Table of Contents
Once your small business has found its market niche, providing customers with a needed product or service at a profitable price, it’s time to start thinking about plans for growth.
The approach you choose will naturally depend on your industry, the demands of the market, economic conditions, and other factors, but one thing is for sure: If you can produce and sell more goods without significantly increasing your costs, you’re bound to see bigger profits.
This dynamic is known as scaling. Read on for more about how to scale a business, plus tips for managing the process smoothly.
Key Points
• Scaling means sharply increasing revenue while keeping costs relatively steady — serving far more customers without proportionally adding staff or overhead.
• Documenting workflows and creating standard operating procedures (SOPs) keeps operations consistent and builds a strong foundation for growth.
• Automation can handle many transactions and customer inquiries, reducing the need for new hires and keeping labor costs in check.
• Securing additional capital is essential, as upgrades to technology, inventory, and staffing will usually require investment beyond your existing reserves.
• Before pursuing new customers aggressively, ensure your operations and product quality are solid. Premature scaling risks damaging your brand.
What Does It Mean To Scale a Business?
Scaling a business means sharply increasing your revenue while raising your operating costs only modestly. The goal is to pump up output and serve a huge influx of new customers without adding a proportional amount of staff, equipment, or overhead. This may entail small business expansion loans for targeted expenditures that can take your business to the next level.
Scaling vs. Growing a Business
Scaling is not the same thing as growth. In fact, most businesses need to grow before they are able to scale.
In the growth stage, your company adds revenue while adding resources at the same pace. Profit margins stay relatively flat because your expenses increase along with your income.
During this phase, you can boost your earnings by pursuing proven business growth strategies. Market research, including data about revenue, retention, and sales conversion, should guide you in the right direction.
Successful scaling requires maximum output from existing systems. You want greater efficiency to achieve economies of scale. Some industries can accomplish this more easily than others. For example, a software company may be able to serve 1,000 new users with almost no additional staff. A landscaping business can’t do that.
Recommended: Small Business Financing
Signs Your Business Is Ready to Scale
Your business needs to complete certain stages of business growth before it’s ready to scale. Ideally, your business will have established:
• A strong, consistent, and increasing market for your product or service
• Stable, mature operations limited only by your infrastructure
• Repeatable, fully documented procedures that don’t require your active management
• Predictable revenue and a cash cushion for emergencies.
Getting to this point may take several years. Studies by management pros have shown that the average startup begins scaling about four years after its founding.
How to Scale Your Business
By spending time and money thoughtfully, you can build out an operation that’s designed for scaling.
Systemize Operations With SOPs
Optimizing and then standardizing your business’s workflow is key for effective scaling. As you refine your business processes over time, document them in detail and create a set of standard operating procedures (SOPs).
Making that information available to workers throughout your company enables them to maintain consistently high quality whether you’re present or not. Sales onboarding, product delivery, and customer service are areas where SOPs can be particularly useful.
Recommended: Small Business Checking
Leverage Automation and Technology
Let machines do what they do best: mindless, repetitive tasks. Automation can help you scale by streamlining routine processes; it has the potential to handle transactions and customer inquiries at an exponentially higher rate. This removes the need for additional hires, keeping labor costs down. It also frees up current employees to handle ad hoc challenges.
Build and Delegate to a Strong Team
You already know you can’t do everything by yourself. Scaling just makes that official, as you shift away from being a hands-on operator and into the role of a high-level manager and leader. This means hiring skilled subordinates who can run their departments independently.
If you’ve already got adaptable, trustworthy team members who seem capable of this, so much the better. Train them for their new responsibilities and guide their development so they don’t cause operational bottlenecks.
Secure Funding for Expansion
The upgrades you need for successful scaling are going to cost you. Even if you have a cash cushion, you’re likely to need more capital for tech and machinery improvements, additional inventory, and hiring. You can pursue the necessary funding in many ways.
• Equipment financing may be available through lenders or manufacturers.
• You may have existing startup business loans. Refinancing or consolidating those loans could help free up some cash.
• If you already have a solid relationship with a lender, they may offer you favorable terms on a business line of credit.
• You may want to reach out to private equity firms and public-private partnerships such as the State Small Business Credit Initiative.
Expand Your Market Presence
Look into strategic partnerships, expanded marketing campaigns, additional business locations, and other ways to capture a broader share of the market. If it’s appropriate for your business, adopt a recurring revenue model (such as subscriptions) to ramp up receipts exponentially.
Common Mistakes to Avoid When Scaling
When working out how to write a business plan for your scaled-up business, you may be tempted to immediately expand the menu of goods you offer to potential customers. But experts say it’s wiser to concentrate on your area of expertise at first, playing to your existing strengths and leveraging the products or services that deliver higher value.
Here are some other pitfalls to watch out for as you scale.
• Scaling too soon. Make sure your business operations, infrastructure, and product quality are stable and robust before making an aggressive push to acquire new customers. If you bring in new customers but aren’t yet able to provide them with a satisfactory experience, you could end up damaging your brand and making future expansion more difficult.
• Creating SOPs without context. As you create and record workflows, it’s important to also codify core decision-making principles and objectives. By clarifying for everyone why the company operates the way it does, you provide implicit guidance for future decisions. This information also helps bring new hires in line with veteran employees, sustaining the company’s internal culture and helping to avoid future clashes.
• Allowing cost creep. Amid the excitement of scaling, it’s easy to chase outward expansion and lose focus on nuts-and-bolts concerns like overhead and cash flow. But if expenses outpace revenue gains, you’re not scaling effectively. Overexpansion strains cash flow; remember that some costs can be postponed or lessened by using third-party vendors.
The Takeaway
Scaling involves increasing your sales significantly without raising your costs at the same rate. This increases both your revenues and your profit margin. To scale successfully, you need to rely on clear, repeatable processes; use technology to handle repetitive tasks; and build a strong, independent team. Timing is important: You must be sure your operations are reliable and resilient before you make a vigorous push to reach new markets.
Ready to grow your business? SoFi Small Business Loans can give you fast access to the capital you need. Check your eligibility in minutes.
FAQ
How much money do I need to start scaling a business?
The cost of scaling depends on the industry you work in. For example, an online service provider can scale cheaply by upgrading cloud servers and automating tools, but a manufacturer will likely need more equipment and warehouse space. You can estimate your funding needs by creating some financial projections, including a 12-month budget that specifies your potential technology, inventory, and hiring needs.
What is the difference between scaling and growing a business?
The essential difference between growing and scaling has to do with how fast business costs increase in relation to revenue. During growth, your costs and revenue rise at roughly the same rate. When scaling, costs remain steady as you leverage existing systems to handle more volume, which brings in more revenue and increases the profit margin.
How do I know if my business model is scalable?
Your model is scalable if your cost per unit drops significantly as your volume increases. Business models that involve digital services, automation, easily outsourced supply-chain functions, and subscription pricing tend to be scalable. If your business model calls for you to earn each dollar through your physical presence or direct labor (a hair salon, for example), it is a growth model, not a scalable one.
What role does cash flow play in scaling business?
The higher expenditures required for scaling will probably squeeze your business’s budget until revenues increase. Yet cash flow — essential for servicing debt and meeting other obligations — cannot be ignored. Consider adjusting your billing cycle by getting upfront deposits from customers, or invoicing at intervals when you reach project milestones. There may also be ways to handle accounts payable more flexibly. Communicate with customers and suppliers to see what you can negotiate.
How long does it take to scale a business?
The Growth Institute defines a scaled-up company as one that grows 20% per year over three years. But the time your company needs to scale will depend on your industry and the amount of money you have to spend. Taking your time to build out operations in a deliberate way helps ensure that the company’s progress will be sustainable.
Photo credit: iStock/stockphotodirectors
SoFi's marketplace is owned and operated by SoFi Lending Corp.Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement. Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
SOSMB-Q226-134