5 Myths About Scaling a Business to Know Before You Grow
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Scalability refers to your business’s ability to grow while only incrementally committing more resources.
You’ve probably thought about some of the non-negotiable costs for running your business—those line item costs that you have to pay whether your company employs 5 or 500, or whether your annual revenue is 50,000 or 500,000.
Whether you’re a small business looking to increase your profit, or a startup looking to demonstrate a growth rate that will be attractive to angel investors or venture capitalists, you’re probably thinking about how you can make more money without aggressive spending.
For example, if you’re a restaurant looking to scale or at least increase your profit margin, you might be asking yourself:
Can I increase revenue for your restaurant while only marginally increasing staffing costs? Can I source larger quantities of higher quality food for less overall costs?
It’s something that many startups struggle with. Unfortunately, the overwhelming number of myths out there regarding scalability makes it that much more of a challenge.
Understanding these myths will help you more quickly scale your business and avoid some of the most common pitfalls.
Myth #1: Explosive growth is impossible for my business
This is a self-limiting belief that will only hold you and your business back. In reality, there are thousands of entrepreneurs around the world in every industry imaginable that have developed sustainable, rapid growth for their businesses.
While running my PR business, I’ve seen businesses in every industry imaginable achieve explosive growth. It’s not just about having the right idea, but more importantly having the right strategy and the right team in place, which is where most businesses fall short.
Keep in mind that “rapid growth” means different things to different types of businesses. Google didn’t get to where it is today in the span of two, or even five years. It was founded in 1998. Amazon was founded in 1994. It took a long time to get where we are today.
Which is not to say those businesses didn’t have periods of really rapid sales or revenue growth—they did. But when we’re talking about scaling, we’re also talking about developing efficiencies that allow you to reach most customers without investing too much more in overhead.
As an aside, if you’re a startup seeking angel investment or venture capital, your goal and approach to scaling are slightly different. You’re seeking funding because you want to pour gasoline on the fire—you want to invest massive amounts of capital in your business that will allow it to realize huge revenue growth and wide adoption.
Your end game is different. It’s not to run a thriving, financially sustainable business for the rest of your life and pass it on to your children. It’s to demonstrate huge growth potential and sell your business—to get acquired, since that’s how your investors get paid.
Myth #2: Scaling a business costs a lot of money
Contrary to popular belief, there is one key difference between growing and scaling a business.
When you grow a business, you commit more resources to gain more revenue. Meanwhile, scaling is about increasing revenue without committing an equal amount in resources, allowing you to boost profits instead of just the size of your company.
The key to scaling is that you must have a product or service that you can offer to more clients without committing more time or resources toward it.
Let’s say that you have a web design business. You can only serve a limited number of clients yourself, and to serve more, you’d need to hire additional employees—one of the more significant overhead costs to businesses. If you hired new team members, you’d be growing your business, but not scaling it.
A scalable option would be to create an online web design course. You have to put the initial investment of time and resources into developing the course and maintaining it, but then you profit every time someone purchases the course, without committing more of your time or resources. It’s a much smaller investment than running an in-person course or trying to increase your client load capacity while keeping your employee count the same.
When I wanted to add revenue to the bottom line at my PR firm without hiring additional talent, I created a self-service option for a new segment of clients. I created the strategy for them and walked them through the process, but they did the busy work themselves. This allowed me to service more people at a high profit margin, without doling out a ton of money or resources.
There are all kinds of scalable products and services to consider. You could create a WordPress plugin or a smartphone app. You could set up a marketplace that connects sellers and customers—eBay is one of the biggest examples of this. Or you could introduce a new product or service that has a high enough profit margin to justify hiring more employees.
Consider your business’s focus and figure out what it can offer that won’t require a significant new resource commitment.
Myth #3: Growth will solve all my cash flow problems
Cash flow problems are more about your budgeting than your revenue. Now, if you’re not making a profit or if your sales are sluggish, obviously that will lead to cash flow problems at some point. But, growth can also lead to more of those problems if you don’t plan for it properly.
Your cash flow shows you how cash moves in and out of your business. If you’re planning for growth, creating a cash flow forecast and comparing it against your actuals is a really good way to make strategic spending decisions for your business.
One common cash flow problem arises when you don’t plan for the period between your strategic growth initiative and when you actually start bringing in revenue from that new source, let alone profit.
For example, you invest money into developing an app. Even if you believe that this will help you scale your business, there will be plenty of development costs before you see any profits. Plus, it will take time to develop the app. In the meantime, you can count on a period when you’re spending time and money on development, but the app isn’t yet bringing in revenue. Your cash flow forecast should account for those costs so you’re ahead of the game.
If you forecast that your app is going to double your revenue by year two, but you also see that in six months you’re likely going to have trouble making payroll, apply for that bank loan or line of credit now, before it’s an emergency. If you’re growing your business, you’re probably going to have to spend some money to make more money. That’s O.K. Just don’t let it take you by surprise.
At the end of the day, proper financial planning will help solve your cash flow problems, but growth alone may not.
Myth #4: You need to hire as many people as possible
The key to scaling is choosing quality over quantity when it comes to your employees. Hiring the right talent may cost your business more in the short term, but those employees will be far more productive and typically have less turnover.
Jason Berkowitz, a business growth expert and founder of Break the Web digital marketing, says:
“When it comes to hiring for growth, the key is quality over quantity. The people you hire can make or break your business. Focus on hiring quality employees who share your vision. Always interview at least three people for each position you’re hiring for, and hire people with exceptional communication skills.”
Your employees are the backbone of your business, so if you want it to succeed, you need the right people. Make sure that you also put your employees in a position to succeed by providing proper training. While this costs you upfront, consider it an investment in the success of your business.
For more on determining whether or not the time is right to hire, check out Should I Hire More Employees? What the Numbers Say.
Keep in mind that employee-related costs usually make up a large portion of a typical business’s spending. If you do need to spend more on increasing the size of your team, take a look at other ways to decrease costs.
For example, If your service-based business’s pricing is based on an hourly rate, look at switching to value-based pricing, which for some businesses, make it possible to increase profit margin.
Myth #5: Scaling a business is complex
Scaling doesn’t need to be a complex process, and in fact, you’re more likely to be successful if you keep your strategy as simple as possible. Complex strategies are more difficult to follow and you can lose sight of your goal.
Writing a Lean Plan—a shorter, easier-to-update version of the Business Model Canvas—can help you get your strategy down on paper quickly. Because it’s meant to be short, the container forces you to be succinct, and avoid getting bogged down in complicated or convoluted approaches.
How can you simplify your business strategy? Put yourself in the shoes of your customers. Think about your business’s mission and what needs it will fill for your customers. At the core of every business, large and small, is a simple mission that drives it forward.
Another key to keeping your scaling strategy simple is automation.
Mike Belasco, the founder of Inflow, an Inc 5000 marketing agency and one of the fastest-growing companies in Denver, says, “Why spend three hours on a task, when it could be completed in less than an hour with automation?”
Yes, that’s a trick question. Not only can automation help you save time, but it can also directly add to your bottom line. According to the Annuitas Group, businesses that use marketing automation to engage with prospects see an increase of up to 451 percent in qualified leads.
Keeping your scaling strategy simple also helps you avoid spreading yourself too thin. It’s better to launch one great new product or service than to try to do it all.
If you develop an ebook and an online course at the same time, your business can’t commit as much time to either project. Committing your resources toward one project makes it far more likely to succeed.
You can scale a business too
Many of the world’s most successful businesses have used scaling to grow rapidly without overextending themselves financially. Your business can do the same with the right planning.
Don’t let any of these common scaling myths keep your business from achieving scalability and massive growth. If you come up with the right strategy, work smarter, and hire the right team, you can increase your business’s profits, while keeping additional costs to a minimum.
Editor’s note: This article originally published in 2017. It was updated in 2019.
