#35- Are you ready to scale up?
Our startup has seen considerable growth both in topline and profits. Is this the right time to raise funds and really scale up?
Logically, scaling up is THE next step for most founders and startups. You want to capitalize on your success and leapfrog on its back. But is it that straightforward?
The decision to expand your startup and scale-up should always be made after thorough analysis by making sure you have all the knowledge and information you need to make the right directional choices. There are numerous factors to consider in the decision-making process.
Here are the key factors to consider to ensure you are ready to scale up:
Tailwinds vs Trends
Doesn’t take a long time for trends to vanish
Is your business growing on the back of strong long term tailwinds, or on the basis of a short term trend? This is the most vital piece of information to consider and analyze before taking the leap. There are numerous financial aspects involved in this piece, and some that can possibly have long term negative effects if the motive behind scaling up is not thought through.
You can make large investments to scale up only to find that your growth was on the back of a trend that suddenly vanished! This can be catastrophic for your business. I like to structure my due diligence on figuring out whether the space you are operating in is a trend or has long term tailwinds.
Is growing advantageous for you?
Growing is different from Scaling!
Logically speaking growth should be advantageous. Everyone understands the economies of scale. But will this play out in your business? Is your business large enough for you to really grow? Or is your business in a niche, and you're expanding in an adjacency? If the space is large enough, the incremental cost to grow your business should be lower, and you will enjoy higher profits.
However, if your growth is coming from an adjacency which is not your core- then think twice! It will probably cost more than you think to grow in the adjacency and can have completely different unit economics than your core business. Scale only if you are really sure about improving your unit economics in the long run. Or else, wait for an opportune moment.
Is your tech stack or distribution capable enough?
Incapabilities can turn catastrophic in the long run
We all know that the skills and capabilities required to grow from zero-to-one are very different from those required to scale from one-to-ten! While your current system capabilities might be just enough for your current business operations, at scale the scenario completely changes. It is very easy for a minor error or oversight to snowball in a large scale process.
For you to really scale up, start planning your capabilities early on. This not only ensures there aren't any glitches when you expand but also reduces the possibilities of downtime while working on the same glitches.
What about your people?
Go, team!
A truly scalable business should ideally not require hundreds of people. However, every business has a certain level of staffing requirements proportional to its size. You will need to plan your people requirements in advance, and in detail. At the same time, you will also need to keep in mind the productivity per employee, or revenue per employee benchmarks and plan your growth accordingly.
Scaling up is a difficult decision. You need to base your decision to scale up on the possibility of improving your efficiencies, and productivity with minimal downtime. Scaling up just does not mean growing revenues. It means growing revenues at lower incremental costs. Sometimes not scaling up is a better thing to do than growing to be in a weak position.
If you are a business with product-market fit, have largely developed your product, with all plans in place, you should aim to scale up! But always remember to tread carefully. Many times, it’s not a no, its a not yet.
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