Anyone running a serious business has heard of the term “Scaling a Business”, but what does this actually mean?
You might think that scaling a business is the same as growing a business. In a way this is correct. The difference is that scaling keeps the dimensions of each aspect of the business. This means every part of the business grows the same without distortions. Just growing a business might relate to any part of the business to become larger while others stay the same. Overall the business grows, but out of proportion.
In a way scaling is a more controlled form of growing.
Of course scaling a business can come with some unwanted effects. If the core of your business is not setup correctly, those problematic parts grow as well and this can cause some serious issues as the business scales-up. Setting your business up the right way is vital if you want to scale your business.
The following graph illustrates a scaling model:
This is a scaling model of a normal business selling products or services. The lines define the percentage of the total effort in each segment in relation to the to the produced turn-over. The dotted line defines the percentage of the overhead to be deducted from the profit. The overhead is the only part that does not contribute to the turn-over.
In this example, the lines (percentages) might be moving, but the relation to the overall stays the same.
The inner circle is your core business. The second circle is your waterline. Every aspect of your business should be above that waterline. The outer ring is the current scale level. Your job is to make sure every area of your business is as near as possible to the current scale level and never below the waterline. Both circles grow as the business scales up.
If you compare this to a simple growing model, the sales efforts might grow out of proportion while the rest stays the same. This can cause real problems. If you sell more than you can fulfill you won’t be able to deliver and you will run into serious problems at one stage in the future.
If you design your business from day one to be scalable, you create an environment of controlled growth. This means you will see straight away in which area of the business you will need to work on to keep it all in balance.
As I mentioned before, the percentage of each section might change, depending on the market, season or any other factor related to your business. This is part of scaling your business. At the beginning you might have to put more effort into marketing and sales and after a while once you got your clients coming in, these parts will become less important and the fulfillment part grows. This is important because if you keep your sales and marketing up to bring in more and more orders without being able to deliver, you have a problem. In the model above each sections is depending on each other. You can’t grow fulfillment without effecting the others.
This is the kind of control every business should have.
But how do you set this all up?
In its core you can use the model above from day one. You might have to adjust some of the sections to fit your business. If you are a manufacturer, the fulfillment part might be much larger. If you are a coach or sell online courses, marketing and sales might be more dominant. It also depends on your business model or strategy.
The important part is to setup the circle so it might work for you. The percentages of each section will change regularly anyway.
With this model you have a solid base that allows you to control your business (including your overheads) and concentrate your efforts in the right section at the right time.
You can now assign a real value (cost) to each section and when you’re at the point of outsourcing or employing someone for the job, you know the requirements and what it should cost.
If you want to find out more how to apply this model to your business join us on the Entrepreneurs On Fire platform, where we discuss everything related to business and start-up.
Is your business scalable?