The Costs Of Scaling Your Business
Nothing comes for free in business, including success. After you’ve managed to grow the business for a couple of years, it’s time to start looking at making the next big move: scaling it. Once you’ve identified a scaling opportunity, whether it’s a new location, offering a new product or service, or something else entirely, you have to next figure out what it takes to get there. Here, we’re going to look at examples of what you might have to pay for to help your business make the best of its success.
Figuring out how many new positions you need to create in your evolved business is one of the hardest steps that takes the most planning, so you should start thinking about it as soon as you’ve developed a plan on how you’re going to scale. Streamlining your hiring process is important to ensure you don’t waste time and money, but working with recruitment agencies like Broadbean.com can help if you don’t have the time to set one up from scratch. Not every department and team in the business is going to scale equally. For instance, if you’re an equipment sales team expanding your reach to clients in new areas, you might need a lot more salespeople to build leads, but you might not need too many new members in your HR team. Besides figuring out who you need to hire and where, but you also need to think about creating a new management team, since you’re more likely to take a hands-off position from now on.
Not every scaling operation requires more property, but most do. Depending on what kind of space you need, there are three main ways of acquiring it. You can expand your current building, buy or rent new offices, or build your own. The last is the costliest, as not only do you need construction and design teams, but engineering firms like CochranEng.com to ensure that your premises is built cost-effectively and with lower lifespan costs through site assessments and other engineering services. Figure out what type of property you need, first, whether it’s already available in the market or whether you’re going to have to make it yourself, then start looking for estimations before you start any scaling plans.
If you have new team members and new property, then you’re going to need to kit it out with all of the essential equipment and furniture to help facilitate their roles. You can help reduce new equipment and office costs with pre-owned and surplus stores like Storr.com, but you don’t want to cut costs too much here. You want to ensure you’re investing in equipment that will last for some time so you have fewer medium-term costs of replacement and repair.
Inventory and logistics
If you’re in any kind of retail or manufacturing, then scaling is likely going to see you increase not only the scale of products you have to deal with but also the scope of them as well. New products and parts might come with specific needs, such as warehouse refrigeration or new specialist packing materials. Finding out how much new storage space you need, and any specific needs you need to meet is essential. Beyond that, if you’re expanding where you ship from and to, you have to look at setting up new transport links. This might mean hiring more drivers and buying or leasing more vehicles, or it may mean working with fulfilment agencies.
You’re going to have to generate a lot more sales and clients if you want to meet the increased costs of running the business, which means that you’re going to have to increase your marketing budget. Spending more on online and print advertising is the costliest way to go about it, though you can make it a lot more efficient, at least, by automating the process. However, it may be more cost-effective to make sure you weigh organic marketing in the mix, as well. Content marketing and search engine optimization require some investment up-front, but you don’t have to pay to continue reaping the benefits, as they continue to attract customers long after you’ve finished paying for them. If you want to slim down your marketing budget, balance it with organic marketing.
Your utilities, service bills, supply costs and the like are all likely to expand if you increase either the size of the team or the premises that you’re working from. There’s no real clear-cut way to figure out how your operating expenses will rise since every business scales a little differently. However, you can use a startup cost calculator as seen on BusinessKnowHow.com to input as much data about your post-scaling business as possible and to generate an estimate of those operating costs that you can factor in. It will help you figure out the potential return on investment of the scaling efforts when combined with new sales estimations, but you should update it regularly to ensure you’re working with your latest financial understanding.
Meeting your scaling costs
The costs of scaling a startup are rising, as seen on TomTunguz.com, which means that fewer businesses are able to raise the capital on their own. Traditionally, the banks and angel investors would be the sole source of the funding you need, but that’s not the case anymore. After you identify how much you need to raise, look at different options for raising it. Would your new products or services be attractive enough to form the basis of a crowdfunding campaign? Are you needs small enough that you could more easily and quickly get the money you need through peer-to-peer lending or equipment financing?
Successful scaling efforts are essential to your survival. Out of all startups that fail in the first two years, the most common reason is a failure to scale. Make sure you know what your costs are an identify how you’re going to meet them with the above guide as a jumping off point for your own research.