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As a startup entrepreneur, one of your biggest priorities is scaling — in other words, growing. Modern startups, especially SaaS companies, have business models contingent upon their ability to reach a wide audience. With 10,000 users, you might be able to make a slim profit, but with 1,000,000 users, you could be a multibillion-dollar enterprise.
Unfortunately, a good business model, a novel idea, and a strong leader aren’t enough to guarantee a successful opportunity to scale. There are many things that can go wrong during the scaling process, and you’ll need to find a way to resolve them if you want to succeed.
The good news is that there’s a solution to nearly every problem. You just need to plan proactively.
Why is Scaling so Important?
Scaling is a vital strategic element for millions of modern businesses. For some, it’s just a matter of volume; operating with a bigger footprint and more customers leads to more revenue and more profit. But for many, profit only begins to become relevant at higher scales.
Let’s say your overhead costs are $500,000 per year, regardless of how many users you have. Each new user subscribes to your service for $150 per year, with additional costs to your company of $50 per year per user. With 5,000 annual subscribers, you’ll break even. With 4,500, you’ll be losing money. With 5,500, you’ll be making a profit of $50,000 per year. And with 50,000 subscribers, you’ll make a profit of $4.5 million per year.
This is a simple model, but it demonstrates the central idea: for many businesses, scaling is a matter of life and death. If you don’t grow to reach a certain threshold, the business model simply doesn’t work.
How Scaling Can Go Wrong
To scale effectively, you first need to understand the many ways that scaling can go wrong.
These are some of the most common:
- Timing. When do you begin to grow your company? Do you start right out of the gates, before your product is fully developed? If so, you won’t have a stable ground to retain your current customers. You may also have trouble establishing your brand reputation, rendering your scaling efforts inefficient. Do you wait until you have a stable, reliable pool of customers before you begin to scale? If so, your competitors may beat you to the punch, making it harder for you to enter the broader market. Or worse, you may lose money and run out of capital, making it hard to invest in marketing and other scaling strategies.
- Scaling too aggressively. Every startup wants to scale quickly, but there’s such a thing as scaling too quickly. If you hire a bunch of new people to support your growth before you have an influx of new customers and new revenue to support their salaries, you’ll quickly run out of money – and your new employees won’t know what to do. Additionally, you may burn through your capital and other resources prematurely, making it difficult to stabilize and regain your momentum.
- Scaling too leisurely. Conversely, it’s problematic to scale at a pace that’s too leisurely. If you refuse to invest more than the bare minimum, you won’t reach new customers quickly enough to support your upward trajectory. And if you refuse to hire new people, you may quickly overwhelm your existing staff.
- A shift in priorities. Your customers should always be your biggest priority, in one form or another. But the priorities that support those customers will change quickly as you scale – and not always in a beneficial way. For example, as you grow, you may focus on improving the features available in your product without spending equal time on customer service. These prioritizations aren’t always a bad thing – in fact, some are actually beneficial. But if you make the wrong choice during a volatile period of growth, it could spell the end of your business.
- Magnifying existing issues. A growing business tends to magnify and exacerbate problems that already exist. It’s easy to understand this with a simple example. Let’s say you have 1,000 paying customers and 100 of them have regular complaints of intermittent outages. If you scale up to 10,000 customers, you’ll likely face 1,000 regular complaints – a much bigger issue for customer service to contend with. In some ways, this is valuable; it’s your opportunity to figure out what’s wrong with your business early on and correct those flaws. But if you miss this opportunity, it will haunt you.
- Running out of money. It costs money to scale. Even if some of those costs are recovered by the influx of new customers, it’s possible that your startup will run out of money before this phase of growth is over. Cost efficiency is usually the culprit here; startup entrepreneurs invest too much in strategies with no proven return on investment (ROI), or spend money recklessly on tactics that simply don’t work.
- Splitting into departments. Oftentimes, when a small business begins to grow, it splits into different departments and local chapters. This is a great way to divide labor and improve efficiency in the long-term. But in the short-term, it can result in growing pains. Individual departments can result in the creation of silos, making cross-communication difficult. And developing the business with multiple teams in multiple locations can result in the fracturing of your brand values – which can eventually impact your customers.
- Losing adaptability. There are some fundamentals that will likely remain consistent no matter how your business grows or how much time passes. But if you want to maximize your business’s longevity, you need to remain adaptable – that means adapting to new changes in your demographics, new competitors, and other new market dynamics. Growing a business means hiring new people, spreading the team out, and dealing with bureaucratic internal complexities. In other words, you almost necessarily lose adaptability – even if you try to maintain it. This often leaves room for smaller, nimbler competitors to encroach on your territory.
Scaling More Effectively
So, what can you do to scale more effectively?
- Master the basics. You need to know what the “core” of your business is. What is the hook that’s going to attract new customers and keep your current customers happy? Focus on this and master it. Then, and only then, will you be able to scale effectively. Everything else is secondary to these fundamental characteristics of your business; the best marketing strategy in the world won’t make up for a bad product.
- Install scalable systems early. Early in your development, install scalable systems – processes, tools, and practices that will work effectively regardless of how small or large your company is. What makes a scalable system? For one, automated systems are incredible; algorithms and backend machines don’t care how many customers they’re processing. Manual effort isn’t nearly as effective. It’s also important to design your workflows with scalability in mind.
- Prioritize sustainable income. You won’t run into problems with scaling too quickly or running out of money if you have a sustainable stream of revenue. One of your highest priorities should be building this revenue stream. With enough paying customers, most of your scaling problems will practically disappear.
- Make gradual, iterative changes. There are some situations that call for a dramatic transformation – like if you’re completely pivoting the business. But otherwise, you should spend your efforts making gradual, iterative changes. Do your research before making a decision. Build on what you’ve already created. Try not to waste time by redoing things over and over.
Scaling a startup is a complicated, messy business – even if you have a strong business plan and a great leadership team in place. Even with all the fundamentals in alignment, there’s no guarantee of your success.
Take your time, do your research, and proactively prepare for these scaling challenges to put yourself in a better position.
Image Credit: anna shvets; pexels
Originally appeared in ReadWrite