In working with businesses of all shapes, sizes, and funding sources over the years, these are 5 important questions to consider as you begin scaling your business.
#1: Why do I want to scale?
Why do you want your business to be bigger? I’ve yet to meet someone who started a company just to say they started a company. They usually have reasons like, I can’t not do this because I believe in this idea. Or, I want to have more control and authority over my work. Or, more simply, I think I can make more money working for myself than in a job.
So, here’s the thing: making more revenue doesn’t mean you’ll make more money or have more control. How is that? Delivering more stuff requires more infrastructure and more costs. It means more management responsibility for you. And companies that get big to qualify for another round of funding can go into their teenage years without being profitable.
If your goal is to bring your product or service to as many people as possible, and you have the customers and the demand for it, then figuring out how to scale up your operations makes sense. It might even make sense to do it fast. But if you don’t have a path to profitability and paying yourself, and you’re funding the business, then why are you doing it?
Know your why for scaling. Evaluate whether it means you’ll have to be temporarily unprofitable or find a funding source. Make sure you’re okay with that. Have a plan for turning your temporary downturn into a big return.
#2: What are my unit economics?
What does it take to deliver on what you’re offering? Do you have a good sense of the hard and soft costs that you take on to make that money?
On your income statement, you’ll see a line called “gross profit.” That’s what you made and what it cost you to make it. Revenue minus cost of goods (what you spent) is called gross profit.
The additional amount you’d earn from making one more unit is called unit margin. That’s the amount that selling one more unit adds to your gross profit.
Why the dull economics lesson, Professor Jill? Unit margin is your engine of growth. It will tell you how much more you have to sell, how much higher your revenues have to be, in order to justify all of those extra operating costs from being bigger.
Your unit economics are the key to your growth. For many companies, we look at their services and realize they are hustling to sign up clients for packages that will never actually generate any profit. Yikes! Or we’re selling a product that actually costs us a lot more to deliver than we thought. In other cases, we realize that saving 1% or 2% in costs might meet most of our goals.
If you understand how your unit economics work, your investments in revenue growth and your hustle will be that much more impactful.
#3: What resources do I need?
How many people will you need to grow? Are they employees or contractors? What are their hidden costs?
Your resources, what you spend on people, is often the most expensive part of your operating budget. And it drives a bunch of other spending, like payroll systems, corporate liability insurance, computers, email, payroll taxes, workers comp, medical insurance…and that’s just the required stuff.
It’s challenging to be realistic about staffing needs. The numbers get big fast. Your revenue has to grow by a lot to generate enough profit to cover each incremental hire.
When you see the numbers, you’ll be tempted to do more yourself. But as you scale, more of your focus will go to managing the company. You can’t keep doing the work, too.
So give yourself the team that you need to be successful. Look at total costs, not just salaries. Gut check how this will change your business, and whether you want to do it.
#4: What investments will I need to make?
A jump in revenue and staffing could take some significant upfront spending. I’m often asked, what’s the difference between spending and investing?
Spending is something you have to do over and over to get the same result. Investing is putting money toward a bet that you’ll be able to get a disproportionate return for what you spent at some point in the future.
There are obvious investments, like giving up some ownership share (called equity) in your company for someone to put in a chunk of money that you don’t have to pay back. There’s buying a building where you have your office. There’s building your website and having a logo developed.
But what about stuff that looks like spending? Marketing can be an investment. If you’re spending to raise a customer’s awareness of your company, you can also be investing in the experience and systems that turn that potential customer into a loyal repeat buyer.
Training and customer service can also be investments. Investing in systems that let one person do a lot is a great investment.
Spending is about things being expensive or on budget. Investment is about assessing the value the spending adds to your company. As one of my clients says, don’t step over dollars to pick up dimes. Bets have risk. As CEO, you’ll have to learn how to make smart bets for growth.
#5: Who needs to be on my team?
Your team is different than your resources. In addition to who you need to hire, you need a halo of experts who advise and support you. This might include your attorney, accountant, bookkeeper, executive coach, banker, business manager, insurance broker, real estate agent, chakra aligner…people with specialized skills.
Today, you may think of these people as vendors. But the best ones are partners in your success. They get you. They know your goals, vision, and why for being in this business. They’re aligned to helping you navigate your journey and exceed those goals, versus generating the maximum fee from a one-time engagement.
It takes time to find your team. Asking people you trust and admire for referrals is a solid start. Great people tend to have built great teams around them. Subscribe to their newsletters and follow them on social media. Get a feel for who their clients are.
Don’t wait until you’re sure you need them. Give yourself a bit of runway for a conversation. Share where you want to go. Ask them if they believe in what you’re doing.
If you build a team you trust, you will save time and money. They tend to be in business as well, so you might find they’re also a mentor, a therapist, and even a friend.
Look, the world is screaming, scale, scale, scale! Companies that raise big rounds of funding get a lot of press. But that doesn’t make it the right approach for your business. If your goal is sustainable growth, profit, and paying for your own dreams, ask these five questions before jumping in. Know what you’re signing up for and move forward intentionally.
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