The phrase “scaling a business” is frequently used in business, but what does it really mean, and what does the process of scaling entail?
For one thing, scaling is not synonymous with “growing.”
Growth and scale are words that often get used interchangeably. While it can be said that both carry the connotation of developing and expanding, there is a fine, and sometimes confusing, distinction between the two.
Growing without scale means that a business is adding revenue, but also needs to add resources at the same time to support that growth. For example, a company gains a client (adding revenue) but needs to hire more people to service the new client (adding cost). Gains and losses have evened out, or otherwise offset, so even though growth has occurred (i.e. a new client, new employees), there has not been much value gained.
Scaling, on the other hand, is when a company’s revenue gains outpace its cost increases. In other words, a business that is able to scale its operations has capacity to handle growth. Without this capacity, growth might cause a company to stumble because of risk factors such as order failures, insufficient staffing, and lack of delivery capacity, leaving it in a place to have to re-think its strategy. To scale successfully means to be able to handle a greater and growing (volume) amount of work, while maintaining or improving operational efficiency.
With that said, we’ll discuss below some key approaches in which a business can scale.
Define the endgame
First, business owners should define their goals and their view of success, and take a hard look to determine if scaling makes sense for them. For many, running a “big” business may not be the end goal, and owners may decide scaling is not necessary or desired. But for those who decide expanding their business presence is a priority, understanding that goal will be the first step to developing an actionable scale strategy.
Find scalable aspects of the business
Considering the difference between scaling and simply growing, business owners need to scrutinize their business model and identify aspects of their operations that can be replicated quickly and cost effectively—aspects that can lead to greater revenue without the corresponding increase in cost. For instance, see if any of the current processes can be automated. Business process automation can be achieved by using software and app integrations, and can help in areas such as customer support and HR management. In fact, it is likely that any business process can be automated if it involves a series of predictable steps that are repeatable. This could help remove what might have been tedious and manual tasks for employees and free them up for responsibilities that could add more value.
Identify core competencies, competitive edge
It is crucial that the business owner understands what value the company offers to customers and what sets the business apart from competitors (differentiation factor). Knowing the company’s core competencies and strengths means the business owner can invest in focused, targeted growth. It can also aid the business in identifying the ideal customer and optimizing the sales process.
Devise a forecast
Business owners should spend time understanding the company’s current state and create projections for potential growth in revenue. Assuming orders doubled overnight—does the business have the people and processes to handle these new orders without missing a beat? That might sound a bit like an exaggeration and perhaps a good problem to have, but it is also a critical component to get right if a company wants to scale. Business owners or the finance head should put together a detailed sales growth forecast, as well as an expense forecast. The projections should take into account potential investments into people and technology, and it should allow for testing of various realistic scenarios in order to provide a detailed look into what the organization currently is capable of and what its books might look like as growth accumulates.
Find the resources
Scaling doesn’t come free. As mentioned above, a business might have to hire more people and invest in systems and equipment. These are, no doubt, expenses, but if done right they will serve as investments that can reap positive returns over the long run. Bootstrapping, taking out business loans, engaging in crowdfunding are some of the ways to help accelerate the process of scaling a business. And at the same time, money isn’t the only resource to seek. Business owners may find that right strategic advice can significantly fast-track their growth and scale processes. Advisory needs will vary by business and individuals, but there are resources to be seized in the realms of financial expertise, market insights, and product development, to name a few. The key is to build a substantial network of expertise and talent that will help strengthen the business’ potential to scale successfully.
The path to success—whatever definition a business owner might assign to the word—may not be a straight line. Business owners who are pursuing scale will need to evaluate and re-evaluate their processes to ensure they can support revenue growth in a cost-effective way. And they will need to make tough and smart decisions. We hope the above will provide some guidance in that endeavor.
Mr. Lieberman is the founder and CEO of The CEO’s Right Hand, Inc., a New York-based consulting services firm that provides the full breadth of strategic, financial and operational advice to founders, CEOs and Executive Teams. As an experienced entrepreneur himself, he has served in various C-suite leadership and advisory roles across a wide spectrum of industries.
His first venture was CMR Technologies, a FinTech company based in San Francisco serving the investment management consulting space. From CMR, Mr. Lieberman formed Xtiva Financial Systems, a software company specializing in sales compensation solutions for the financial services industry. Mr. Lieberman served as Xtiva’s CEO, building the company to over $10 million in revenues and 100+ clients. He also served as the President and CFO for Interactive Donor, a New York-based Benefit Corporation which incentivizes charity through rewards.
Mr. Lieberman holds double Masters degrees, one in Business Administration and the other in Computer Science from the University of California at Los Angeles. He completed his Bachelors in Computer Engineering from the University of California at San Diego.