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Go big or go home

Go big or go home

How to scale your business

How to scale your business

MAKING IT WORK PODCAST

Season 1 | Episode 9

Scaling your business is no longer a choice, it's survival. Whether it's to protect your market share from deep-pocketed competitors or to satisfy your investors, the pressure for small businesses to replicate their model has never been greater.

From managing booming sales to wrestling with cash flow, our entrepreneurs discuss the hidden challenges of scaling a business sustainably.

So, are you happy with your mom and pop shop, or should you yearn to become a behemoth?

Listen now

SHOW NOTES

Size matters. So how and when should you scale your business?

Entrepreneurship and ambition go pretty much hand in glove, and making it big is certainly on the ‘to-do’ list for many startups. But aside from those rare runaway successes that go from IOU to IPO overnight, most businesses need to take a pragmatic approach to moving on up, and that means learning how to scale.

Which is not the same as growing. Scaling involves increasing your revenue with the same amount of effort – arguably a trickier proposition altogether.

 

Let it grow

The first question is why bother? After all, the ‘small local business’ model has worked pretty well for thousands of businesses for thousands of years. Shark Wheel isn’t one of them – founder David Patrick believes that you should start to scale from day one. “So, when to scale? All day, every day, all the time. You're always scaling. You're always trying to make it bigger.”


“I made about $20,000, in the first month of business. This was not even intentional.”


Aquila Augusta, founder of hair product company Edge Entity, also needed to scale early, and unexpectedly. “Initially I felt like my business grew really fast. I made about $20,000, in the first month of business. This was not even intentional.” Although her business has grown massively since then, she took her scaling cautiously. ”I was afraid to scale my business and to grow my business, because I didn't think that I would have enough supply for the demand.”

 

Building a strategy

Clearly, scaling is not simply a case of jumping on the back of a runaway horse and seeing where it ends up, as David knows. Shark Wheel isn’t his first rodeo. He’s been fortunate enough to be in the position where he can pick and choose projects for their scaling potential. “How do you choose which ones of the hundreds to do? It was best guesses in the beginning, but then after a period it becomes that low-hanging fruit. You're always picking the ones that you think you can monetize the quickest and the best.”

It’s a different matter of course when you’re essentially married to the business – an apt term for Diana Ganz and Jeanne Foley, co-founders of wedding attire business SuitShop (formerly The Groomsman Suit). They found that the crowdfunding platform they used helped them plan not only the initial launch but the potential for expansion. “Kickstarter was our business plan!” says Diana. Jeanne agrees: “Kickstarter is really cool because they have an outline of how you're going to sell your product, why is this filling a need in the market.”

 

Navigating the challenges

That plan has stood them in good stead as they’ve scaled the business, particularly in anticipating opportunities that also bring an element of risk – such as the potential for a huge surge in orders to effectively sink their business.

“Our inventory management is so much better than it was when we originally started. It was hard for us to predict our growth and we were always sort of exceeding our expectations,” says Diana. “You cannot sell something to a customer,” continues Jeanne, “that you don't have. If they visit your website and they place their order… they're expecting to get it.”

And if they don’t, you can be sure they’re not going to stay quiet. It’s a reminder that as a small business moves up the ladder, it’ll also be trying to upscale its reputation – a task that’s often easier said than done. “Because you're a small business,” says Aquila, “a lot of times people like to attack the business. You're not well known and they have no problem going on to blogs, websites or whatever.” Aquila has found herself threatened due to misunderstandings or mistakes, with the inevitable snowball effect. “People will try to alert their friends and family, and that's what I don't want – my reputation to be bad. I don't want that.”

Scaling seldom seems to be a safe and comfortable move. In fact, in terms of risk, it can be up there with starting a business in the first place. “I never expected that scaling my business was going to be one of my biggest challenges in owning my business,” says Dana Donofree, whose AnaOno business makes lingerie for breast cancer patients. “I thought starting my business was going to be the hardest part, and actually, starting the business was easy in comparison to scaling it.”

The entrepreneurs

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Dana Donofree

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David Patrick

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Jeanne Foley & Diana Ganz

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Aqila Augusta

The cash and the control

And it’s not surprising since at the scaling stage, money not only talks – it soon starts to yell and beat its fists on the floor. “During the crucial growth phase that you are scaling and you are growing,” continues Dana, “the financial pressure of growing your business is very, very tricky and you have to manage through it. You're like, "How am I so successful? How am I doing so well and how do I look at my bank account and it's so low?" It's really hard to get through that because you feel successful. It looks successful, but your bank account is screaming at you to put more money in it.”

Money was not the only limiting factor for Dana. Initially adamant about maintaining control, she had a change of heart once a decision had to be made about scaling. “Do I stay small and help a smaller percentage of those women, but own my company outright? And the answer to myself was, I want to help as many women as I can possibly potentially help, and I can't do that without me asking for help.”

David also faced and made the same choice. “So many people are afraid to give away shares and ownership and percentages and things like that to scale for growth. In the beginning, I was that guy. It was always my money, my money, my money. There were no investors, there was no opportunity for anybody else to make money on the company but me.”

David realized that this approach was actually limiting the growth potential of his business. “If you really want to scale, give away a good percentage of your company. Do you want to own 100% of a grape or 50% of a watermelon?” By taking on investment capital and taking on partners, David’s company has become bigger than he could have ever achieved on his own.

 

Ready when you are

“I'm afraid of it too,” admits Aquila. “I like the comfort of being able to control everything. But, there's no way that I can get to the level that I want to be on without moving up and getting out of the building that I'm in, and not having these employees working around me. I'm gonna have to eventually hand this over.”

Aquila’s clearly not in a hurry to take that next step, which highlights just how important the timing is. Scaling is a serious undertaking and if it’s going to be done, it needs to happen when all the pieces are in place, and not a moment before.

“There's a lot that happens, especially in the e-commerce space,” says Diana, “companies just scaling really quickly, exponential explosive growth and then they fizzle out after a couple of years and we do not want to be that brand. We want to be here for a long time.”

And this highlights how important it is to be realistic about your chances of success. “(We had) all of these opportunities to scale,” says David, “and we had to literally tell every single one of them: can't do it, can't do it, can't do it, can't do it. It wasn't that we didn't have the money, we didn't have the time. There's only so much you can do. So you scale to your abilities.”

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