Your dream project is no longer just an idea. It’s a reality now. You’ve successfully launched your product or service, and it is gradually growing. Now you might be questioning yourself: How to scale a startup?
But there’s another crucial question to consider: Is your project ready to scale?
Up to 74% of startups fail due to premature scaling. If you make a mistake and start to scale a business when you’re not ready, you risk a lot.
Knowing when to scale isn’t easy, but you can avoid some risks. This blog post will show you how to scale a startup. It will also give insights on how to recognize when the startup is ready to be scaled and how to get prepared. We’ve also provided some tips and strategies for the whole process.
What’s the Difference Between Growing and Scaling a Startup or Business?
What is Startup Growth?
This is the point where a startup starts having a consistent customer base and a steady source of income. Here, the company’s cash flow begins to increase rapidly.
Because the company is growing, it may start to hire more workers to manage the workload. The startup also has a clear business model at this point and uses a refined marketing budget.
What is the Startup Scale?
Startup scale – the process of growing exponentially and getting a maximum profit with more or less the same investments.
Usually, a scaling startup has already passed through the growth stage and is ready to increase its number of customers and revenue without significant additional expenses.
For example, you have a shop that serves 10 customers daily. But if you are ready to scale a startup business, you can handle 1000 customers tomorrow without making a large effort. If you aren’t ready, 1000 customers will probably overload your business – you need to grow such a shop first.
When to Think About Scaling up Your Startup?
Scaling is definitely alluring: fewer resources, more profit.
But premature scaling can cause financial distress and bankruptcy.
70% of startups scale too early. And 93% of those startups never get revenue over 100k/month.
Before you accelerate the growth of a business, make sure your business is ready for it. Below are the 5 crucial checkpoints before starting the scaling process.
Good Customer Base
A large number of customers and a solid market share prove that the product or service idea is valid and provides your business with some market stability.
Another value brought to you by customers is, of course, revenue. The more sales you have, the easier your project will grow.
One more thing to notice: if you are sure your customers are loyal and likely to buy more, don’t start to scale your business until you have enough inventory and employees to serve these customers. Otherwise, you risk not only failing the scaling itself but also losing your existing customer base.
Reaching Previous Goals
Or not. It may be simple to check the results of previous planning when creating a new and massive strategy, but it is still often forgotten or simply not considered.
So how do things stand with your previous plans?
In case your projects didn’t meet their previous goals, it is better to analyze your pain points before you stake your whole company.
Remember that as you prepare to scale your startup, you shouldn’t set goals that are impossible or too difficult to reach. Set high goals, but remember to establish the proper resources before you start scaling.
Positive Cash Flow
Positive cash flow indicates the business is generating more money than is required to support the business. Therefore, with the positive cash flow, you can be sure you have extra money to reinvest into the business.
Some business owners may confuse their business’ profit with cash flow. While your profit can show whether your business idea is valuable and successful, the positive cash flow helps keep your business workable daily
How to Improve Cash Flow When Scaling Up Your Startup:
- Accelerating cash conversion. This approach will help you to reduce operating costs. You’ll need to make sure you don’t have any inefficient resources. Then confirm your business model works as needed – or, if not, improve it according to your business needs and current market situation.
- Advance payments. By taking payments in advance, you are ensuring a strong cash flow as it covers the sales and marketing costs as fast as possible.
- Invoice as fast as possible. We recommend you invoice just after the product’s delivery or at least within one week after the invoice is issued.
- Reduce your sales cycle. For sure, the optimal cycle length depends on the industry and on the product or service type. Analyze how long it takes to get a lead and try to find some ways to speed up the process.
Working Concept and Reliable Infrastructure
Your business should work as a clock if you don’t want to fail in the active growth process.
Answers these questions:
- Does your business concept prove itself and work as it is required to?
- Or maybe it needs some upgrades to gain you more sales and profit?
- What about your internal business infrastructure and processes inside your company?
Obviously, if everything above is in good condition, you’re more likely to scale your business successfully.
Don’t rush into scaling just because you’d like to or you’ve already been 2 or 3 years on the market.
Analyze your current situation first.
Do you have enough money? Do you have qualified staff to cover your customers’ needs? Or enough offices to serve them when the number of your visitors starts to grow?
If some answers are “no” to you, make pause and think. Don’t create unnecessary risks for your business.
As a well-known banker Mark Hoppe said, “Scaling up is important for businesses, but it does come with serious risks, so it’s essential to plan for these.”
Top 5 risks when scaling your startup:
- Negative cash flow
- Scaling up too fast
- Staff burnout due to high workload
- Failing compliance and legal obligations
- Failing to attract new customers
Do you want to scale your startup?
The Danger of Premature Scaling
What is Premature Scaling?
Premature scaling happens when the startup is expanded too early or too fast that the product is not able to handle the growth.
For example, your scaling is premature when you hire too many people, and attract new customers but can’t manage the demand or even invest in product development without validating the market fit.
Too early scaling is one of the most common reasons of startup failure.
According to the research by Startup Genome Report, up to 70% of startups are scaled prematurely. At the same time, the average rate of startup failure is 90%. These numbers’ correlation can tell that a premature startup scale can be one of the common reasons for online businesses’ closure.
The Risks of Premature Scaling
Premature scaling may be a part of the different dimensions of your business. As usual, premature scaling can be caused by inconsistencies inside your product, team, or finance and business parts. To be more particular, let’s discuss them one by one.
For example, your business may fail if you start scaling before thinking through your product/market fit or, put simply, what customers’ problems you want to solve.
From our experience in startup development, we do not recommend investing in the fully-featured product before validating the market with a minimally viable version of the product. You can save a lot by avoiding the excessive features that you don’t really need at this stage.
Don’t start to scale your startup by hiring too many people or by hiring only the management team. Scaling is always a challenge during a company’s growth, and you should remember that at the beginning you should focus mostly on quality and hire more doers that are capable of bringing your business to success.
It is enough to hire a one-level hierarchy to start to scale your startup. Later, you would definitely expand and hire more employees.
When your business is young and promising founders are excited to grow it further in a short time. Some common mistakes startuppers do comprise overplanning, attempts to maximize profit before time, ignoring feedback, and not adapting to the rapidly changing market. Therefore, make sure you have a rather simple plan at the beginning and focus on creating a thorough business model for your product or service.
Are you in the process of scaling your startup?
11 Tips For Preparing Your Startup or Business to Scale Up
Scaling is one of the most important things that a startup can undertake. It needs to be done at the right time; if not, the process will fail. Here are some tips for scaling your startup:
Automate What You Can
Automation helps you to expand your business activities and still save many resources. Some ideas on what you can automate:
- Chatbots. Various types of NLP chatbots can be useful in various types of businesses. They can help to automate your customer support, teach them how to use your product, book tickets, or even make product or service suggestions for your customers.
- Payments. Automate company payments and employee payroll.
- Martech. Martech is what you get when you mix marketing and technology. It helps to automate data gathering, customer profiling, targeting and analysis
- Invoicing. There is a large number of reasons to automate your billing processes. Thus you can gradually improve the customer experience and get paid faster. For example, our team automated the invoicing for clients, cleaners, and managers for the leading Scandinavian cleaning marketplace and helped to decrease time and money spent.
Invest in Technology
When your business transitions to a new level, make sure the technology you use and your software systems are scalable enough to handle much higher loads, quick updates, and expand the functionality.
It would be much more cost and time effective to conduct a quick check-up before you invest in expanding your business and risks become too high.
Besides, we recommend you verify if your systems are secure enough not to suffer from data leakage. That is where technology comes in.
In Sloboda Studio, developing startups, we like working with such effective and scalable technologies as Ruby on Rails and PHP: they allow the developers to write and read code faster, make rapid changes to ready-made systems or extend the existing features in an agile way Plus these technologies take web security very seriously. They include features to protect applications from common issues.
Know Your Customers’ Expectations
When you’re focusing on your customer’s needs, you understand what your product needs to offer and how you should adapt your product or service to make your customers happy.
Knowing your ideal customer may take some time. But this research will reward you with a much-focused market proposition, so we wouldn’t recommend skipping this step.
3 tips that help to understand your customers:
- Pick a niche. It’s much more productive and easier for people to work with a market niche or group of customers. A niche market allows the creation of more effective, repeatable, and scalable sales propositions. Moreover, it is much easier to track the results of your marketing campaigns and business scale in general.
- Use Customers’ Feedback. After your first launch, you’ve probably gathered lots of feedback. You can use this data to understand what your customers need to be added or upgraded to create a perfect product for them.
- Study Competitors’ TA. You’ve probably been there studying your competitors at the very beginning of your startup development. Go back now to check how the most successful of them interact with their customers. Such research will help to recognize some details that will help to scale your business by attracting new customers.
Use Marketing Techniques
Though marketing is the core struggle of young companies, it is the only way to represent your product and reach out to your target audience, which is crucial for business growth.
Depending on the niche, industry, and target audience, there might be dozens of marketing strategies, approaches, and channels for promotion. Let’s look at the most common marketing systems.
- Direct marketing is an advertising strategy that includes only the individual promotion of your product. For instance, by reaching out to potential clients via email or texting. This strategy is good only for the smallest startups and should be performed before scaling.
- Content marketing is focused on creating, publishing, and distributing content for a targeted audience online. This strategy is perfect when your company has a blog or social media platform that attracts people.
- SEO optimization. SEO or Search Engine Optimization allows for the growth of your website traffic. It also increases its visibility in search engine results. SEO optimization is usually used together with content marketing systems. This is where quality content marketing and correct SEO keywords will be your competitive advantage.
- Advertisement. It is a paid promotion that helps the growth of your product and attracts people.
- Branding. Helps people to remember your product and name. It also includes the design and features that differentiate you from the market competitors.
- Social media. Using social media, you can stay in touch with people, promote the growth of your business, share news, and receive feedback about your product.
Hire the Right Team
Scaling a startup requires fast and proactive solutions. That’s why we also recommend hiring people who aren’t only excellent specialists but also are interested in working namely with your business.
Here are some must-have qualities for your scale team members:
- Communicative. Startups need rapid reactions and fast solutions. This is because your goal is to hire a team that can collaborate effectively.
- Business-Oriented & Responsible. Well, we’re doing business here, aren’t we? Your ideal co-workers are not just great technical, management, or marketing specialists. They’re business-oriented specialists that understand the result of each of their actions.
- Skilled. It’s nice when an employee is multitasking and has more than one skill. For startups, it can become even a must-have. But be careful: sometimes it’s better to hire a professional with particular expertise than someone who knows everything but a little.
- Motivated. Startups are different. Sometimes scaling a startup is blood, sweat, and tears. And only highly motivated people can still do their work at double speed just because they are sincerely interested in it.
- Proactive & Open to New Ideas. Good employees just do their job. Proactively think about how they can make it better and offer you fresh ideas that may be useful and profitable for your business.
At Sloboda Studio, we focus on startup development. Therefore, we noticed that even good specialists sometimes could not work in the context of creating and growing startups. That’s why we pay great attention to soft skills during the hiring process and conduct 5-stage interviews.
Large companies and systems are capable of hiring people for almost every job they could even offer. For a startup, it may not be reasonable to invest time and resources in recruitment. This is especially when it comes to one-time or non-essential tasks. But outsourcing has its perks for permanent projects too.
4 core benefits of outsourcing in startups:
- Time. For in-house development, companies need a lot of preparation (like looking for a suitable office and hiring). Freelance isn’t also very reliable. However, outsourcing allows you to jump to work once you choose the right people. This approach helps save time and deliver the project faster.
- Rates. Outsourcing can be both pricey and very cheap. The rates usually depend on the location of your team. But be careful and don’t choose the cheapest locations, which may result in poor quality. Choose something in the middle. For example, in Europe, where average development rates vary from $25 to $50.
- Labor & administrative costs. With an outsourced team, you’ll never need to spend on labor taxes or office rentals.
- The pool of talents. When you hire an in-house team, you are restricted by your geolocation. When you outsource your tasks, you can hire people from all over the world. Therefore, the pool of your potential colleagues extends significantly. So, now you can choose the best people for your project.
You can learn more about Outsourcing vs In-House development in our recent blog post.
When you scale up your startup, the world starts watching you. And you can’t make a mistake to risk your reputation.
While large companies are capable of surviving in arguable situations and various types of conflicts, you may not be ready for it.
That’s why you need to think your PR campaign through very carefully. It helps to avoid controversial situations. It also creates a clear representation of your business in the media.
Arrange the Processes Inside the Company
When you start scaling, the number of your resources shouldn’t be too large. it is more reasonable to use fewer but more effective resources.
3 tips on setting up the processes when scaling your startup:
- Start documenting. When you are a small startup, documentation seems to be a little bit unnecessary. However, when you start to scale, documenting becomes a must as it helps to fix the issues faster. It also helps to share your experience and knowledge with the team
- Keep it Simple. The bigger your business, the more problems it causes. When you start to scale, focus on customers, hiring, technology, and new processes. Make sure you work only with essentials. Don’t add too many variables at once. You won’t get new problems like technical issues or team misunderstandings.
- Add Enough Structure by arranging all the necessary processes and hierarchy. It helps the team can perform their tasks fast and efficiently. Even if you’re not around to control what is going on. All team members should know who’s their manager, what they are personally responsible for to know, and what they should do with the arising issues.
Make Your Business Workable Without You
It’s much easier to run your startup when it is still very young. At the very beginning, it’s common for founders to be managers, marketers, recruiters, etc. They can even take any other needed roles in the team.
But as your project grows and scales, the pool of tasks and responsibilities grows significantly. You might still want to take control of everything, but it becomes physically impossible.
Scaling up business tips to make your startup independent from you:
- Identify Your True Goals in the project
- Hire people to regulate the day-to-day work and the company’s departments
- Build the right hierarchy so your employees know their managers
- Create fundamental rules of work so that everyone can understand the processes inside your business
- Get rid of the processes that tie you to the company
- Let some failures happen
Following those rules, you can shift some responsibility and find some time for developing new ideas.
Secure Funding and Generate a Steady Revenue Stream
The startups are often associated with a lack of money and funding seeking. And it’s mostly true: rarely can you find a startup that has stable finances.
3 Tips to Generate a Steady Revenue Stream:
- Crowdfunding is the practice when many people donate money to fund a particular project. The most common way to crowdfund a project is via the Internet. This can be done with the help of such platforms as Kickstarter or Indiegogo.
- Angel Investors. Angel investors provide small businesses and startups with an initial capital. However, an exchange for such capital may be, for example, ownership equity of your product.
- Venture Capital is another type of financing for small businesses. As usual, such capital can be provided by individual investors, banks, or other investment institutions.
Slow Down and Set up the Right Expectations
Don’t hurry. And don’t raise your expectations too high. The startups cannot grow as fast as we might want them to, and this is not a vendor’s fault or failure. The more important thing for your startup is to make small but stable steps.
Moreover, as you develop gradually, you can react to all the market changes and update your product in accordance with them.
Recently we asked our client, the founder of a fast-growing startup: “How do you successfully scale a startup?”. And that’s what he shared about the expectations of entrepreneurs.
How to Scale a Startup
To scale a startup, analyze your target market, focus on customer acquisition and retention, optimize operations, secure funding, expand into new markets, build a talented team, and continuously monitor and adjust strategies for growth.
Tips for Implementing Your Startup Scaling Strategy
When you start to scale your startup, no one knows it better than you. You can still find lots of tips, but only you know what is better for your startup. Though, we gathered some tips that may be useful for most startup scale-ups:
- Become an expert in your niche
This advice is good for the projects that are pioneers in the industries that they are working with. If you can prove that you are an expert in what you do, your customers will trust you and come to you.
- Learn the market
Analyze what your competitors do and what your target audience needs. You get more information about what you should do to be successful. For example, you can add the services your customers do not offer or attract your potential customers with exclusive propositions.
When working on the growth of your startup, don’t hesitate to ask questions, get experts’ consultations, and visit startup conferences to get knowledge and inspiration.
- Hire A-Players
It’s better to hire fewer people but with higher qualifications. By doing so, you can save a lot of money while getting more value for your product scalability.
- Control your money
Stay disciplined and try to plan your expenses as detailed as you can. And don’t spend too much on such things as additional features you’re not sure about or excessive hiring. In the beginning, they prefer being less but better.
- Make sure you’re ready
Do not hurry to start your scale up as fast as possible. Remember that it’s better to remain small for some time while you grow your business than start scaling when you’re not ready and fail. Take your time!
How Do You Know the Scale is Successful?
The numbers speak for themselves. One can tell if the scaling goes well or not only by analyzing the metrics.
Depending on the type of metrics, they can be checked yearly, monthly, and even weekly or daily.
It is also good to check all the metrics before and after the start of your scale-up, so you can clearly track the progress and growth.
The most common success metrics are Average Revenue Per User, Customer Acquisition Cost, Operational Efficiency, and Customer Retention.
Average Revenue Per User
Average Revenue Per User, or simple ARPU, is a metric that shows the average amount of monthly revenue that is received by your business from every user. You can calculate your average revenue per user by dividing total revenue by the total number of your customers.
Customer Acquisition Cost
Customer Acquisition Cost, or CAC, is the metric that shows the cost of each customer that purchased your product. This metric can be calculated by dividing the total expenses needed to get a potential customer divided into the number of new customers acquired.
The operational efficiency metric is a ratio between your business’s output and input needed to run a business. Such inputs are usually considered to be costs, employees and time spent working on the product.
Customer retention is a metric that shows the business’s ability to hold the customer’s attention for a specified period of time. High customer retention indicates that your potential buyers tend to return to your website and buy more than once.
How to calculate your retention? The most common way is to divide the number of active users who, for example, subscribed to your product, by the total number of active users during a certain time period. The number you’ll get will be your product’s retention rate.
CityFALCON is a modern financial news aggregator. It rates financial news and authors according to the clients’ preferences using Natural Language Processing.
The Client met Sloboda Studio at the very early stages of the project. Back then, CityFALCON was just an MVP that needed to be developed, upgraded, and scaled. And we are glad that we can say we are still working on the project’s development and growth.
When we just started our collaboration with CityFALCON. Our client Ruzbeh Bacha wanted to launch a new and improved MVP of the project. Our main goals were a clean and simple UX, scalable architecture, and a news processing scoring algorithm.
Nowadays, CityFALCON is a fully-developed project that went through its successful scale. Now we are proud to say the product has iOS and Android mobile applications, voice assistants integration, an NLP-powered news scoring algorithm, and even a cryptocurrency coverage launch.
Salita is a Norwegian marketplace that allows interpreters to communicate using video and phone conferences. When we met our client, he had only a project idea. Nowadays, this is a fully-featured product that connects customers and interpreters all around the world. We are happy that we were there during its growth, development, and scale.
Back in these days when Salita was just an idea, Sloboda Studio’s main goal was to turn it into an MVP. At first, we were working on some design tasks and wireframes. Later on, we extended the project with Rails backend and VueJS frontend, as far as these technologies are fast and scalable, especially for a startup. This allowed us to create features faster and start to scale the project.
Scaling your business may be difficult. It may be tricky, risky, and even scary sometimes. But sooner or later, your startup is gonna go through this process. First of all, make sure you are ready.
How to scale up a startup? Answer these questions:
- Do you have a good customer base?
- Have you reached your previous business goals?
- Do you have a stable cash flow?
- Does your concept, infrastructure, and technology work as needed?
- Have you minimized risks?
Then perform (if you haven’t performed yet) all the necessary actions needed:
- Automate what you can to make the business work faster and save resources.
- Invest in technologies that are scalable and fast to work with.
- Know your customers’ expectations to create a perfect value proposition.
- Use marketing techniques for the effective promotion of your product.
- Hire the right team members who will fight for your project’s success along with you.
- Outsource the non-essentials.
- Take care of your PR and social media to support your reputation and create a clear representation of your product in media.
- Arrange the processes inside the company.
- Make your business work without you so you can be sure it won’t fail when you’re away.
- Choose the right business scaling strategy for your scale-up and think through all the key steps.
- Make sure you have secure funding and steady revenue streams.
- Slow down, stay calm, and set up the right expectations.
Now you are ready to scale up your business Follow your plans and remember that you’re not alone. In Sloboda Studio, we have been developing and supporting startups for 13 years now.
Still have some questions about how to scale your startup or business effectively? Feel free to book a consultation!
Frequently Asked Questions
What is startup scalability?
Startup scalability is the ability of a business to grow and generate income without being restricted by a lack of resources or structure. As the business’s sales volume increases, the company should be able to maintain or boost its efficiency.
Why is scaling so important for startups?
Scaling a business is about determining if there’s more demand and more profit to make in a larger market.
What are the key steps in scaling up?
Scaling a startup requires careful planning and implementation. Here are some steps to scale your startup:
- Automate what you can
- Invest in technologies
- Know your customers’ expectations
- Use marketing techniques
- Hire the right team
- Outsource what you can
- Take care of your PR and social media
- Organize your business process
- Secure funding.