Scaling-up your business in a competitive economy
BY OLUFEMI ADEDAMOLA OYEDELE.
All businesses, like human beings, have three-term goals – short, medium and long terms. The short term goals include being birthed and able to survive the teething problems of start-ups like paying taxes and salaries of workers and yielding returns on capital invested. The medium term goals include being able to make profit after meeting statutory financial obligations and the long term goals include to upscale and be able to edge other similar businesses. Businesses are primarily set up to withstand PESTLES risks (political, economic, social, technological, legal, environmental and security). The secondary goal is to compete and generate profit which is the cost of capital (income above break-even point) and the tertiary goal is to be ‘a force’ to reckon with.
Business scale-up is the process of increasing either the production, sales volume, size, number of workers, number of tools, quality of technology and performance of a business organisation or performing two or more of the above. Businesses behave like a new-born baby; they have lifespan and experience different features at each milestone in their life cycles. According to ‘Scaleup Nation’ magazine, in an article titled, “Growth vs Scaling”, by Patrick Whatman, a scale-up is “an entrepreneurial venture that has achieved product-market fit and now faces either the ‘second valley of death’ or exponential growth.” To state this in another way, once a startup has proven that it has an acceptable product (first valley of death); the next stage is to expand its market share by taking its product to the masses (second valley of death).
Scaling up is strategic as a lot of successful companies ‘fall’ because they tried to scale up without planning. Scaling up means there will be more customers and more challenges to handle. “Big Biba” was a fashion merchandise in Central London that impacted the business environment of London in the 60s. Owned by a Polish immigrant, Barbara Hulanicki and her husband, Stephen Fitz Simon, Biba was to London what Michael Jackson was to pop music. Biba was a one-stop shop for apparels, furniture and interior decoration materials. Big Biba decided to scale-up by introducing new owners into the business in 1969 to expand its capital. British Land Company, a real estate investor, acquired shares in Big Biba and for good seven years, did not give Barbara Hulanicki and her husband free hand to run the company. Barbara and her husband walked out of the company in 1976 and that led to the end of Big Biba.
The benefits of scaling-up include getting higher turnover and profit. It may also mean better goodwill for your business. Efficiency of business processes can be achieved through scaling up. Scaling up can also help you become independent in your business as expansion means you can get new hands that will help you run your business successfully. An expanded production means you can rely on economies of scale as you buy your raw materials in bulk and reduce the unit cost of purchase as well as reduce the unit cost of production.
To scale-up you need to stare hard into your business process to see if you are matured for growth or change. Strategize what you need to do to scale-up, that is, to increase sales, increase production, expand premises, etc. Does your organisation have the people and facilities to handle new orders, without failing or ‘slumbering’? It is proper to plan for expansion. The best planning starts with a detailed sales growth forecast, broken down by the number of speculated new customers, orders, and revenue you want to generate. Scaling up a business requires funding. Your growth plan may call for hiring new workers, buying more vehicles for distribution, deploying new technology, adding equipment and facilities, and creating reporting systems to measure and manage results. You also need to find the money to invest for growth.
It is also advisable that you secure your sales contacts as business cannot survive without income. Will your expansion mean more sales or the perceived sale is a mirage? Scaling up your business obviously assumes you will sell more. Do you have the sales structure in place to generate more sales? Do you have enough stock of product or strong production structure? Do you have: sufficient information to generate the desired number of leads; marketing systems to track and manage leads; enough sales representatives to follow up and satisfy leads; a robust system to manage sales orders; and a distribution system that can ensure products are distributed promptly? Technology is now being used as a catalyst of business growth.
Technology makes it easier and less expensive to scale-up a business. Invest in modern technology. You can gain huge economies of scale and more output, with fewer resources, if you invest wisely in technology. Automation can help you run your business at a lower cost and more efficiently by minimising manual work. Systems integration is a prime area for improvement in most businesses. Small companies have independent and few communication challenges. Expansion means you may need an intercom system to communicate to a far-off office and workers.
Evaluate new products in the market that improve quality, save time and money that you can acquire. Look at customer relation management (CRM), job batching, marketing automation, sales management, inventory, manufacturing, accounting, human resources, shipping, and other technology systems.
Consider buying more machinery, getting new warehouses or outsourcing your jobs. Assess whether the new jobs created by your ‘new scaled up’ organisation will be carried out by additional permanent or temporary workers. Technology gives huge leverage, but at the end of the day, you still need people to operate the technology.
Consider if you have enough customer service staff? What of the operating expenses? Look at legislation of the area. For example, in Nigeria, having more than 500 workers means you must provide an employee staff housing scheme according to law. Do you have enough security personnel to secure the expanded business? Check whether you will need to train your new workforce about the culture of the new company and how to handle machines or customers. Do not forget management requirements of the new expanded business. Scaling up your business is good, but you must manage it properly.