“I was making more money when it was just me with much fewer headaches and stress.” Does this sound familiar?
In my three decades of helping entrepreneurs build and grow their ideal businesses, this has been a common challenge.
While expressed in many different ways, the main thought remains the same. Growing and scaling one’s business can be hard.
It’s easy to get stuck in the “middle ground” wherein you’re neither small nor scaling at an optimal level. It’s also easy to miss out on gaps that could widen as the business expands.
That’s why for all the business owners I engage with, I tell them one principle: Either stay small or scale to a level that supports your personal goals and outcomes.
Because if the result is a bigger business that does not work for you, then should you even bother to scale to this level?
So if you’re ready to scale to the extent that enables you to enjoy the benefits of business, read further to learn more about:
- The common mistakes business owners make when scaling
- The tools and strategies for effectively scaling a business
- The questions to ask when assessing your business’ scalability
What are the Common Mistakes When Scaling a Business?
While scaling one’s business present huge opportunities, it also presents a lot of uncertainties that can result in financial loss or closure of a business.
For example, three decades ago I was able to scale my manufacturing business to a multi-million dollar company with more than a hundred employees. However, the business was far from ideal because they were many gaps and problems that also expanded. In the end, despite having grown, I was left with a business that caused a huge headache, and soon enough collapsed.
One way to prevent this from happening is to know the common mistakes when scaling, and to learn how to both avoid and solve them,
Having grown Resicert, my multi-million dollar inspection business, and helped multiple business owners to grow their ideal businesses, I’ve laid out the five common mistakes business owners make when scaling.
Mistake #1: The Lack of Forecast, Plan, or Strategy
Lacking prediction as to the possible impact of growth on your cash flow and operating profit? This is alarming for any growing business as you need to make sure the numbers work before you move into the growth in the real world.
Because the problem is often rooted in the lack of business forecast, planning or strategy, the solution is simple. All you need to do is to have a detailed forecast for your business based on real data and information from the previous 6-month period. I recommend a detailed 12-month forecast.
Mistake #2: Chasing Sales and Revenue Instead of Profits
Do you grow your company based on short-term revenue growth instead of long-term profitability? This is a trap most entrepreneurs fall into. Think about it, does more revenue really mean anything if your profit level doesn’t change? If your sales increase but your profit margin shrinks, is it truly an optimal outcome?
To prioritize profits over sales, it’s important to:
1. Improve your company’s efficiency – Streamline business operations to create a solid foundation for scaling. Resolve as many bottlenecks in effectively delivering your product up to receiving payment.
2. Focus on quality – Enhance your process for customer service and service delivery. This can result in long-term loyalty and an increased customer lifetime value.
3. Establish proper reporting – To gain awareness of arising issues before they become irreversible, always keep track of your cash flow.
Mistake #3: Going Wide Instead of Going Deep
In my 3 decades in the business, I’ve known many entrepreneurs who not only run many businesses. Within those businesses, they also have multiple products or service areas.
This complexity and having a large number of variables can come unstuck very quickly if not well managed or structured.
After managing multiple ideal businesses, I discovered that it is far better to do very little but do it very well. So instead of trying to be the best at everything, pick the lines that make the most money and look at how you can go deep and scale them.
Mistake #4: Spending the Cash Before It Comes
Are you using an optimistic approach when scaling or rolling out new products or services? If so, this can be risky. You see, there is such a thing as “premature scaling” where you invest or use the money before you can use it productively.
Without any solid plans for the business, it’s easy to burn the cash and end up in a worse situation than when you were starting. Other than being a big waste of funds and capital, this is a huge threat to your cash flow.
This problem is often linked to the lack of forecast as mentioned in Mistake #1. To solve it, all you need to do are the following:
1. Evaluate and plan – Have a detailed 6-12 month forecast that predicts how scaling will impact areas of your business, and plan accordingly.
2. Implement the cash on hand vs bills process – Every Monday, we calculate all the cash that we currently have access to. Then, we deduct the bills such as loans and money owed. This gives a quick snapshot of your business’ finances.
3. Don’t spend the money before it comes – New products and services often need time to get grooved in and provide an ROI. So avoid using an optimistic approach when scaling or rolling out new offers.
Mistake #5: Not Linking Additional Expenses To Additional Revenue
One of the common traps business owners fall into is either failing to keep the expense base the same or increasing expenses without generating additional revenue.
When scaling, what I like to do is to set trigger points. An increase in expenses and cost base is based on hitting preset income levels.
This keeps the growth under control and ensures it does not impact your cash flow or profitability. Going in guns blazing can sometimes work but more times than not goes down an unexpected path.
How Can You Properly Scale Your Business?
When scaling, the goal is to reach a level where you’re able to extract yourself from the business and lower its dependency on you. It’s also important to establish sustainable growth that’s more likely to survive any future challenges until the business has increased its valuation with the end game of a multi-million dollar exit.
These goals should be achieved while maintaining the expense base or increasing costs only after increasing revenue. Here are two ways to do it. First, automate. Next, have an inbuilt capacity. Read further to learn more about each approach.
Automate
In a business, there are two types of team members – those whose input directly results in income, and those that support these team members. The key is to lower the costs for the support members and reduce the need to scale them as the business expands.
I remember this point well thanks to my Mom, Erica. Every time we had a new team member join Resicert, my property inspection business, she would ask, “Do they go on the roof.”
She loved people that went on the roof, our franchisees. They are those who delivered inspections to our clients. If I said yes, she would always smile and say, “Good.” If I say they were in the office, she was a little less enthusiastic about them joining.
The key tool here is business automation. It’s not just about automating the sales process. It’s also about end-to-end business automation from quoting clients, handling inquiries, to obtaining testimonials, and follow-ups for overdue payments.
Once you get this in place, you’ll significantly lower the costs for support team members. The service levels to clients will improve, and low-value tasks are removed thereby enabling core team members to focus on higher-value outputs.
Have In-built Capacity
To truly scale a business, it is essential to have the capacity to deliver the increase in products or services without impacting its quality.
To have the capacity, the first piece is getting an automation system as mentioned above, the other piece is people.
Having hired more than 100 employees in my first business, I quickly discovered that my Ideal Business requires a low need to directly employ people. It’s just my preference.
The problems and risks with direct employment for scaling are too many to mention. You have to advertise, filter, interview, employ, train, and monitor people. And only after all these have taken place will you know if the person is going to work out. It’s often the main challenge for many business owners.
I prefer an approach where you have the capacity in place and payment is linked to the outcome wherever possible. So, what are the alternatives?
1. Outsourcing and Contracting
One area of risk is the direct employment of team members. Even after a rigorous recruitment process, you never know if someone will work out until they get started. That’s why I never engage anyone initially as a staff member or full-time. Instead, I engage them in a part-time role and as a contractor. Where possible, I aim to link the payments to defined KPIs or outcomes which provides a shared risk/reward model rather than simply paying for time. This allows you to attract performers and people who are not outcome-focused.
2. Strategic Partnerships
This is an extremely powerful approach to scaling your business quickly with less risk. It enables you to get access to high-level expertise and experience. Rather than building the capacity internally, you can access an organization that has a track record and knows how to achieve the outcomes that you need for scaling.
3. Leverageable Business Models
Engage in models that enable you to expand with zero debt, lower risk, and fewer work hours. Some business models also lower your need for direct employment. An example of this is franchising. With franchising, I was able to expand Resicert to 25 operational branches with a few part-time employees, as I work less than 4 hours on the business.
How Ideal Is Your Business Scalability?
Scaling can positively impact your cash flow, profitability, and even your ability to extract yourself from the business. But this can only be achieved when you do it right.
To ensure this, you must establish strategic planning and business forecast, shift the focus towards long-term profitability, and effectively manage your cash flow.
It’s also crucial to take note that as your business scales, the expense base must also stay the same, or it must only increase after the revenue increases. This can be achieved by establishing automation systems and in-built capacities through strategic partnerships and leverageable business models, such as franchising.
To further look at the scalability of your business, answer the following questions.
- Do you lack a 6-12 month forecast of your business? Do you lack a plan or strategy?
- Are you chasing sales and revenue instead of profits?
- Are you going wide instead of going deep? Are you focusing on too many product areas instead of going deep on the most profitable ones?
- Are you spending cash before it comes? Are you using an optimistic approach when scaling or rolling out new products?
- Do you fail to link additional expenses to additional revenue? Do you feel that the more you grow your business, the more negative impact it has on your cash flow?
- Do you lack important scalability tools? Examples of these tools are the following: automation tools and strategic partnerships.
- Does your business struggle to scale whether nationally or internationally?
- Does your business have problems scaling without funding through debt or equity?
Once you’ve reflected upon these questions, rate how ideal your scalability is from 1 – 10. Take note that the more you’ve answered “yes” to the questions, the lower the score out of 10 should be.
Then, ask yourself, what changes can you implement to increase the rating and improve your scalability position?
Want to learn more about how I redesigned my previous business into an ideal one that allowed me to live the quality of life I wanted? Follow along with my story by signing up for our newsletter. https://idealbusiness.invizbiz.com/newsletter