There is a lot of talk about “scale.” It’s a natural step in the growth pattern of almost every company.
But there are two questions I often hear when it comes to scaling a business.
- How do I know when I need to scale?
- How do I go about scaling my company without going broke?
I’m going to address the first question today in this two-part series.
3 Symptoms of a Company That Needs to Scale
When diagnosing business problems, there are 3 symptoms which tell me that scale is the problem.
- You’ve hit an income barrier and can’t get past it.
- You’ve hit a time barrier and have no life.
- Your income is “feast or famine.“
The third surprises some, but it absolutely is a scaling problem.
I’ll address each one directly with ideas about the root cause.
An Income Barrier
Income barriers are very frustrating. You’ve built up a solid revenue base, but now when you want to take on more work, it ends up costing you just as much to service it. Maybe it even costs you more than you make.
This income barrier is a common issue with service-based businesses. After the owner sells off all his or her time, he or she is left with no other option than to get outside help. Because the other workers need to be recruited, trained, supervised (usually by the owner), the costs can become quite high.
Many consulting companies deal with this “bench” business model – having people they can use to execute work when necessary. It can be successful. But if you’ve maxed out your bench or are having trouble keeping your bench filled, you stagnate.
Businesses that have hit an income barrier will try a number of different things to break through. They often think sales is the problem, so they hire sales people – or invest more time in sales. But they find that with additional sales comes additional cost. And these costs are hard to recoup.
Sometimes businesses will do cost cutting. But they find there isn’t much there to cut. A business at this stage is still running lean. Plus, cutting expenses as a way of increasing your income has a limit. You can’t grow unlimited income by cutting.
The real problem is that your operations are running at a high marginal cost. The marginal cost is the cost of servicing your next customer; it doesn’t take your fixed income into consideration. Since the next customer you bring on will cost you almost as much as you earn, it’s a zero-sum game.
If you’re trapped at your current income – no matter what you do, it may be time to scale.
Running Out of Time
Most entrepreneurs know what it feels like to work a 20-hour day. But when every day is a 20-hour day, it’s miserable.
If you can’t leave your business for more than a day or two without everything falling apart, then you are far too enmeshed with your operations. You can’t go on vacation – or even leave your phone behind for more than a few hours.
Many business owners know the pain of being maxed out. It’s personal. You lose connection with friends and family. You stop pursuing your hobbies and interests. It makes life really no fun – even if you love your work.
But the dangers are bigger than that. Not only does being maxed out make your life miserable, but it actually endangers your business.
If you are so busy servicing clients that you can’t do sales and marketing, your business will eventually die.
If you are maxed out, it’s time to scale.
“Feast or Famine”
This one surprises most people.
If your income is a roller coaster of good months and bad months, you may also need to scale.
Many business owners feel like if they still have bad months then they’re not ready to scale. Now, if you don’t have good months either then, yes, it may be too early to consider scaling.
But the good months tell you that you have a solid business. The bad months tell you that you’re spending too much time servicing customers during the good times and leaving sales and marketing off to the side.
That’s a common problem. When you have clients to service, you may feel like new business isn’t important – or at least not the most important.
But when you’re done delivering projects, the funnel is empty. And you spend the next several months building it back up again. When you finally get things back up and running, you’re back to where you started – but no further.
You don’t make progress this way. You just end up killing yourself for months trying to just get back to zero.
The biggest mistake business owners make when suffering from this problem is believing that getting bigger will solve it. They think if they just had enough income they could “power through” the down months.
But that’s just not true. In fact, as you get bigger, these peaks and valleys also get bigger. In order to do more business, you start to accumulate more fixed expenses. And you will carry those fixed expenses through the downturns – making those valleys deeper. Deeper and more deadly.
You’ve heard of companies that have grown “too fast?” Typically, their fixed expenses grow faster than their ability to scale. Their downturns became deadly.
So Now What?
If any of these 3 symptoms sound familiar, it’s probably time to scale. I describe the 4 keys to scale in my book, Scale. In part two of this series, I’ll discuss how to apply these 4 keys to your business.
In the meantime, start to look at your business and its processes to see where you can begin to remove yourself. Finding a way to productize your service and automate your marketing will drive huge value – and start the process to solving these pain points.