We’ve all seen or heard of at least one business that experienced a short but brilliant lifespan. One which burned brightly in its early days, surprising everyone with how quickly it became a success story, and then burned out during the scale-up process. Whenever we talk about those businesses, the same question is always asked at one point or another: “Whatever happened to them?”.
Usually, the answer is pretty simple. A small, agile business that knew its market attracted a lot of customers and early hype. It needed to spend more and grow faster in order to keep up with demand, and when it experienced the inevitable plateau of interest, its costs outstripped its incoming cash flow. It’s the age-old tale of boom and bust, and it can happen all too easily.
When we launch a startup, we want to be successful – after all, you didn’t get into business for a laugh, you did it to realize an aim. So you want to burn at least a little bit brightly – but how do you avoid the bit where your business burns out? Below are some tips on staging your growth to ensure you scale up utilizing flexibility and stability.
Build a flexible business plan
In a lot of businesses, the scale-up plan is to be making a profit overall by Year 3. Realists know that the early days can be tough, and they prepare for the worst. But even when you prepare for the worst, you’ll be hoping for the best. So your business plan should take account of three potential outcomes: the worst-case scenario, the best-case scenario, and the middle ground. If your business starts to make profits early on, you need to know how you will react. What would you do if you’d hit all your targets twice as fast as you intended? You need to know if it is viable to move to Step 2 of your plan, or if you need more time.
Analyze the benefit of investments
One key aspect of business growth is building your team. If it comes off, it’s a virtuous cycle: You do well, you add more people, those people help you do even better, and so on. However, while you may need more people to fulfill demand, you need to be sure you can afford that workforce in the long term. If you’re in a period of unexpected growth, you might consider business process outsourcing – BPO for short. This allows you to have access to a larger pool of talent, but shrink back to normal size when the frenzy dies down. You will want to scale up to add more people, better tech, and possibly new locations, but analyze whether you can afford them in the long term before paying out for them.
Pay yourself a worker’s wage
In most companies, the biggest salary is earned by the person running the company – and that’s no surprise, as they have the biggest risk. In the early days, and even as the business scales up, it’s sensible to pay yourself the same as you’re paying the lowest earner in the company. After all, you should be earning a wage – but you’ll be putting the source of that wage at risk if you take more out of the company than you’re putting in the long term. Once you’ve established a stable level of success, you can always give yourself a raise.