Scaling Your Business: What Are the Tradeoffs?
When a business grows so much that it can no longer find spare parts in its own warehouse, you have to ask yourself: Is it really successful? What tradeoffs have to be made in order to ensure a business isn’t scaling too fast? This was the subject of a recent Around the Horn session. As usual, the group provided ample advice, but also some pertinent questions.
Scaling means additional capital and additional people—and the problems that come with adding each. These are things that a business owner needs to figure out sooner or later.
- Do you use your own capital or acquire it? Sometimes paying a little interest on a loan is the right strategy, even if you possess the capital.
- Do you hire in advance of the new business you’re anticipating? If you wait until you can afford it, you may find yourself under the gun to get them in place. You’re likely to hire quickly, which is never a good thing.
The next question a growing business must answer is whether to expand geographically or by adding product.
- If you add product, do you do it organically or do you buy another company?
- Should you affiliate with somebody who has this additional product which reduces your risks?
Technology is another way to address growth.
- Do you put all your information in the cloud or keep it local?
- Do you digitize existing documents so that you can search for them in the computer?
I also think controlling the growth is important. I know someone who was involved with a telecom company that was growing by leaps and bounds, and they were already fairly big. My contact explained that the company grew too fast, added too many people too fast, did not have the proper systems in place to deal with the growth—and ended up scrambling to perform its core functions. This company was eventually sold because they outgrew themselves.
Slowing down the growth and passing on some market share may seem counter-intuitive, but at least the business will not have made any promises it cannot keep.
Has your business experienced a growth spurt? How did it work out? Consider joining us at our next Around the Horn session!
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