Mitigating Early Stage Business Scalability Risk

Business and risk are two words that have been synonymous with each other since their inception. Research shows that 20% of small businesses fail within their first year, 30% fail in the second year and 50% fail after five years. Leaving only 30% of early stage businesses able to grow past the 10 years.

Why do businesses close down so quickly?

Early stage business owners operate with a common goal in mind: grow business and maximize profits. There are many obstacles that can compromise the growth of a business, such as problems in your strategy, that affect your perception of the business’ current status. As some start-up CEOs have shared with Compada, they only know what they know. What they don’t know is where the problems arise. If you are reading this, you are in luck as these challenges can be avoided by simply growing your familiarity with common early stage scalability strategies. This is why Compada was formed. We believe early business success comes from informed business decisions. In this post we will share 2 common start-up business scalability challenges and possible solutions that could help you.

What are the most common problems encountered when scaling operations?

Scaling too soon

Premature scaling is a major reason why many companies have a hard time getting to the next level. Scaling is about growing as efficiently as possible. However, if a business scales too quickly, neither the product, operations, revenue, nor talent will be ready for that expansion. Resulting in a loss of control over both the internal and external operations.

If the business hires sales reps before the product is ready for broader market adoption, you get new customers with needs not previously anticipated which can result in pressures to sales, and to product teams trying to manage roadmap expectations. On the flip side, if you add more product development support but don’t have increased customer conversations, you risk a compromised product roadmap with little to no market demand. Either of these problems could have a severe impact on a small business with limited resources.

Solution

Speak to a Compada Advisor with experience in scaling for a temperature check. This is because they have been integral in scaling start-up businesses before, and sometimes more than once. Compada Advisors will help you determine if your company is ready for scaling by analyzing your product roadmap, sales playbook, customer adoption cycles, attrition, retention, demand generation strategy, people operations, and/or talent skill gap alignment.

Compada will help scale effectively by identifying your competitive edge and customizing a playbook to fit your needs, find ways to work efficiently without compromising quality, and automating your operational processes.

These are the nine metrics that you should consider before scaling up your operations:

• Customer Loyalty and Retention
• Conversion Rate
• Gross Margin
• Cost Per Customer Acquisition
• Customer Lifetime Value
• Sales Revenue
• Monthly Profit and Losses
• Short-term and Long-term Goals

Scaling is not growth

There is a big difference between scaling and growing. Many companies mistakenly believe that the two are synonymous. To help you get a better understanding of the terms, here is a quick definition from our dictionary.

• Growing

  Increasing top-line revenues at any cost.

• Scaling

  Increasing revenues while minimizing your costs, effectively improving your bottom-line or profit margin.

As a business grows, so does the need for more staff to serve clients. Also, a rise in revenue means an increase of resources. While scaling a business means maximizing profits, the demand for resources is increasing at a slower rate.

This is a clear indication that growth does not necessarily translate into scaling. While it’s great to see your business grow, the point at which your company can handle increasing sales while still providing high-quality services at a reasonable price is when your company is scaling up. This indicates that your company is performing well and ready to take on the market.

Scaling a business is difficult. In a survey of 1,000 small businesses performed by City National Bank, 24 percent of business owners with $3 million in revenue responded that they relied on their financial institutions to help overcome growth challenges, while 38 percent received little help to no help from their financial institutions. Among the top three challenges experienced among these business owners were competition, revenue and access to talent labor.

Solution

Growth can also be viewed as a prerequisite for scaling. When you realize you are no longer a small team of five people, but a large business with 10-30 employees, you enter the growth stage.

Scaling refers to a stage following growth. These companies typically have 20-300 employees and are able handle increasing numbers of clients and sales more cost-effectively.

Look for these 4 performance indicators to pulse check if your are ready to scale:

• Predictable revenue
• Diverse income streams
• High retention rates
• Predictable low cost of customer acquisition

For more information on how to achieve growth and scale in your operations, connect with a Compada Advisor to jump start this process! Emails us at info@compada.io.