Knowing when to scale your startup

Taking this course will teach you how to spot if your early-stage startup is ready to scale. You'll learn that there's two sides to scaling and that it's not just about getting more customers. And we'll give you some handy signs to look for, when deciding if now is the right time.

To scale or not to scale? A no-brainer, right?

You started a business. You want it to grow. So you make strategic decisions to facilitate that growth. Like upping your marketing budget and increasing your sales activities. More customers come. When they do, you make sure to give them a great experience. Now more customers join. So you need more hands. You get more investment. And your business continues to grow.

Sounds simple enough, doesn’t it?

The idea of scaling a business can seem like a no-brainer. After all, who doesn’t want their business to grow?

But when you are the one making the scaling decisions, things start to get complicated. All of the sudden, you’re just not in Kansas anymore. We can testify to that. In fact, let’s take you on a trip behind the Cuttles curtains.

Behind the Cuttles scene

When we first launched, we set some goals. Like many other startups, it's next to impossible to predict what will happen once you press the button. A couple of months in though, we were exceeding those goals, and starting to see quite a lot of interest from potential investors and partners too, which in general is a pretty OK sign for a startup.

So obviously we had to rethink how to go about it from there. Should we stay calm and wait it out? Or should we get more investment and start to scale up way before planned? Would our platform even be ready for a big scale? Or would everything crash, when we hit a certain point? Was there a possibility to scale faster, and still stay in full control of our business, or would we have to join forces with someone else in exchange for a solid piece of ownership? Which one would be the wiser choice?

These are just some of the questions that we faced a couple of months into our launch. And most likely, so will you. Many of them we’re still trying to answer.

In the back of our heads, we were pretty sure that going for a big scale two-three months in would probably classify as “scaling too fast”, but on the other hand what if we missed some huge opportunities by keeping things on the Q.T.?

When you're done reading, you'll know

  1. About the two, equally important modes of scaling and how to move from one to the other
  2. What question to ask yourself before deciding to scale
  3. Six signs to look for, if you're an early stage startup considering to scale
  4. Three signs to look for if you're not a first-time scaler

 

Why do you need to be "ready"?

The problem with deciding to scale (or not to scale) is that there’s just no right answer. There are a lot of startup stories out there about businesses that scaled too fast - or not fast enough - only to crash and burn everything because they took a chance on either one of the two.

But even though there is no conclusive answer to the question “Is now the right time to scale?”, there are things we can do to get closer to some (pretend) sense of certainty that we’re all so desperately longing for. Or is that just us?

Alright, so we’ve established that there’s a bit more to scaling than just getting more customers. But why exactly is it so hard? Why do you even have to be “ready”?

Scaling isn’t just growing your customer base. It’s about your entire business, your product, your team, your processes and conditions being ready to respond to increasing activity, increasing demands and increasing risk of running into issues.

Scaling is also not something you do just once or twice. It is an on-going process and it has two modes that you need to change between to scale successfully.

A two-sided process

So there are two sides to this tricky story.
One is growing your customer base, your revenue and your business. In general, this is what we tend to think of when we talk about scaling. But the other side, which is at least as important as growth, is taking the time to adjust every time you’ve grown out of your old ways.

In other words, scaling is just as much about taking a step back from growing to huddle up, consolidate and get ready for the next sprint.

But can’t you just adjust as you go? As your customer base grows, you may need to make changes to your product, to your team or to your entire infrastructure altogether. And if you do that in the midst of a growth sprint, well, chances are you’ll fall down and break something. Literally.

No matter how much you plan, no matter how great you are at forecasting, you’ll never know what awaits on the other side of a scale. So at all times, be ready to take a breather and adjust to your new reality.

Racing for growth

In a growth sprint, you are actively seeking and acquiring new customers. Doing that is an active decision, meaning you’re in charge of when it happens and how much effort (and money) you put into the growth race. Go into this mode only when you are confident your business is up for the challenge. That is when you’ve smoothed out any issues that could potentially make acquiring new customers a painful experience rather than a fun and profitable one.

In other words, make sure you’re on top of your business and strategy, make sure your team is in good shape and that your product works like a charm. One way to keep track of this is by setting key metrics. A good rule of thumb is that you’re about ready to enter growth mode when you can effortlessly remove yourself from day-to-day operations and put your focus on growing.

Huddle up and consolidate!

At some point in the growth race you will reach a new maximum of customers your business is able to handle. At that point, it is time to give your team room to breathe and optimize the business to handle your new reality.

Now hopefully, you’ll see this need coming a mile away. But there’s a good chance it will sneak up on you before you get a chance to plan for it. In that sense, consolidation breaks aren’t exactly voluntary. They are forced on you, and if you try to avoid them, all hell will potentially break loose.

In this mode, you will still need to attend to everyday tasks, service your current customers and take on new business, if it knocks on your door. For those reasons, consolidating isn’t easy. And taking a growth break certainly doesn’t mean you’re a lazy sucker wasting precious time in which you could be running for more growth.

Instead, it means you are leveling up your business, team and product included, to handle the new reality and essentially making sure you won’t be one of the startups crashing headfirst into a brick wall that was seemingly built overnight.

So how do you know when you’re ready?

If there’s one thing we hope you brought with you this far, it is that scaling has two sides. So rather than asking yourself if you’re ready to scale, ask if you’re ready to enter into the next sprint. If everything works great, then go for it! But if there’s a problem somewhere in your infrastructure, hold your unicorns! Fix the things that need to be fixed. Then release the creatures on the field of growth.

Besides asking yourself that one question, here are a couple of things to look for that will help you decide, when it’s the right time to scale your startup.

You have proved the concept

One of the first goals to aim for in a startup, is proof of concept. This means setting out on a quest to validate that your product will actually sell, once you put it to market. You also need to have a strong indicator that the market is big enough.

To get technical about it, you need to calculate the realistic amount of customers that you can service with your solution - also referred to as the total serviceable market, or SAM. When you know that your solution is sellable and that the market is big enough for you to scale, then you can start acquiring more customers.

Your infrastructure is solid as a rock album in the 60’s

Okay, so you’ve proved the concept. But is your infrastructure ready to take on the new business? Your infrastructure is anything and anyone affecting your ability to deliver the solution you promised. Things like your tech stack, work processes and your team of course.

The infrastructure is ready to enter growth mode, when you have a team of people that care about the business, back your mission and see their contribution as more than just a job. You should also make sure the product lives up to your quality standards and that you are ready to fix any issues that may turn up. When you’re confident that your team is ready to take on the new pile of customers and tasks, that’s a pretty good sign you are ready for a scale.

You are turning down customers

A steady flow of customers is always a hoot. Especially if it’s growing. On the other hand, if you find yourself turning away new business because you lack the resources to handle more customers, well then you’ve got yourself what some would call a luxury problem, and you should probably consider scaling.

You are reaching goals without maximal effort

This one is a real pickle. If you’re reaching the goals you’ve set, you’re doing a great job. But if you are reaching them without fighting for it - then you have set the bar too low. The problem is that reaching goals feels amazing! So it might feel somewhat appealing to keep the bar just a tad low for a while.

But in doing so you risk putting yourself, your team, your business and the market to sleep. Reaching goals without maximal effort is a sign that you can manage to do more. So the next successful sprint may be just around the corner.

Your cash flow, not just your profit, is strong

While profit is a pretty solid indicator that you’re doing something right by your business, it isn’t necessarily a crystal clear sign you should scale. Instead, look to your cash flow. A steady cash flow is what will keep your engine running on a day-to-day basis.

So while profit is a preferred success metric in a startup, a positive cash flow is what you want. That means more money is coming into your business each month than going out - and that is a good indicator that you can afford to scale up.

You got the legals down

The more you grow, the more rules you have to comply with. Ugh, compliance. Boring. As an entrepreneur you probably practice some much needed rule bending and convention breaking from time to time. But if there’s one thing that can kill a startup, it’s legal issues.

Going back to one of the points we made in the beginning of this course, you never know what is waiting for you on the other side of a scale. And that’s exactly why you should do your research and make sure your business, at its new scale, is ready to follow any new legal requirements that comes with becoming a larger business.

For example, do you know and follow the rules of data and privacy protection? Do you know the employment requirements in the country where you’re planning your next office expansion? If not, then get back to your research chair, you! After all, you don’t want something as boring as compliance to kill your buzz, do you?

Not a first time scaler?

If you’re going for round B, C or an even later one, then there’s a bit more technicality to scaling. If you’ve reached this point you have gone through at least a couple of growth sprints.

Scaling from now on is about finding scalable acquisition channels. Imagine you raise six figures in investment to put into marketing and sales. What will happen to your acquisition? Will it grow exponentially? Will the cost of acquiring a customer stay the same? If yes then you have a pretty solid investment case. If not, well then you need better channels.

Here are three signs that you’ve found scalable acquisition channels:

Your sales team reach their individual goals, even when more people join the team
You are continuosly increasing the volume of inbound leads by consistently publishing high-quality content that reaches the right target audience
Your customer acquisition costs stay positive and at a resonable level, even when you increase your SEM budget

That’s it from us. Let’s leave you with this question:

Is now the right time to scale your business?