Scale Your Business – 9th Step of Starting a Business

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Written by BusinessAlligators Support

Support Staff at BusinessAlligators is a team of business experts led by Shilpi Singh Trusted by over 100K readers worldwide.

July 17, 2017

Until the previous section, you have learnt about the key strategies for your business to be able to capture the market. We discussed various steps to help your business reach its breakeven point and sustain in the competitive landscape. However, now that your business has been set up and has been rolled into the market, it is important to proceed to the next crucial step in the Startup Ecosystem, and that is to Scale your Business. The most daunting part of the entrepreneurial journey is not to start a business from scratch, but to scale the business for growth. This is because at the initial stage, mistakes are easily fixable and there is little to lose. But when you accelerate the growth of your business, stakes are high and the demand for cash goes up really fast.

As an entrepreneur, if you do not consider to scale your business, it is likely for your business to die out soon. You cannot take the risk of not considering your competitors at this stage. It is not necessary that if your business is going at a snail’s pace, so is the case with your competitors as well. If your business does not have the potential to eat away their business, eventually they will take the big leap and make you fall flat on the ground. And not to forget, you now have a bigger team to handle and pay their salaries, expand your operations and you might also want to consider adopting new technologies. So, it is the time that you think of scaling your business before it is too late. In this section, we take you through some crucial steps that will help in scaling your business to make sure you reach the profitable stage and your business flourishes day in and day out.

  1. Series of Funding

During the initial phase, when your business was blooming and the main aim of the business model was to sustain in the market, we discussed how ‘Bootstrap Financing’ was the most feasible funding option for your business. However, now when the initial funding has been utilised to carry out essential operations of your business in various domains, depending upon the suitability of the venture, it is now time to seek funding to scale up your business and make it more and more self-sustainable.

In order to propel into a sudden growth trajectory for your business, as an entrepreneur, you might have to think of cobbling together your finances from a combination of sources at this stage. This might be in the form of traditional funding options like Venture Capitals, private angels, equity and bank loans or the newer choices of seeking public funds, peer to peer lending, customer bonds and employees’ funding as they might consider taking stock options in return for cash or credible note. However, failing to choose the right investment for your business at the right time, will drain all your efforts to grow your startup into the next big thing.

With the emergence of many new funding options for business growth, it has become more crucial for you to choose the right kind of deal for your venture. However, one important aspect to keep in mind before choosing the right funding option for your business is to be clear on your exit strategies and discuss the same with your investors to make sure you and your investor are on the same page regarding what your targets are and how and when you plan to achieve them.

  1. Don’t Sell Your Company

You read that right. At this stage, selling your business for a remarkable deal sounds feasible, there is no denying to that. However, what needs to be taken care of is that starting your business with the intention of selling it from the beginning is not the right thing to do. Doing this will deter you from your goals and you would not be motivated to the extent that you should have been. However, the same rule does not apply in scenarios where you intended to start a particular business to support other businesses.

For instance, consider the case of Snapchat Inc. Snapchat became public on March 2 in 2017, while Facebook Inc. spent roughly 8 years to build its user base before going public. During IPO, Mark Zuckerberg offered to acquire Snapchat for $3 billion in 2013 to which Snapchat Inc. declined. However, after a month, Facebook included some of the features across its various products that resembled strikingly to those of Snapchat that might have affected the growth rate of the company. For instance, Facebook rolled out Instagram stories in 2016 that allows users to take pictures, apply filters and doodles and post content in their story that remains for 24 hours, something that Snapchat has been doing since 2013.

By this time, Facebook had already acquired WhatsApp and Instagram and was successful in incorporating all their features on all their interface. One thing that Snapchat failed to realise is that at that time, Snapchat was only able to establish itself as a feature that was easily incorporated by Facebook Inc. As a result of this debacle, Snapchat Inc. faced a $2.2 billion net loss in its first quarterly report for 2017 after IPO, with its growth rate declined 82% since the launch of Instagram stories.

So, in case if you find yourself in a situation similar to the one mentioned above, you can consider focusing more and more on strengthening your business model to make sure that your features cannot be copied by your competitors. Or else, if your business model is not as big as your contemporaries, then you can consider the acquisition opportunities that come your way, till the time you do not establish yourself to that level.

  1. Increase Operating Cities

In order to scale your business, you might have to consider expanding it in different cities. More importantly, an entrepreneur starts his business by setting up the base in a single location but setting up stores or expanding operations to a new service area can definitely scale up your operations in a big way. This can involve either opening a business with the same product in a nearby region or by making your services available to a much wider geographical audience. The best part of doing so is that creating a second location for your business operation is much more cost effective than starting a business from scratch as the initial research on the business has been done and parameters have been set.

On the contrary, entering into a new region exposes your business to a new set of customers, thereby increasing your business profitability. Additionally, expansion facilitates economies of scale in your business that were previously not available, resulting in additional profitability.

Once the possible areas of expansion have been harnessed, it is now crucial to do an in-depth market research to learn more about the expansion opportunity in the new region. We have learnt about PESTEL Analysis in idea development sections that can be used to identify various factors that facilitate the growth of your business in a new region. You can also consider doing a primary research by travelling to the target location and asking potential customers how they perceive your product or service if it enters into their region. Also, you can research on the competitors in that region to do a detailed analysis of that location and comprehend the business profitability better.

Companies like Airbnb, Homejoy and Uber have grown their footprints from city to city and employed people outside the tech economy by adopting best practices of expansion. Airbnb is today providing its services in over 34,000 cities spanning over 190 countries, by adopting to local approaches for every region and understanding every market and catering to the needs of the local population accordingly.

  1. Profit Generation

Profit generation is very important when you scale your business. Quite often, most entrepreneurs confuse more profit generation with generating more and more customers. In the race to get a wider customer base, they even adopt strategies like giving product discounts. Most of the time, they tend to believe that the more number of clients they are able to capture, the more would be the profitability of their business. While this might be true in some cases, but this basic understanding cannot be applied to all business models. Before determining the profitability of a business, one must take into account all the costs that have been incurred in the production, including the cost of raw materials, procurement, logistics etc, and not solely on the basis of the number of products sold or the number of customers acquired.

Consider for example a business that is based on reference market, that is, where your business gets more and more clients on the basis of the positive feedback that your existing clients have shared with other prospects. In these scenarios, it is important for your business to focus more on delivering the same premium quality product or service and acquiring more and more clients than to focus only on profits. Because with the positive response that gets spread in the market on your business, profit is going to flow in eventually.

  1. Customer Retention

Customer Retention is a crucial aspect for entrepreneurs who are looking ahead to scale their business and they tend to miss out on this aspect quite often. If your business plan is focused on growth, it must include an investment in customer retention. Failing to do so will result in leaving money on the table, hampering the profitability of the company in the long run. A company can save up to 40-50% of their cost incurred on marketing if the business founder focuses on customer retention. Costs associated with repeat businesses are significantly lower.

There is no doubt that attracting new customers is enticing and rewarding but it also brings with it a lot of hard work and efforts. A research has also highlighted that 70% of the companies have stated that it is cheaper to retain an existing customer than acquiring new ones. Also, the cost of acquiring new customers can be as much as seven times more expensive as compared to retaining the existing ones.

Targeting existing customers also give you a stronger chance of making a sale. The probability of converting an existing customer is 60-70% whereas that of converting a new prospect is merely 5-20%. Promoting your brand to existing customers reduces the spend on ads, and it also gives your business a chance to showcase your commitment to rewarding your loyal customers, a great move towards uplifting your brand value. Additionally, it is much quicker to sell to an existing customer as all barriers to initial purchase have already been overcome.

  1. Marketing and Branding

During the initial stage of starting your business, since you are constrained by the availability of budget, you have to choose which one out of the two, Branding or Marketing, which is best suited for your business as explained in the market capturing step. However, now at this stage, at the time of scaling your business, the focus needs to be done more seriously on Branding to be able to sell products at higher prices. This is important so that you are able to sell your product or service in bulk and increase the profitability of your business.

While launching a product or forming a robust team makes for the initial stage of business sustainability, to really scale your business, it is important to establish your business as a brand and not just as a product or service entity. Once the brand is established, it is important to comprehend the type of business that you are really in and the kind of experience that you are willing to provide to your customers.

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