Growing your business is an exciting and nerve-wracking endeavor. Maybe you’re planning to pour resources into building your customer base, or you’d like to introduce fresh and exciting products and services. Or perhaps you’re considering expanding into new markets and regions. Regardless of your method, scaling up can cause some growing pains. Even the most successful businesses can become derailed during the process.
Here, you’ll discover some of the top challenges and pitfalls businesses encounter along the way. All of them can be overcome, or avoided altogether, with proper planning and groundwork.
If you think your business is ready for growth, consider these potential challenges before taking the leap. A little proactivity can save your business a lot of headache on the scaling journey.
1. Scaling at the wrong time
Success can come in waves. Sometimes, when your business is riding a big one, it can seem like a great time to scale up. However, many businesses fail to realize when the prosperity they’re experiencing is temporary. As a result, they mistakenly invest in more capital, take on higher fixed expenses, and push for growth in ways that may turn out to be unsustainable.
Consider RewardMe, one of the first businesses to bring gamification to the offline retail/restaurant market using a digital loyalty program.
The company had great product metrics compared to its competitors, and garnered a lot of interest from the media and potential investors. However, it became too focused on scaling up quickly with big chain restaurants instead of growing incrementally and establishing success with smaller mom-and-pop operations.
The business landed a $1.5 million deal with a large chain. However, it didn’t have adequate cash flow to retain the talent it needed to complete the contract’s 6-month implementation phase. With no resources to continue forward, RewardMe was forced to shut down its operations.
While it’s important not to let fear keep you from thinking big and taking calculated risks, make sure the risks are in fact calculated. Don’t get trapped in “failure won’t happen to our business” wishful thinking. Look long and hard at the market data, as well as inward at your own historical data.
Part of succeeding in business is being able to predict demand and sales. Be watchful for indications that sales or margins might take a hit. This starts with comprehensive tracking and reporting capabilities.
Supporting your business with a dynamic recurring billing platform will give you deep reporting functionality. These platforms gather data from across all of your business segments, housing it to form your financial system of record—and a dependable single source of truth for your business. You need to review the data regularly, forecast your future cash flow, and adjust your fixed and variable expenses as necessary. This will enable your business to stay profitable, and continue to scale up, regardless of what the market is doing.
It’s also prudent to be flexible with your business’s expenses; namely, those that are non-strategic. Having the ability to cut costs where and when necessary helps a business ride out leaner times.
2. Imbalanced cash flow
Cash makes your business run. It enables you to buy the materials you need, pay your staff, and cover your rent and operating costs. While it’s always important to know how much cash will be coming in and going out of your business, it’s especially imperative if you’re planning on scaling up.
Zirtual is a subscription service that offers virtual assistance for individuals, entrepreneurs, and businesses. In 2015, this growing business failed to forecast its cashflow properly—an error that ultimately caused it to implode.
Zirtual was functioning using an outside consulting firm for CFO functions. According to founder Maren Kate Donovan, the consulting firm improperly projected Zirtual’s burn rate, entirely missing two payroll cycles. As a result, Zirtual was unable to cover its salary obligations. It was forced to cease operations, let go of hundreds of employees overnight, and was subsequently acquired by Startup.co.
Using your historical data, carefully perform a rolling cash-flow projection. Forecast for the next three to four months (if not more), taking into consideration your prospective scaling-related investments. This will give you a good indication of whether or not it’s a good time financially to take an upward leap.
Comprehensive recurring billing software can forecast all of your projected invoices for the next year. You’ll be able to see, down to the day, how much you can expect to invoice, and how much you can expect to collect from those invoices. This is invaluable revenue predictability.
As the old adage goes, you have to spend money to make money. Of course, sometimes it takes a while before businesses see a return on their investments into growth. A cash flow imbalance that goes on for too long can kill your business before it ever has the chance to see returns.
3. Inefficient processes and time management
Before you make the decision to scale your business, it’s important to review your operations. The processes that work well with your current quantity of employees and customers won’t necessarily work if you end up doubling or quadrupling those numbers. You may need to simplify certain processes and build out others to satisfy the scale of your business.
Understandably, many business owners want to be heavily involved during the early stages of growth. But as a business scales, there comes a time when delegation is imperative. Outsourcing can be a great way to bridge gaps without the added fixed expense of more in-house resources.
In terms of managing customer growth, using a service provider can grant your business the support it needs to scale with success. For example, using a customer service and engagement platform can reduce the amount of time your staff spends handling and resolving customer issues.
Billing is another potential gap that a service provider can fill. If you’ve been managing your billing with a labor-intensive legacy system, moving to a responsive recurring billing solution can automate many of your business’s processes. This eliminates the need for additional workforce and reduces the risk of revenue leakage and reporting mishaps.
For example, On The Map Marketing builds high-functioning business websites using state-of-the-art SEO techniques. However, it was struggling with a not-so state-of-the-art legacy billing system. This resulted in a great deal of manual work for its employees.
Since implementing an intelligent and cohesive billing platform, On The Map has been able to reduce its time spent on billing by up to 15 hours a month. It has also noticed an increase in its revenue recovery, with an average of $600,000 recovered per year.
Furthermore, proper support services enable your current and future staff to use their time and abilities in more effective ways. This can have the added benefits of increasing job satisfaction, improving productivity, and promoting opportunities for creativity and growth within your business.
4. Loss of focus
It can be easy to get distracted by fresh opportunities such as a new sales channel, market, or product line. Even as you scale up, however, it’s important to stay focused on what matters most to your business. Branching out in unique ways can be lucrative, and may be necessary in order to remain competitive. As you explore growth options, remember to allocate your best resources to your best opportunities.
Instream is a B2B SaaS (Software as a Service) business that creates tools and services for the dental community and insurers. When the business’s customer base began to scale, Instream realized it needed to reduce the amount of manual work required to perform its tracking and billing processes. These processes were key for smooth functioning; if the business was going to grow, it first had to focus on improving them.
Instream invested in a subscription billing platform that pulled all of its registration, billing processes, and customer relationship management activities into one integrated system. Not only did this introduce a more user-friendly experience for its customers, it also reduced the amount of necessary manual work, saving the business time and money.
A dynamic subscription management platform will give you the ability to review your individual revenue streams to see exactly what matters most for your business. For example, it can tell you:
- how much money is coming in by product and service
- sales by subscription or pricing tier
- which customer cohorts are bringing in the most revenue
The right information will keep your business focused on its core opportunities, regardless of when and how you choose to scale up.
It’s also important to perform regular strategic planning and create a structured process for working toward your growth goals. For example, if you’re engaging in planning each quarter, be wary of making an emotional decision to jump quickly on new opportunities mid-quarter.
How can you tell if an opportunity is worth pursuing now? You can discuss it with members of your staff, but you also need to get an outside opinion—someone who will challenge your ideas. Whether it’s a single business coach or a board of advisors, seek another perspective on your proposed new allocation of resources.
5. Lack of business alignment
The core parts of your business need to work together toward the same strategic objectives. When businesses are scaling up, they often lose this collaborative unity. Siloed units of the business can even begin to work against one another.
Effective communication is a key part of avoiding this, and management needs to put in the effort to ensure it’s built into the daily culture of the business. Scaling up can unavoidably create more defined departments, but it’s important to ensure these departments don’t become isolated. Quarterly planning sessions are a great time to check in and ensure the entire team is aware of and working toward common goals.
A lack of unity can also become an issue if a business is working with a legacy billing system that separates billing functions from all other aspects. Mistakes happen when different departments make decisions based on disparate data. Your subscription billing software should create a link between all areas of your business to ensure a single set of accurate data is being collected and used to guide the entire business as it grows.
Ultimately, the solutions and strategies used by your entire business need to support and reinforce one another.
6. The need to trim down as you scale up
Scaling isn’t about growing in all areas. It’s also about recognizing the areas of your business which aren’t contributing toward your success, and cutting them out as necessary.
For example, as your business grows, you may find that certain employees no longer align with your vision, or certain departments no longer serve a function.
One of the best-known examples is when Steve Wozniak parted ways with Apple. As a co-founder, Wozniak was happiest when the business was small. He could focus his efforts on individual projects such as Apple II—one of the first successfully mass-produced microcomputer products.
Steve Jobs, on the other hand, was a skilled negotiator, marketer, and editor of ideas who had bigger visions. As Jobs began pushing the first iteration of the Macintosh, Wozniak felt the Apple II wasn’t getting the respect it deserved as the workhorse of the business. The two began clashing over where to focus efforts and how Apple would grow into the future.
Wozniak made his fortune when Apple went public at the end of 1980, and he walked away several years later to pursue other interests.
Don’t be afraid to admit when something isn’t working. Don’t hold on for the sake of sentimentality. Focus on being effective and efficient as you grow.
Your business processes are another area that may require transformation as you scale up. Intelligent billing solutions can automate many time-consuming tasks, from drafting invoices, to sending out email notifications, and more.
This addition to your business can uncover a number of staffing redundancies, which can ultimately save you time and money. Again, it can enable your core staff to focus their efforts in more meaningful ways.
Planning to scale with success
Although business growth can bring about challenges, a well-informed plan can help you anticipate issues, avoid pitfalls, and ensure smooth scaling when the time is right.
Make sure you have sufficient resources to go the distance. Streamline your processes, put the right support in place, and keep your primary focus on what’s driving your business at its core. And of course, surround yourself with a team of individuals who are on board with your vision for future success.
Scaling up can certainly be daunting, but it’s an important part of growth. Commit to your plan, and when you’re ready, take the leap.
FAQs about Business scaling
Q: What is the main challenge of scaling up a business?
The main challenge of scaling up a business is ensuring sustainable growth. This includes not scaling up during temporary prosperity periods, maintaining balanced cash flow, improving time management and processes, staying focused on core opportunities, maintaining collaborative unity amongst teams, and being open to cutting out non-contributing areas.
Q: How does a business know when it’s the right time to scale up?
Businesses can identify the right time to scale up by thorough analysis of market data and their own historical data. They should track, report, and predict indicators of sales and margins. Accurate forecasting of future cash flow can provide clear indications whether it’s financially viable to scale up.
Q: What issues may arise from scaling at the wrong time?
Scaling up at the wrong time, such as during temporary prosperity periods, could lead to unsustainable growth, leading to higher fixed expenses that might not be supportable in the long run. One example was the company RewardMe, which had to shut down due to inadequate cash flow caused by scaling at the wrong time.
Q: How could a business prepare itself internally before scaling up?
Before scaling, businesses should reassess their operations and might need to simplify or build out certain processes to manage possible increases in employees or customers. Delegation and possibly outsourcing could become necessary. It’s also crucial to maintain focus on core business opportunities and engage in regular strategic planning.
Q: How important is cash flow during a business’s scale-up process?
Cash flow is crucial during the scale-up process as it enables the company to cover expenses like staff salaries, rent and operating costs. A cash flow imbalance continuing for too long could potentially harm the business before returns from the investment into growth are seen.
Q: Can a business cut down certain areas during the scale-up process?
Yes, scaling up also involves identifying and eliminating areas in your business that aren’t contributing to success. This could include processes, departments, or employees that no longer align with your vision.
Q: How can implementing intelligent billing solutions assist in the scale-up process?
Intelligent billing solutions can automate many time-consuming tasks, reduce the risk of revenue leakage and reporting mishaps, and potentially uncover staffing redundancies. This can save time and money, allowing the core staff to focus their efforts more efficiently.
Q: How critical is having the right support during business scaling?
Proper support services are crucial during business scaling as they allow the business to operate efficiently and manage growth effectively. For example, customer service and engagement platforms can help manage customer growth, while recurring billing software provides invaluable revenue predictability.
Q: What role does effective communication play during a business’s scale-up phase?
Effective communication is key to maintaining collaborative unity among different departments during the scale-up process. It ensures that all parts of the business are working together towards the same strategic objectives, thereby avoiding any internal discrepancies that could hinder growth.
Q: Is there a time when a business should not continue scaling?
Yes, if business indicators such as sales, margins or cash flow are forecasted to take a hit, it might be an indication to pause scaling efforts. In addition, if processes become too complex as the business grows, it might be necessary to halt growth to reassess and simplify processes.
