Choosing whether to exit your business or to stay and try to scale it is a decision that requires great thought and strategy. It means evaluating your business processes, key performance indicators, and the current market as well as the barriers to exit and entry into new markets, before arriving at a final decision.
But before we examine this entrepreneurial dilemma, let’s get a clear understanding of what it means to scale a business.
World-renowned entrepreneur and business magnate, Tony Robbins, defines scaling as increasing revenue at a faster rate than costs. In other words, businesses that can increase revenue and operational demands while lowering or maintaining costs can successfully scale their business. The scaling game is all about efficiency.
Tony explains that while growing a business may typically look like a bigger warehouse, more office space, more staff and more equipment, these improvements tend to enlarge operational costs.
Business scaling is about making intelligent investments that optimize cost and automates business processes while reallocating resources to produce proportionally greater output levels and revenue.
The result is increased profits and competitiveness.
Knowing When to Exit
As said above, the difference between business scaling and growth is the type of returns received. As a business owner, your selected business goals and strategy can influence the type of returns you generate.
If your returns to scale are declining, it’s a tell-tale sign you should revisit your business operations or simply close shop. If returns are constant and your goal is simply to grow, then expand your operations but plan to innovate or invest elsewhere. If returns to scale are increasing, then you’re right where you need to be.
Kimberly Ofori, a digital entrepreneur and growth step strategist, was recently interviewed on The Value where she shared one of her own experiences with business growth and scaling using the drop-shipping model. Despite growing her customer base and increasing business revenue to 1000 Euros daily, she failed to make notable profits. She had a myriad of operational headwinds that stifled exponential growth.
- No control over stock pricing
- Uncompetitive pricing
- No control over product quality
- Positioned near the end of the value chain
- Unable to switch to a bulk buying business model as constant returns meant that all revenue was being reinvested into the business
Despite having an in-depth knowledge of her customers’ desires, the right digital marketing strategies, and her out-of-the-box thinking to recycle old boxes for delivery packaging, her ability to scale was impeded by these factors.
As such, Kimberly thought it best to sell her business.
So, what’s the key takeaway?
If your business model compromises your ability to deliver what your customers want, is uncompetitive and profits are negligible, it may be time to close shop.
Knowing How to Scale
Research done by Scale Up Nation explored the reasons why only 1% of startup companies experience success. By conducting a database analysis of 500,000 startups globally, they were able to identify patterns in business behaviour that led to scaling success.
A compelling vision
Vision is your ability to clearly define your company’s direction. It informs strategy and helps leaders to inform their teams in the right way. But more than simply having a vision, people need to buy into the vision you’ve conceptualized.
Your vision must be compelling, convincing, inspiring, and persuasive.
It must be something people want to strive toward for them to buy into it.
Deloitte’s Meaningful Brands Report 2018 states that “More than half of consumers weigh evolving value drivers such as social impact, health and wellness, safety and experience, more heavily than traditional ones and 63% are willing to pay more for products where social impact values are demonstrated.”
A compelling vision is one that is linked to the intrinsic values and beliefs of customers.
A great market
In scaling a business, a great market is more important than a big one. While a big market can mean you have the potential to earn more by selling more products or services, a great market is all about how it’s going to EVOLVE.
The world is constantly changing with new technology catapulting players who refuse to innovate, out of the game. The best example of this is the case study of Blockbuster vs. Netflix. The leader in the video rental business failed to realize that having an online platform was the next evolution in at-home movie viewing. Though the market at the time was BIG, it was not GREAT. As such, failure to innovate on time led to the disruption of the video rental market and the rise of online viewing platforms.
Ask yourself, “Is my business agile enough to respond to changes within the market?”
You should have a product that you can sell to the market now, but you should also be able to innovate and keep selling as the market changes.
Deloitte’s Meaningful Brands Report 2018 also encourages brands to become “facilitators of more direct and value-adding interactions with consumers”. The report further underscored the importance of intimately understanding customer motivations and responding honestly to their pain points as this can help to build brand trust.
It’s well known that loyal customers bring return business and referral business from friends and family. Loyalty is a key building block for successfully scaling business operations.
Your competitive advantage is the special way your company does things that helps you deliver services or produce goods in a way that is better, faster, and/or cheaper than your competitor.
It’s exclusive, not very easy to recreate, and can be anything from access to natural resources not available to competitors to highly skilled labour, or even access to new or proprietary technology.
It gives you an edge in the market that makes it easy to grow your business efficiently.
A scalable business model
When you’ve assembled all these puzzle pieces, you should then ensure that you have a scalable business model. In a word, we’re talking about AGILITY.
The Journal of Business Models suggests that the key to business model scalability is being able to respond quickly to changes in the market and being able to tap into increasing returns to scale.
It’s about “having few or no capacity constraints while simultaneously providing unique and hard-to-copy value propositions to customers”.
This can be done in any number of ways:
- New tech adoption
- Streamlining operational gaps
- Finding new distribution channels
- Avoiding Capacity Constraints
- Outsourcing Investments
- Incorporating platform models
In a nutshell, knowing when to scale or exit requires a look at your business returns to scale and agility.
If your growth strategies aren’t producing increasing returns to scale and you’re unable to adjust operations for that kind of growth, it may be time to consider different opportunities. However, if you’re able to grow efficiently while successfully adding real value to your customers, you can take your business to the next level by scaling.
Unlock the Secrets to Building a Valuable and Investible Business with the VALUED Scorecard: https://kevinvalue.com/scorecard