Matthew Murphy is a Director of MPR Accounting & Advisors, a business that specialises in providing Virtual CFO and outsourced accounting services, as well as business advisory, tax, grants and funding services and to small and medium enterprises.
Is your business scalable? Six things you need to think about
If there is sufficient demand for your product or service then you can make a business out of it. But can you scale it?
Some businesses are scalable, meaning that they can grow revenue exponentially. Others are less open to growth, generating instead a reliable but possibly less lucrative income stream.
Not everyone needs or wants to create a large, highly scalable business. The majority of small businesses today are small to medium family businesses, which can be very successful, satisfying, and small by design. But to scale can be an important strategic decision towards growth. If your drive is to dominate, scale is the only way to do it.
You need to consider what your business can achieve. What is the outcome you want? Is it possible to scale? Will scaling up rely purely on personal effort? This is more of an issue in service-based businesses than in product-based businesses. There is nothing wrong with an income stream that satisfies some of your objectives; the mistake that people can make is to have greater expectations of their business than the scale that they are functioning at can actually fulfill.
There are many businesses models that can be scaled up to a certain size, at which point they must evolve to incorporate this growth. For example, let's take a graphic design business, which can generally scale to between 10 and 20 employees.
The cornerstone of the success of such a business is the creativity (the IP) of the directors. They win business based on their ideas. Creativity is individual and therefore hard to replicate. Sure, there are examples where businesses have been successful in scaling above this size, but it does mean that a huge amount of leadership is required to align the creativity of the whole team with the business's leaders. Realistically, such large outfits in the graphic design field are few; the majority will max out at between 10 to 20 employees.
It is important to note that there is nothing wrong with a business that has fewer employees; in graphic design this is the norm. If you are in a very individual, labour-focused business, be sure that you know its implicit limitations, as this will reduce the frustration of trying to achieve something that is in itself the exception rather than the rule.
It's important to determine how big you want to become and assess whether your business can realistically flourish at this size.
Here are six key things to think about when starting your business to assess whether it is scalable.
1. Analyse the industry in which your business sits. Does your industry sustain both large and small businesses? What sets apart the businesses that are thriving?
2. When looking at scaling your business, what are the practical issues that could block your plans to scale up?
3. If you are in a service-based business, is it possible to package your services while maintaining consistency? How will this packaging be implemented and measured?
4. To grow you have to give up time, ownership or control. Which of these are you prepared to give up in order to grow?
5. From the beginning, set out your ambitions for the business and then work back from that to be clear on how big you need your business to be.
6. Once you are clear on this yourself, have an experienced and objective mentor take a look at your business model so you can analyse the potential and the pitfalls of scaling up.