In every startup, there is a question every entrepreneur needs to face: To scale or not to scale?
People who want a lifestyle business are content to make the same, predictable sum year-to-year in one location. But for most of us, that’s not enough. We want to grow.
The problem is the vast majority of businesses in the U.S. fail to scale. Only 9% actually achieved greater than $1,000,000 in revenue. They simply run out of cash. They crumble under the wrong leaders. Or they were never able to make the right traction in the market. Or they didn’t understand how to scale the business.
You hear a lot online about 10x-ing your business, but the term has been so overused it has lost its true meaning. Instead, I like to say “scale in zeros,” meaning if you’re doing $100K in revenue, you have to start thinking of what gets you to $1 million. If you’re working with 10 distributors, think of what will get you to 100. If you’re in one city, think of what will get you into ten. If you start thinking this way, it will inform every decision you make along the way.
After scaling a dozen companies, I’ve picked up on a recipe to help repeat success, which I share in detail in my book Start. Scale. Exit. Repeat. Discussing these ideas with other serial entrepreneurs has helped me figure out these weren’t just lucky happenstances but are “rules of the road” on the entrepreneurship highway.
But to start simply, here are Three Key Lessons you need to learn in order to scale:
Lesson 1: Scaling Is Different Than Starting
Scaling a business requires not only different thinking than the start phase. It requires a different methodology. Starting a business is mostly about your instincts—who you are as an entrepreneur. Your personality is driving the business forward more than anything else when you’re pitching your product or seeking seed investors.
But scale has to operate differently. You have to revisit your entire business plan:
Your Story Needs to Change
You need to change how you present yourself to the world, your long-term goals, and even your brand itself. During their startup days, door camera company Ring focused on the function of talking to people at your door. To scale, their Story shifted to focusing on home security.
Your People Need to Change
Your startup team probably won’t be your scaling team. That doesn’t mean you need to fire everyone—it means you need to add people who have the skills necessary to scale in zeros. As Jack Welch famously said, “Hire people with runway.”
Your Money Needs to Change
What kind of funding do you need to add that zero? Don’t believe the myth that venture capital is the answer to all your problems. Seventy-five percent of VC-funded startups end up failing. Meanwhile, 90 percent of the businesses on the Inc. 500 list did not have VC funding.
Consider all your options: IPO, Reg A filing, Reg D filing, even crowdfunding. However, my favorite is using your customers’ money to fund your business.
Seek financial and legal counsel to discover the best funding option for your situation, and be certain you avoid having to give up control of the business.
Your Systems Need to Change
Startups can run mean and lean, and often, your best practices are intuitive to the culture. But to scale, you might need to add quarterly strategic planning, sales playbooks, and even coaching.
Lesson 2: Scale Quickly, Kill Quickly
At Paw.com we’ve established a creed that is the essence of scaling:
- Test and Fail More
- Cut Losers Quickly
- Scale Winners Big
Many startups fail to scale because they keep doing the same old, same old, becoming risk-averse. Instead, they need to experiment more to find what works and what doesn’t.
Many entrepreneurs don’t cut their losers fast enough. Because they poured money and ego into the product’s launch. They keep dumping money into it, trying to force a dud to turn a profit that never comes. It’s better to cut the product and re-invest the funds into a better seller. When you do find that hit product, give it more juice to supercharge it!
Lesson 3: Find Your X-Factor
Often, the change in your Story happens when you discover your X-factor—that aspect of your business that makes you totally unique. During Start, your Story is focused on the problem you solve. To scale, you’ve got to set yourself apart. It could be your BHAG, like Domino’s Pizza’s “30 minutes or free” promise, or removing friction for customers, like Warby Parker eyeglasses.
It took us nearly seven years at Hostopia to find our X-Factor. But once we did, the dominos began to fall. We were able to expand beyond North America and became known as the best in the business for email and web migrations and hosting. If you can’t stand out from the crowd, you’ll always struggle to scale.
If you can learn and apply just these three lessons, you’ll automatically increase your chances of scaling. But to learn more scaling ideas, like Distribution Channels, Perfecting the Pitch, and other Growth Hacks, grab a copy of Start. Scale. Exit. Repeat. or come join us on Startup.club.
