Scaling a business is hard.
Over the years, many businesses have succumbed to the challenges of premature scaling, falling victim to overstretched operational foundations, poor financial planning, and a myriad of other hurdles.
Scaling your business is a strategic move that requires improving your company’s capacity for growth.
However, in today’s turbulent economic landscape, scaling up is often essential for your sustained success and relevance, as proven by businesses such as Airbnb and Delivery Hero.
In this article, we break down the essential components of scaling up successfully and how to approach business strategy when navigating this stage of growth.
What is scaling in business?
Scaling up goes beyond mere expansion in size or market reach; it encompasses a holistic approach to growth. This often involves personalised decision-making from the top that can optimise operations, enhance productivity, and maximise resources.
At its core, scaling up aims to achieve exponential growth without proportionately increasing costs or complexities. Rather than a one-size-fits-all approach, you should start with a systematic evaluation of every aspect of the business, from internal processes to external market dynamics.
After that, a clearer picture should emerge of how to spark change within your organisation through action. This may include:
Expanding into new markets
Launching new products
Broadening marketing efforts
Strategic outsourcing
Investing in technology, such as automation
Growth vs scaling?
Often used interchangeably, "growth" and "scaling" are actually two different but related concepts in business economics.
Growth: In a business context, growth can refer to various aspects such as revenue growth, or customer base expansion.
Scaling: Scaling, on the other hand, refers to the ability of a system, process, or business to handle increased demands or workload while maintaining or improving performance. Scaling often involves making fundamental changes to the structure or design of a system to accommodate growth efficiently. In business, scaling typically involves increasing the capacity of operations, infrastructure, or resources without significantly increasing costs or compromising quality.
“Business growth is about increasing top-line revenues at any cost, whereas scaling a business is about increasing revenues while minimizing your costs, effectively improving your bottom line or profit margin.”
To put it simply, growth is about getting bigger, while scaling is about increasing the capacity or capability to handle growth efficiently. In the context of a business, growth often precedes scaling, as a business needs to grow to a certain extent before it becomes necessary or practically possible to scale its operations.
How Delivery Hero grew in the right direction
Founded in 2011, Delivery Hero is a German multinational online food ordering and food delivery company.
In ten years, the company has become almost unrecognisable, having gone from origination to nearly 22 billion in gross merchandise value [GMV] and 43,000 employees.
In an interview with Mckinsey, Niklas Östberg, Cofounder and CEO of Delivery Hero, says:
"If I take decision-making authority away from my team or the people involved in a project, they will no longer have a sense of ownership and accountability. Instead, they'll focus on pleasing their boss; they'll ask questions such as, "What do you think Niklas wants?"
He also identifies trust as being a primary driver for successful scaling, despite admitting it wasn't the easiest transition, "In the early days, I did absolutely everything myself and had a hard time letting go."
Knowing when and how to delegate is an important lesson in growing. He continues, "Dedicating 1 percent of my time to every topic is much less effective than spending 100 percent of my time on one thing."
That's why your team is arguably the most important part of sustaining your scaling journey.
Lessons learned from Crumbs Bake Shop
In 2011, Crumbs Bake Shop, an American-based bakery specialising in gourmet cupcakes, went live on the public market with a valuation of $66 million.
According to Daily Finance, the average Crumbs Bake Shop produced almost the same sales volume as McDonald's - generating more than £1,000 in annual sales per square foot.
With an ambitious scaleup in the works, the business was spurred on by an increase in demand for sweet treats and declining neighbourhood bakeries.
Unfortunately, those ambitions were served short and sweet when their geographical expansion collapsed due to high retail rents in poorly chosen locations. The Wall Street Journal described the downfall as "gourmet-cupcake burnout."
Crumbs reported a net loss of $15.3 million in 2013, up from a $7.7 million loss in 2012.
"Lemonis told Insider in October 2014 that the Bauers and Crumbs oversaw "an obscene expansion that cannibalised their own stores."
Ultimately, the business strategy never came to fruition because, among other oversights, it lacked sufficient market research and grew at an unsustainable scale.
How to scale a business
So, how do you scale successfully?
Of course, there is no single solution, and success will depend on both internal and external factors. Below, we've highlighted five aspects of your business that need to be considered before taking action.
1) Understand your customer
Prioritising customer satisfaction and retention is paramount for scaling up successfully. Businesses must understand customer needs, gather feedback, and tailor products or services to meet evolving demands. Investing in customer relationship management (CRM) systems and personalised marketing strategies can help businesses build long-term relationships and drive customer loyalty, facilitating sustainable growth.
2) Is it the right product?
Product quality is crucial in business scale-up as it directly impacts customer satisfaction, retention, and brand reputation. A strong product drives customer loyalty, word-of-mouth referrals, and repeat business, which is essential for sustainable growth. Additionally, scalability relies on a product's ability to meet increasing demand without compromising quality or performance. By focusing on product excellence, businesses can effectively attract and retain customers, expand their market reach, and achieve long-term success in the competitive landscape of scale-up.
3) Build a killer team
Building a high-performing team and fostering a culture of innovation and collaboration is critical for sustainable growth. Businesses should invest in recruiting top talent, developing employee skills, and nurturing leadership capabilities. A culture that encourages creativity, adaptability, and continuous learning is conducive to scaling up, as it empowers employees to embrace change and drive organisational growth.
You might find you need some or all of the following:
Project manager
Growth consultant
Functional or sector experts
Strategy manager
Researchers and analysts
Looking to build an unstoppable team? Freshminds offers that support through our extensive knowledge of growth management and agile talent resourcing. We maintain a reputable network of analysts, senior consultants, and sector experts who have been driving business development for over 20 years.
Find more information here.
4) Financials
Sound financial management is fundamental for scaling up while maintaining financial stability. Businesses should develop robust financial models, monitor key performance indicators (KPIs), and optimise cash flow management. Securing adequate funding through a combination of equity, debt, or strategic investments is essential for fuelling growth initiatives without compromising financial health.
5) Figure out your business model
Streamlining internal processes and workflows is crucial for accommodating growth without sacrificing efficiency. Businesses should assess existing operations to identify bottlenecks, inefficiencies, or redundancies that could hinder scalability. Implementing automation, standardising procedures, and adopting lean methodologies can enhance operational efficiency and agility, paving the way for scalable growth.
For more information and structures about how to build a team, and plan or spearhead a scale-up of your business, talk to the Freshminds team.
