Premature scaling can be the worst possible thing for a small business, it is best described as ‘growing broke’. Either the business drives the growth, or the growth drives the business. Both might sound OK, but the latter can be very dangerous and unstable.
“When a company starts out, or is very small, it is possible to run reasonably well without much planning; dealing with each new piece of work or challenge as it arrives and simply getting by. That is because the business only has short term goals. If you wanted it to expand, however, it would have to systemise or risk ‘growing broke’. Haphazard processes simply aren’t robust enough to cope with additional activity, and the growth would only serve to amplify all of the problems or gaps in the existing model.”
I’ve had first-hand-experience in growing businesses advising companies across 50+ industry sectors. My SCALE Model and SCALE Operating System was ultimately developed to help business owners choose what they do with their tomorrow.
6 tips to help prevent premature scaling and growing broke:
1. Set a clear path and end goal: It’s so important to set up your strategy and have it in place before you start to grow. Too many entrepreneurs make the mistake of starting a business without even considering how they’ll expand or ultimately exit. You don’t need to become a corporate, impersonal machine to be able to scale, you simply need a map and a very clear direction or you will never get to where you want to be.
I come across many businesses that are making money, or even growing and giving a reasonably good service, but they are simply not going which means that they are in serious danger of falling down suddenly and very hard. If a business has no visible ‘guiding principle’ or clear ‘targeted destination’ directing it, then every decision its owners make will be an emotional one, based on the short-sighted information at hand.
2. Systemise your processes: in order to grow efficiently and scale, you must work out exactly what makes your business work and document the method. Ensuring that everything and everyone who needs to be involved understands their role (and the goal), and there are systems and processes in place that support the business so it can run without you. If your business is always bespoke, always requires you to be involved, and is never systemised, then you have a job, not an exit-able business.
3. Set and monitor key performance indicators (alerts and alarms) that let you know if what you’re doing is getting you closer to your end game. I am not suggesting, by any means, that you take all of the flair and innovation out of your business by making everything run in line with performance targets, but it pays to have a way to track progress and alert you to potential problems well before they happen.
4. Learn from your mistakes: A growing business is an evolving business. If you want to scale up and exit, then you need to be dedicated to continuous improvement. Getting stuck in a “we’ve always done it this way” mind-set is a sure way to block growth and limit learning potential.
5. Create the right environment, give the tools, get out of the way! Entrepreneurs are amazing business starters, idea generators and motivators who enjoy being creative and coming up with new ideas. For many scaling is boring at best and impossible at worst. If you’re a big picture person, the details, tweaking, fine tuning and systemisation of a scale up can lead to frustration. Knowing when to get help to reach the next stage is the sign of an enlightened and experienced entrepreneur.
6. Develop a financial strategy – this sounds grander than it is. In essence, there are three key areas to focus on financially – and it is not what you think (i.e. not income statement, balance sheet or cash flow). Yes, these are important, but there are three levers you can pull to have a bigger impact:
• How quickly does one pound that you spend in the business come back in? (Clue: the quicker the better).
• How much of that pound is actually the business, and how much is it other people’s money e.g. HMRC, staff etc.
• What working capital do you need to grow our business, and how will this be funded?