The early days of any startup are often filled with uncertainty. How are you going to reach your target audience? Will your team help you get to the next level? As such, few things are more exciting than seeing your startup really begin to take off.
As Your Customer Base Grows
As your customer base grows and you start to make a profit, it’s only natural to start thinking about your next steps. If you’re like me, you’ll begin seriously asking yourself: is it time to scale?
Scaling your startup isn’t a decision that should be taken lightly. Premature scaling has been found to be the number one reason why startups fail, with scaling mishaps contributing to as many as 70 percent of all business failures.
Successful scaling is filled with challenges. If you’re not careful, it’s all too easy to make cash flow mistakes, overvalue certain sales, hire the wrong people or even let your customer service fall behind.
So how can you know when your startup is truly ready to scale? Here are a few signs that will help you know when you’re ready to grow.
1) You Have a Strong Core Team
Your startup is only as strong as the people who help run it. When speaking with my friend Jason Bliss, co-founder of Healthy Living Network, he was quick to cite his co-founders as a key contributor to his company’s success.
“Even if you only have three other people working with you, it’s important that you have a team that you know is committed to your business for the long run,” he says. “The people that have bought in to your startup and are equally passionate about your goals will execute better and be willing to adapt to the challenges associated with scaling.”
Of course, if your current employees are stretched too thin, it won’t matter how talented they are or how much they love your business concept. One Gallup poll cited “on-the-job pressure” as the top contributor to employee dissatisfaction. Too much stress, too much pressure, and your core team members will get burned out.
Worse yet, they won’t stick with your company in the long haul. On-boarding new talent will help lighten burdens so everyone can give their best effort.
2) A Sturdy Infrastructure
Far too many startups fail because they become so focused on growth that they forget about the basics that are essential for long-term success. Even something as seemingly simple as defining your target audience and value proposition can go a long way in helping you create a proven concept.
Before you focus on growth, you need to first prove that your product or service will actually sell. You need to have the right organizational structure in place to keep everything organized (especially when it comes to managing finances).
Even your mission statement and company ethos should be firmly put in place!
You shouldn’t be trying to find the solutions to these problems as you scale. Putting the proper framework in place beforehand will allow you to make better use of your time and energy as you try to grow.
3) Positive Cash Flow
It’s one thing to generate a profit. It’s quite another to create a positive cash flow for your business. Cash flow describes the amount of money going in or out of your business — not payments that are still pending with clients, but payments that have actually gone into your company’s bank account.
As angel investor Martin Zwilling explains, “Good cash flow management, in simple terms, means understanding every inflow and outflow of cash, and never delegating this function. In principle, you must delay every outlay of cash as long as possible, while [incentivizing] everyone who owes you money to pay it as rapidly as possible.”
Scaling will naturally increase the costs of your business, often before you will be able to generate additional revenue. Using your current cash situation to project future income and expenses will help you prepare for unanticipated setbacks so your growth efforts don’t send you into bankruptcy.
4) You’re Turning Away Clients
When I first started my business, I was able to take care of most client projects on my own.
But I quickly ran into a problem. I had more clients coming to me than I could handle by myself. This left me with two options: either I could turn away these clients, or I could hire additional writers to help me manage the load.
Needless to say, I didn’t want to lose these new business opportunities. The fact that I had clients coming to me was a clear indicator that there was strong market demand for my services. It showed that the concept was sustainable and that I was providing quality work.
Rather than become my own productivity “bottleneck,” so to speak, it was clearly time to scale.
Regardless of your industry, steady demand is one of your best signs that you’re ready to expand, especially when that demand is outpacing your current supply capabilities.
5) You’ve Done Your Legal Research
With so much focus on maintaining profitability, it can be easy for those considering scaling to overlook the legal aspects of growing their business. But this is one area you should never neglect.
“As business grows, the list of government regulations to which they must comply with also grows,” writes Lauren Gilmore. “This includes everything from laws concerning consumer and employee data security to minimum wage variances – and these regulation pressures do not disappear…if you’re expanding internationally, things can get pretty hairy if you’re unfamiliar with the rules and regulations of your new target market.”
Regulatory issues associated with business expansion are just as important as determining whether you’ll be able to maintain a positive cash flow. When you do your research, you can have confidence that you won’t run afoul of any local or federal regulations that could put a sudden (and possibly permanent) stop to your growth.
Planning for the Future
It’s tempting to try to rapidly scale your startup after you’ve tasted your first success. But I’ve seen far too many associates crash and burn because they tried to grow before they were truly ready.
Sometimes, the old cliché of “slow and steady wins the race” really does ring true.
As you take the time to lay the right foundation for your startup, you’ll be able to create a framework that helps you build up your strengths and overcome your weaknesses. By ensuring that your startup is truly prepared to scale, you’ll enjoy long-term success as you grow your business.