How to Know When it’s Time to Scale Up Your Business
Successfully growing your business requires perseverance, following your passions, making a few mistakes along the way, and of course, lots of hard work. Experiments are necessary for small businesses and startups to keep growing, but what’s key is knowing when to take risks and try something new—and when to stick to a plan that’s already in place. Trying to scale up before you’re ready can be a recipe for disaster.
The small business market is huge, with over one-third of the American workforce employed by these businesses. While this is great news for new business owners, it also means there is a lot of competition. Only 1% of U.S. businesses are publicly traded, and startups have to be willing to work for any competitive edge and take risks to succeed. Statistics on small businesses can be pretty grim—in 2016, the Bureau of Labor Statistics reported that 50% of new small businesses close within their first four years. Moreover, those businesses that manage to make it beyond the four year mark still have a long road ahead. Forbes reported in 2013 that only 2-3 out of 10 businesses will still be operating in 15 years.
With these numbers in mind, approach scaling up with caution. It’s a necessary step for your business’s growth, but you don’t want to overreach and find yourself in a bad position. Not sure when it’s time to start growing like crazy? Look for these signs that it’s time to start scaling up.
Maxing Out Your Current Business Capacity
During your first few years, it would usually be unthinkable to turn down a potential client or customer—but eventually, you’ll reach your business’s limits for what you can offer. Once you’ve got a stable client base, it makes more sense to choose your clients carefully—or consider scaling up.
Remember, having to turn away customers may be difficult, but it’s a good sign that your business has a chance to grow and become successful—if you let it. Consider why you’re having to turn down business opportunities: are you being less efficient than you could? Are you short-staffed? Is your product or service getting so popular that your business needs to expand?
Ask yourself these questions when considering scaling up, so you’ll know what will help you increase your ability to take on new work.
Making realistic but challenging goals is great a way to assess your company’s progress, and it becomes important when you’re trying to grow your business. For instance, when Elon Musk was launching Space X, he used data from other satellite and space companies as a baseline for what to expect. This shows the importance of benchmarking based on competitors, and then establishing your first goals off of their results. If you don’t meet these first goals, you can reassess or readjust. If you surpass these goals, you have other decisions to make.
If your business starts to surpass your goals regularly, this can be a good indicator that it’s time to consider scaling up. Don’t just settle for comfortably reaching your goals, think about how to leverage your success and reach even higher goals. Before you start to scale up, however, make sure you’re not surpassing your goals because you made them too easy, and ensure you have all the resources you’ll need before taking that next step.
Monetary Indications for Scaling up
Profitability is an exciting milestone, but it’s not enough on its own to consider expansion. When you’re considering scaling up, having a strong cash flow and a repeatable model for ongoing revenue should be major factors in your decision.
Don’t just use your current cash flow to make a decision, however. Predictions are extremely valuable for ensuring you’ll have enough income to justify scaling up. Forecasts should be made for one month, two months, a year, 5 years, and even beyond, to help you push toward the goals you’ve set for yourself—and assess your business’s potential. Remember: expect the best and plan for the worst. Your predictions for best and worst case scenarios can also help you decide when it’s time to scale up—if there’s not much difference between the two, then it may be a good time to start growing.
A Solid Foundation and Proven Concept
You may have a strong cash flow, but will your concept withstand the test of time? Do you have the solid foundation and infrastructure needed to scale up? If you need to rethink how some components of your business will work on a larger scale, you might need to focus on that before you actually make the shift to growing quickly. Make sure your product or service is truly ready, and ensure you’ll be able to increase your capacity without constantly adding more costs onto your business.
Another question to ask yourself is whether or not you have the staff to attempt scaling. In a small business, everyone has several roles and needs to be able to jump in when needed. If your employees aren’t invested in the future of your company, you need to reconsider your workforce before you consider scaling up.
Has your leadership circle ever wondered if your multi-generational team is ready for the future? If they’re interested in going above and beyond their job description, express interest in the future of the company, and embody your business’s core values, then the attitude you need is there. They should communicate effectively as a team, because growing a business is hard work, and they’ll need the support of their peers.
Prove your business on a small scale before you start to think big. Little steps and steady progress are what sets you up for long-term success, and if you have the right components, it’s much easier to make the scaling efforts come together. Set standards for quality and don’t compromise them as you grow—this quality is what keeps customers coming back.
Maximizing Your Chances for Success
Remember, if you’re not sure it’s time to scale up yet, there’s no harm in waiting until you receive a few more cues that you’re ready. It’s much better to wait until the time is right than it is to jump in before you’re ready—that mistake could sink your business. Risk-taking and making investments are an important part of business, it’s true. But so is knowing when to take those risks and not giving into the temptation of doing too much too soon.
Maximize your chances for success in scaling by not looking at these indicators on their own, but as a whole. Just because you have the right team and a proven product, that doesn’t mean that a large influx of new customers will soon follow. Make sure all the signs are there that you’re ready for expansion, and your business could be one of the survivors—and thrivers.