in a growth mode or product development mode. In growth mode, we focus on acquiring and onboarding customers.
When we’re in development mode, we iterate on our product. This is when we focus on improving our processes, refining our tools, and finding ways to reduce resources with our new customer load. Once we feel like we’ve optimized as much as possible, we switch back to growth mode.
There are plenty of factors outside of your control that affect your growth curve, too. A supplier might suddenly go out of business, costing you money and clients. A new law or regulation could shake up your process. An unlucky string of resignations could disrupt everything.
You can’t predict everything, so it’s important to know your growth levers (things you can push to stimulate growth) and plan ways to mitigate the unexpected.
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Hopefully by busting some of the common myths about scaling a business we’ve encouraged you to take steps to scale your business. With the right strategy, any business can grow exponentially.