It is one of the biggest dilemmas for a small business - scaling. Kevin Mole, Associate Professor of Enterprise, goes through the questions every business owner should ask themselves before taking the plunge.
If you’re an ambitious entrepreneur chances are you might want to scale up your business. But scaling up can lead to disaster if you don’t attend to the fundamentals. As your business turnover soars, you need to make sure your costs stay low and the cash doesn’t run out.
Increasing sales will increase all those activities that support sales, including purchasing, logistics, transaction accounting and after-sales service. While new customers may demand attention and strategies to keep their service.
Growing sales need to be supported by people, in delivering the product, so the business need to be able to recruit new people, and manage new people to help with the scalable process.
Then there’s the cash. Unless you can keep your cash-cycle short then capital can haemorrhage from the business.
Even with all that you need to ask yourself these four questions:
1 The market
Have you got a market that is growing sufficiently to sustain your scale of business?
You might need to focus on a fast-growing niche - even in more mature markets these are available. It’s much easier to scale up when the market is expanding.
2 The product
Have you got the product that can sustain growth in your business?
To sustain a growing company you need to think ahead to try and add value to your existing products. If you just stay the same others will enter your market increasing the competition.
Stay one or two steps ahead of the competition by trying to continually improve your product, perhaps just in after sales service. It doesn’t have to be revolutionary change, but change it must.
3 The leadership
Can you relinquish your autocratic power to take on the management challenge?
As your firm grows it becomes more complex. If you as a leader are focused on maintaining the status quo then you cannot scale.
The lead entrepreneur won’t be able to control as much as they want or as much as they used to. Are you ready to delegate?
Instead of managing by telling people what to do; you need to manage through processes or through results, where responsibilities are devolved yet still accountable.
4 The management
Have you got the management team that can take you through the scale-up process?
In the scale-up process your management team will be tested. Your management team needs to be able to work well together.
Three elements that are useful for the way management teams work in high pressured environments and make decisions are:
- Using real-time information from customers and competitors; not after the fact accounting data. Better scale-up management teams evaluate options using more information and up-to-date.
- Better management teams evaluate more alternatives when making decisions, they don’t stop at the first solution; moreover they consider these options together.
- Better teams don’t have to agree on everything and they share power. When finance is the topic the finance manager has more sway; when personnel is the topic the HR manager has more sway. So CEOs need to enable less centralised decision-making and sometimes agree to something that they don’t agree with.
So apart from cash and the resources and the markets and the product you need to ask yourself whether your management team is up to the task before you scale.