There is a difference between growing your business and scaling your operations. Growth is essentially a 1-to-1 ratio: you add costs (employees, clients, office space) at the same rate you add revenue, so your bottom line remains stagnant. Scaling, on the other hand, means you’re growing your revenue at a faster pace than you increase your expenses—what all companies, but especially small to mid-sized businesses, should aim to do to insure long-term success.
Constance Moonzwe scaled her healthcare staffing company, ITH Staffing, by reducing her payroll and raising more capital, all of which set her up for healthy future growth. “A large Fortune 500 company can afford to have millions or billions in losses every year and still be operational,” says Moonzwe. “That’s not a wise model for small businesses to mirror.”
Scaling up your business can support healthy growth by improving revenue and efficiency—but it isn’t always going to be a smooth process. According to the Harvard Business Review, the most “dangerous” time for companies is when they begin scaling up. You’ve made the decision to begin expanding your business, but what happens when your workload suddenly explodes? Do you have the right infrastructure to efficiently manage the sudden expansion, without simply having to hire more people? It may take some time to plan out what strategies work best for your unique business, but here are some things to keep in mind, coming from women entrepreneurs who have successfully scaled up their own companies.
1. Streamline your business model
Sometimes, it takes a few tweaks to your business model in order to become more efficient. When she first started ITH, Moonzwe had a different business model than the one she has now. ITH started off as a contingent staffing company, which helped place workers in short-term and long-term healthcare positions. At that time, all those people were also on ITH payroll. However, in her company’s new business model of placing people only in permanent positions, Moonzwe has been able to reduce the number of employees from 150 to just her seven core recruiters.
"You first need to have a really good business model and see what type of money makes sense for you."
“What’s been great about switching business models is I’ve been able to reduce my operational overhead by about 80 percent,” she shares. “Going from 150 employees to seven, I keep three times more money, even though my net revenue is the same. Our organization keeps the majority of the money that we make, instead of it being dispersed everywhere—it’s scaling in a smarter way.”
2. Start with the end goal in mind
Scaling up your business requires proper planning, and, if you want to plan, it helps to know what your end goal is. Serial entrepreneur Kalika Yap, who has successfully started and scaled multiple businesses such as branding agency Citrus Studios and accessories company Luxe Link, says that she plans to “start with the end in mind” with her latest venture, Orange & Bergamot, a small business-focused digital marketing company.
Knowing where you want to take your business will help determine every factor, from hiring process, to funding strategy—then you’ll have a clearer overview of what steps you need to take to achieve those goals. “With Orange & Bergamot, I really want to figure out, what does the culture look like? What type of press are we getting? What employees are we looking for?” shares Yap. “My goal is one million branded commerce sites, one million entrepreneurs succeeding, and one million jobs created, which is a big goal. But, when you’re working backwards from that goal, it’s so much easier to scale because you know where your north is.”
3. Embrace the process
“I’m very much a process-driven person,” says Yap. “My goal in my companies is to make myself obsolete, and, in order for me to do that, I have processes that everyone can turn to without my feedback.” Having a work process frees up time to pursue more lucrative opportunities and can also help you and your company avoid future mishaps. “Years ago, one of my clients did not pay us on time because we didn’t have W-9 on file,” shares Yap. “Now, for all of our clients, even if they don’t ask for it, we give them a W-9.”
"I definitely feel that every business should seek advice early on what would be the best financial strategy to grow your business."
Although having processes in place can give employees a certain amount of problem-solving leeway and independence, Yap advises strongly against giving up total control. “There’s a huge difference between a business owner controlling every move an employee makes, versus having internal controls so you know if there’s embezzlement or whether things are being taken care of,” she points out.
4. Cultivate return customers
While you’re scaling you will need a stable bottom line, and that means that returning clients are key: “A current customer will buy from you 40 percent more easily than a new customer,” Yap says.
Moonzwe’s successful business model pivot essentially relies on returning customers. Instead of being able to supply one temporary healthcare worker for every client, ITH now focuses on supplying multiple long-term appointments for each client. “We’ve had to get rid of some clients along the way, and realized that if we go deep within our clients, we don’t have to go wide,” she shares. “If we can come to Client A and say, ‘I’ll give you your janitorial, dietician, CEO, and CFO,’ that’s fine, and we won’t have to have a thousand of those.”
In order to get those customers coming back, some areas like client relationships shouldn’t be scaled, Yap says; those can benefit from a more personal, old-fashioned touch. “Put reminders on your calendar to meet or talk with customers on a quarterly basis and provide them with news that can help grow their industry,” suggests Yap. “Send them helpful information via email or social media so they remember you; upsell them on new products that can help them grow. Ask for referrals because it's easier to get customers through warm leads and peer-to-peer recommendations.”
5. Find the right strategic funding
No business can succeed without cash flow. While some businesses like ITH Staffing have found ways to cut overhead costs in their scaling process, most companies are going to need to grow physically, as well—and that means having enough money to cover the costs of getting more employees, equipment and/or office space to keep up with consumer demand.
"When you’re working backwards from that goal, it’s so much easier to scale because you know where your north is."
Although you can bootstrap your company to success, there are many different options to get funding for your business. Your end goal will often determine what kind of funding is best for you. For instance, if you’re goal is to exit and sell your business, or even go IPO, you might want to consider venture capital. However, if you plan on keeping tight control over your business and have demonstrated revenue, then perhaps an SBA loan.
“You first need to have a really good business model and see what type of money makes sense for you,” says Yap. “I’m always looking for money that will strategically help us get to our goals. Right now, with Orange & Bergamot, I’m looking at VCs who are interested in helping small businesses. There are so many types of VCs, you have to figure out what type of money works for you, and if you can use their strategic alliances to help your companies grow.”
Moonzwe started ITH Staffing with her own money, but the company grew so fast that she very quickly needed to find an outside financing source. “Week one, we’re [making] $10,000,” she shares. “Week two, we’re doing $50,000. I blew through my money within a month.” She needed cash immediately to keep up with the demand and cover her increased expenses, but didn’t have the time to apply for a bank loan or search for venture capital. Instead, Moonzwe turned to factoring (also known as accounts receivable finance), which is when a business sells its invoices to a third-party financial company (the “factor”). The factoring company pays a cash advance on those invoices, typically 80-95 percent of the total invoice value, and, once it has collected payment from your clients, will pay the remaining balance.
Although factoring raises cash quickly (typically, you’re paid the advance within 24 hours), it’s not ideal for all businesses. Moonzwe warns that they can be very aggressive on collecting payment, and, if your clients don’t pay on time, you can incur additional fees, which will vary depending on the factoring company.
It can be difficult to determine the right funding strategy for your business—hence, the need to form strategic financial alliances and mentors, as Yap suggests. “One of my biggest mistakes was that I didn’t establish a good banking relationship earlier on,” admits Moonzwe. “By the time I started to develop relationships with the bank, our financial needs were too high. I definitely feel that every business should seek advice early on what would be the best financial strategy to grow your business.”