How to scale up your startup

You’ve had a fantastic idea, written your business plan, done your market research, launched your product or service and got your first customers. What next? Ruth Brooks reports on how to scale your startup and grow your business towards long-term success and sustainability.

What is startup scaling?

Successful scaling changes a startup from a small operation (think a small shop or a couple of people running a nascent business from laptops on their kitchen table) into a sustainable, larger company with the critical mass to compete on a broader scale. It involves making your product offerings better or bigger, growing your customer base and widening your product marketing – all while keeping profits coming in.

“Scalability is the ability of a company to increase its qualitatively constant output or revenue without the input resources or costs increasing to the same extent,” says Business Model Strategist Dr. Michael Thiemann, in a piece for Forbes.

There are several, interlinked different types of business scaling:

Revenue: increasing revenue by expanding into new markets, launching new products or services, or selling more frequently to existing customers.

Customer: growing a business’s customer base by targeting new segments or markets, improving marketing and sales efforts, or developing new strategic partnerships.

Headcount: Hiring new employees to support business growth.

Operational: changing business operations to handle increased demand, such as improving the supply chain, logistics and inventory management.

Infrastructure: Upgrading the business’s technology and infrastructure such as server capacity, bandwidth and storage, to support expanding demand and growth.

How do you know when your startup is ready to scale up?

Deciding when to scale up needs careful planning and astute judgment. If you do it too soon it can spell disaster for a business in its early stages. According to seasoned business experts, these are some of the signs that your startup is ready to start scaling up:

• There’s cash in the bank: you’ve got healthy enough cash flow to invest in growing the business without putting a dent in your business’s day-to-day operations.

• Revenues are rising steadily: this shows that demand is strong for your product and service.

• There’s proven product-market fit: you’ve got the sales to prove that your product or service is wanted by your target audience, that it has a competitive edge and that there’s a strong market need for it, with a pool of potential new customers.

• Operations are running smoothly: from supply chain management to customer services, there are no major issues with any of your business processes.

• You’re set to manage increased product demand: there are the team members, systems and infrastructure in place to manage an increase in demand without affecting customer experience by letting them down on delivery time or product quality.  

• You’ve just gone viral on social media: This happy event is a surefire sign that you need to scale, and scale quickly, according to Adam Jacobs at Entrepreneur. Many small businesses don’t have enough product inventory on hand to keep up with the first influx of orders, so you should talk to financers such as angel investors to secure a fast injection of cash to avoid bottlenecks and fulfill future orders. Furthermore, milk every last second of your product’s time in the limelight and increase your digital marketing budget to create new campaigns to piggyback off your success, says Jacobs.

• You’ve got a strong and experienced management team in place with decision-making nous, adaptability and strong understanding of your target market, customer needs, market conditions and market trends.

Thiemann also suggests asking yourself the following questions before you scale up:

• Are your model and profit margins attractive to investors?

• Are you up to date with the latest tech reforms?

• Have you considered current trends that impact your customer expectations?

• Are all your business model elements working harmoniously together?

• Do you have the right team of stakeholders in place?

The importance of managing cash flow

Cash flow management is a critical aspect of scaling up, because without good planning, startup growth can exceed cash flow, leading to the business going bust. One way to manage cash flow for sustainable growth is to raise some capital. According to Fundera, options could include venture capital, angel investors, bank loans, or crowdfunding. But it’s important to make sure that your chosen funding source aligns with your business goals and doesn’t dilute your stake in the company too much. Another consideration is whether to diversify your revenue streams to reduce dependency on a single source of income.

The benefits of automation

“Gone are the days of manual processes. If you want to scale your business, you have to embrace automation. Automated tools take the work out of cumbersome tasks like data entry and data management. You can even automate your entire company's website, so you don't have to lift a finger to update product stock,” advises Entrepreneur’s Adam Jacobs.

Automated CRM software can make light work of business scaling because it can streamline operations by managing and segmenting customer data, identifying new sales opportunities, saving records of customer interactions, and monitoring personalised marketing campaigns.

Making the most of your data

By actively gathering, managing, and analysing your business’s data, you can understand the right time to scale, spot opportunities for growth and create a growth strategy.

Speaking about the startups he has created, Adam Jacobs says: “The first thing we do is evaluate future projections, current capabilities, and the infrastructure capacity for growth. Successful scaling requires resources, and only data analysis can reveal the amount of overhead, equipment, services, budget, and hours you need to meet projections.”

Data analysis can also reveal your company’s strengths, weaknesses, and areas for improvement and using the right metrics along with data analytics tools can help you to make data-driven decisions and create data-informed sales forecasts.

What’s your scaling strategy?

Every startup is unique with its own company culture and there are countless variables involved in growing a business. Therefore, there’s no one-size-fits-all solution to scaling up. To survive, startups must also constantly review and adjust their strategy as the business grows, ironing out inefficiencies so that they don’t risk growing in an unsustainable way.

That said, there are some common strategies and tips that all startups can use to put themselves in the best position to scale, according to Stripe Inc (an American multinational financial services and software as a service (SaaS) company). Here are some of Stripe’s tips for key strategies that startups can use to scale efficiently:

• Plan early and often: Create infrastructure and operations that are scalable from the start, so that you don’t have to scramble to catch up operationally when the business starts to take off.

• Prioritise customer acquisition and retention. By acquiring new customers and retaining your existing ones you’ll drive revenue growth.

• Create a scalable business model, such as one including opportunities for outsourcing, licensing or franchising.

• Build a strong, experienced team that can handle added complexity and responsibility and market changes.

• Focus on key metrics, such as customer acquisition cost, lifetime value, and customer retention rate, to get insights on what’s working and what isn’t.

• Stay nimble, even as you grow: continued adaptability will keep your startup prepared to adapt to changes in the market, technology and regulations.

• Streamline operations: from automating repetitive tasks and processes, standardising processes and procedures, outsourcing to third party providers and employing data-driven decision-making, this is one area that can make or break a startup. Make your business efficient and insulate it against risk as it grows.

• Optimise existing revenue: get to know your customers as well as possible through customer segmentation, analysing data on customer behaviour to optimise your pricing for products and services. Also consider upselling and cross-selling, and focus on customer relationships to boost customer lifetime value.

• Prioritise growth areas by experimenting with new technologies: for example, AI and cloud computing, carrying out market research, talking to customers, looking at customer feedback and preferences and studying customer behaviour data.

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