Scaling up
This is part three of a four-part series by business advisor Phil Symchych, looking at
how you as a business owner can plan for profitable growth. Find part one in our Fall
2022 issue, part two in our Winter 2022 and online at Manitoba-inc.ca.
Let’s talk about scaling your business. There are opportunities to scale in any
economy. They take planning and timing.
The key to scaling your business for significant growth is to put the foundation in place
before you accelerate the growth.
It’s very difficult, as I like to say, to turn a Cessna airplane into a 747 when it’s flying in
the air.
Let’s do the foundation work now, during this sort of recession, so you can take off
soon.
This advice is the same process I used to help a growing B2B business increase annual revenues from $26.4 million to over $37 million in one year. That’s 40 per cent growth in one year. That’s more than ten million dollars of new revenue in one year. We achieved the ten million dollar growth success more than once, and this is the most important process I use with all my growth oriented clients.
The major steps are strategy, systems, and capacity. Strategy always needs to be first. Systems guide production, quality, safety, and, most importantly, information. Capacity requires people, equipment and technology to do the work, and financial resources to fund everything.
My definition of strategy is the intentional and proactive alignment of your resources to provide optimal value to your ideal client. We are not trying to be all things to all people. We are not doing anything we can to generate cash flow.
Strategy is about having the courage to say “NO” to many things so you may focus relentlessly on the critical few things that will provide value to your customers.
Think about:
- What are the measurable results you create for your best customers?
- What are you uniquely good at doing for your customers?
Systems is the next part of scaling your business. Systems give you information in real time, so you have control over what is going on. Systems give you documented work procedures, so people know what they are doing, when, and how. Systems give you training videos so people can learn in their own way and at their own pace. Systems give you a business that is more functional and more scalable. Interestingly, systems make your business much more valuable.
Without systems in place to coordinate planning, people, and information, you will end up working much harder with more stress, more risk, and likely much less control and less profitability. Stress comes from a lack of information and/or a lack of control. Good systems give you information and thus control.
Think about:
- What real time information gives you an accurate picture of what is or is not working well in your business?
- What processes are you good at doing and how can those be replicated by others?
The final part of scaling your business is capacity. Capacity is ensuring you have the operational resources, the people, and the financing in place to support your business at a much larger size.
Sometimes people start here, and hire or expand, only to find they end up working harder for less money.
Early in my career, I had a client with four million dollars of annual revenues and a 20 per cent after-tax bottom line. They made $800,000 of after-tax profit. I had another larger and rapidly growing client with 20 million of annual revenue and a two per cent after-tax bottom line. The larger business made $400,000 of after-tax profit, or half the profit, with five times the effort.
Scaling too quickly can erode your profits. Bankers and CFOs are on high alert if the top line growth is causing bottom line deterioration. If this is happening in your business, you need to act fast. First, get more profitable, then grow revenues.
Profit is more important than revenue.
To protect—and increase—profit during times of high revenue growth, you need to have a profit focus in the first place. More revenue does not automatically create more profit.
Scaling your business while increasing profit can be achieved in a few ways. Think about:
- Developing written strategic and business plans to guide your growth, identify potential obstacles, specify critical resources, and set budgets and targets.
- Outsourcing some production to a larger company that already has systems in place. Always test this first to ensure they meet your needs.
- Using subcontractors who are qualified and trained to increase your labor capacity.
- Creating strategic long-term partnerships with companies who are not direct competitors and who can provide part of your production or service.
- Strengthening your balance sheet to increase your borrowing capacity before you need it, and then obtaining financing to support the growth.
Achieving significant revenue growth can be done in one year, if you spend the prior year developing your strategy, improving your systems, and building up your capacity.
Full speed ahead!
