If you have managed to build a successful business that is also profitable, at some point you will start thinking about scaling your business and drastically growing its size and profits. This will require a different approach than the everyday management of the business. You need different frameworks to scale fast & efficiently the business.
What scaling means
Let’s start with a short definition. By scaling we mean the process of increasing significantly the profit, in a sustainable way. Scaling should be done by design and not rely on luck. For most cases, we will look at increasing EBITDA. Although many firms especially in tech are more concentrated on growing revenues or users.
Scaling usually will require scaling not only of sales but also scaling other areas. There are many ways to organized those areas but I recommend looking at 3 areas: sales & marketing, operations, recruitment & training.
Below is a short movie that shows what you can do in each and every area to scale the firm.
As we have mentioned in the movie, make sure that before you start scaling you have met the 6 conditions:
- You have achieved product-market fit.
- Units economics work in your favor
- You have standardized and implemented best practices
- You have money to survive scaling
- You are trying to solve a big enough problem (for the scaling to make sense
- The Board of Directors and investors are thinking long-term
Process of scaling
We have divided the process of scaling into 5 stages. Have a look at the movie that briefly describes what you should do at each and every stage:
The most important in the process of scaling is to identify the bottlenecks stopping you from scaling and removing them. Let’s see a simple example that will show you how you can remove bottlenecks.
Scaling Sales & Margin
To scale Sales & margin you have to create a more detailed framework. In the very beginning, we have said that scaling sales and & Margin can be devoted into 5 main groups of actions:
- Scaling Distribution. By distribution we mean you add more sales channels that you try to scale. You can do that either by penetrating existing channels or entering new ones.
- Scaling Products. In many situations, to sell more you simply have to add more products to capture new customers or even new needs. Most firms will mainly concentrate on the categories in which they are already present, yet you can enter new categories as well. The best example of successful expansion into new categories was Apple’s move into smartphones. Without any experience in the phone industry, they have managed to become a dominant player in this player and kill most of the incumbent players.
- Scaling Customers. Sometimes, the customer cannot use your product or she/he doesn’t use a lot of your products. If this is the case, you can achieve a lot by convincing the customer to use more of your product. Masters of this method are cosmetics producers. They have successfully created a plethora of habits that taught many people to use products much more frequently.
- Scaling Brands. Certain segments cannot be captured with the same brand. Therefore, in some situations, you have to create new brands. You can find plenty of examples in the fashion industry. Zara belongs to the group Inditex that operates other brands: Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho. A lot of regular retailers also have a group of their own private labels that help them scale sales and capture higher margins.
- Scaling Markets. Finally, you can try to scale the market. In this group, we mainly have actions aiming at growing the market and entering new markets.
Let’s have a look at a short movie that will show what Amazon had to do in each group to scale their sales & margins.
It’s worth adjusting the general framework to the industry. Let’s look at such an example of a framework for growing sales and margin in consumer goods.
Now let’s move to scaling operations. We have divided the actions into 5 groups.
- Improve the efficiency of existing assets. First of all, you can achieve a lot by optimizing processes, automating, and reducing the need for assets. In this way, you reduce the money needed to grow the firm. A great example of constant optimization is the main beer producers. They pay a lot of attention to optimizing brewing processes and automating the operations. Thanks to this, the growth is less costly.
- Add assets. The second option is to add more assets. You can either create your own assets (warehouse, factories, and machines) or take over whole firms. The masters in this area firms like Amazon (adding fulfillment centers, stores & taking over Wholesale Foods), Walmart (adding stores and warehouse) or Starbucks (adding coffee shops).
- Change technology. You can also help your scaling process by changing the technology. Usually, it can entail switching to more available material (e.g. firms producing car batteries try to switch to iron), finding cheaper technology, or technology that requires different assets. Almost every bigger firm is heavily investing in this area, especially firms producing firms that on one hand have to keep their prices low and on the other hand have to deal with growing prices of raw materials.
- Add partners. You can scale also by adding partners that can help you speed up processes. McDonald’s and Starbucks have used franchisees to scale their chain of stores. Amazon has allowed 3rd party sellers to sell through Amazon. Finally, meat producers let 3rd parties grow animals that they use as raw material for their factories.
- Add products that require fewer assets. Finally, you can move to some extent to products that require fewer assets. In the case of Amazon, they have moved to digital products (kindle, audiobooks, streaming, gaming). A similar approach has been adopted by beer producer. They have moved to lighter beers which are faster to produce. Therefore, the same factory can produce 2-3x more light beer than more alcoholic beers.
In the case of scaling operations, you will have to do a lot of enabling investments. Let’s look what we mean by enabling investments:
As you can see they can be used not only in operations but also in sales. Now let’s look at the example of Tesla. They have sued this approach both in operations and in sales:
Scaling Recruitment & Training
Some industries require a lot of people or a specific type of people to scale their business. Google would not make it without a huge number of engineers, coders that have been recruited all over the world. In fact, this was one of the biggest bottlenecks that prevent them from even faster scaling. Professional services like consulting also struggle with recruitment and training.
That’s why let’s see how you can scale recruitment and training. As always we will start with the general framework:
Now let’s take a look how Retailers (e.g. Walmart, Zara, H&M) deal with the problem of recruitment & training
That’s in short. I hope you have liked our overview. As always I recommend checking for more examples of our online course Scaling Business for Management Consultants & Managers. You will find there +5 hours of content and more than 100 lectures, that will teach you all the things you need to successfully scale a business.
You can also check the post in a form of a presentation: