Economies of Scale

scaling a business

7 Steps To Scale a Business for Sustainable Growth

Scaling a business means achieving lasting growth in sales turnover while enhancing capability and cost-effectiveness. To effectively scale a business, you need to understand scalability and capacity. Whether you’re a manager or a human resources (HR) professional, it’s important to know how to grow a business slowly and surely for the long term. In this article, we look at what it means to scale a business, discuss its importance and list steps and tips for effective business scaling.

Scaling a business refers to actions taken to ensure your business has projected growth without sacrificing quality or increasing costs. A successfully scaled business has the infrastructure to handle increased sales volumes while steadily reducing costs. It means having the ability to support growth by planning and preparing systems, staff and processes for sustainable growth and profitability over the long term. Scaling is a growing company’s ability to ensure cost-effective production and an effective workforce.

in the thousands of dollars isn’t the same as managing one with multiple locations, hundreds of employees and turnover in the millions. Both are different from managing a national or international business with thousands of employees and turnover in the hundreds of millions. Management, processes and HR techniques that work well in one environment may not be well suited for another environment, so it’s important to adapt and change as the business grows. ​​Scaling is increasing a company’s revenue without increasing its resources.

Scaling up a business is not just about increasing sales or inventory turnover. It’s also about adapting to a different way of doing business altogether. For example, an HR manager in a small business may interview all prospective hires personally while in a larger business, the HR manager delegates interviews for entry-level employees. The company’s leaders realized that as the company grew, the HR manager’s duties increased. Interview processes were updated to share the task of hiring the best candidates.

Understanding Economies of Scale

The size of the business generally matters when it comes to economies of scale. The larger the business, the more the cost savings. Economies of scale can be both internal and external. Internal economies of scale are based on management decisions, while external ones have to do with outside factors.

Most consumers don’t understand why a smaller business charges more for a similar product sold by a larger company. That’s because the cost per unit depends on how much the company produces. Larger companies can produce more by spreading the cost of production over a larger amount of goods. An industry may also be able to dictate the cost of a product if several different companies are producing similar goods within that industry.

There are several reasons why economies of scale give rise to lower per-unit costs. First, specialization of labor and more integrated technology boost production volumes. Second, lower per-unit costs can come from bulk orders from suppliers, larger advertising buys, or lower costs of capital. Third, spreading internal function costs across more units produced and sold helps to reduce costs.

Internal vs. External Economies of Scale

Internal economies of scale happen when a company cuts costs internally, so they’re unique to that particular firm. This may be the result of the sheer size of a company or because of decisions from the firm’s management. Larger companies may be able to achieve internal economies of scale—lowering their costs and raising their production levels—because they can buy resources in bulk, have a patent or special technology, or because they can access more capital.

External economies of scale, on the other hand, are achieved because of external factors, or factors that affect an entire industry. That means no one company controls costs on its own. These occur when there is a highly-skilled labor pool, subsidies and/or tax reductions, and partnerships and joint ventures—anything that can cut down on costs to many companies in a specific industry.

Best tips for scaling a business

1. Building an impressive skill set

It’s quite clear that scalability demands an expanded skill set. Entrepreneurs need to build a team with a diverse skill set. It is important that your team understands your business goals and strive to achieve them on time without compromising on quality. It is only possible if they hold command over an impressive skill set.

2. Networking and Collaboration

The mindset that promotes growth and scalability must extend itself to collaborations and partnerships outside the business. Developing a strong PR network is the key to success in the long run.

You should build a network of collaborations with people and organizations, for instance, service providers, sales partners, suppliers as well as customers as they may be willing to assist you by providing important market statistics. Such engagements may take the form of a formal alliance and when that happens, scalability becomes achievable with minimum effort.

3. Investing in Technology

When it comes to scaling a business, technology makes things easier and inexpensive for entrepreneurs. You can gain massive scalability with less labor if you invest your time and money in technology wisely.

Businesses today don’t run on a single system, instead, system integration is a prime aspect for scalability for most businesses. There are numerous systems that an entrepreneur adopts in order to enhance effectiveness. Following are a few commonly used technology systems that you can set up to achieve your business scaling goals.

  • Customer Relationship Management system (CRM): Enhances user data and also increases team collaboration (especially between marketing and sales teams).
  • Improved and efficient manufacturing machines (for manufacturing businesses): For increased production efficiency to meet demand.
  • Inventory Management Software: For tracking inventory levels, orders, sales and deliveries.
  • Accounting and Financing Software: They provide timely and accurate reporting facility, allowing you to better use the information to make financial decisions.
  • Human Resources Management System (HRMS): It allows you to manage people, automate manual tasks, and sort information according to your needs.
  • Digital Marketing Tools: Allow marketers to create, test and measure their marketing campaigns with effectiveness.

4. Establishing Standardized Processes

You cannot scale your business unless you’ve established processes and procedures that facilitate streamlined operations. You must ensure the appropriate delegation of these repeatable standard processes to simplify growth of your business.

By aligning and standardizing your core functions, you’ll be able to quickly build a solid foundation for the long haul. Instead of focusing on short term fixes, you will be able to accomplish larger business goals with ease.

5. Automating processes

Automation allows you to run repeatable processes smoothly at a lower cost and more efficiently by minimizing your manual work. It allows entrepreneurs to improve the delivery time of any task. It further reduces the risk of human error as well as saves a lot of time. However, automation doesn’t necessarily mean integrating a mechanical system into the process and laying off employees.

Here, automation is the integration of a system into a process through which the number of checkpoints decreases. Hence, aside from quality assurance, automation increases the rate (yield) at which raw products reach their final phase.

For example, you can automate your welcome process while onboarding a customer after they register with your business. Once a customer signs up for your product or service, you can send them a simple welcome email in order to build a healthy relationship from the start.

6. Find your A-Team or Strategically Outsource

When it comes to scaling your business, it’s important to identify the right time to hire more team members or simply outsource the tasks to a third party organization or freelancers.

For instance, during the initial stages of a business, you have a few members in your core team who multitask. However, as the business continues to grow, it hires experts in order to improve and streamline processes so that the core team can work on scaling the business while sustaining quality. You must ensure that customer satisfaction is not at risk, or else, you will regret hiring the wrong team.

7. Understand what your customer wants

These 10 key points will allow your team to understand what your customer really wants. Also, it’s a good practice to look at the growth of your business in the perspective of your customers. Your internal team must work along in focus and set milestones of the growth for your business.

Mistakes to avoid when scaling a business

  1. Scaling without a foundation
  2. Focusing too much on marketing and selling
  3. Not listening to your early customers
  4. Hesitation to recruit employees with a better skill set
  5. Scaling too quickly
  6. Ignoring your people and culture
  7. Compromising your long term business plan for short term growth
  8. A wrong balance between gross revenue and profit
  9. Not understanding the economic drivers of your business
  10. Being stuck into the product road map without improvisation
  11. Unable to identify and approach different kinds of customers
  12. Refusing to implement change management principles within
  13. Believing that your investors will let you play your own game
  14. Not documenting your business processes
  15. Scaling a business is an organic process
  16. Running out of resources while scaling the business
  17. Risking customer experience
  18. Focusing on too many goals at the same time

Scaling a business truly begins from its ideation stage. You must have a clear idea of where do you want your business to be 10 years down the road. With the light at the end of the tunnel, everything will connect and scaling your business won’t be as stressful as you might’ve thought.

By implementing the above-mentioned strategies, we cannot guarantee that your business will boom however, we can assure that these strategies are tried and tested, they will certainly help your business to flourish and grow in the right direction.

Needless to mention, it’s also important to anticipate things that can go wrong, because they will, however, you don’t have to worry about them. Just keep the bigger picture in focus and don’t lose that light at the end of the tunnel.

Every entrepreneur tends to face various challenges along their journey but it’s wise to take preventative measures. With appropriate planning, right team members and a mindset to advance forward, you will scale your business with little to no trouble at all.