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As a mentor to many small business owners, I always caution them that you can never relax completely, just because your initial solution or product set appears to be getting traction, and the market buzz is positive. Unfortunately, your next stage of scaling the business is fraught with potential oversights that can lead to the downfall of even the best-laid business plans.
For example, one of the first home grocery delivery companies, Webvan, was so enamored with early traction in Silicon Valley, it raised and spent nearly a billion dollars and went public, before filing for bankruptcy three years later. After a big rollout, Pets.com loved initial traffic, so they spent $80 million dollars expanding before the bubble burst and they too were forced to close.
Don’t get me wrong, it’s always great to see that first surge of customers, but that’s just the beginning of your work. With the real data from that surge, you need to take a hard look at business model realities, cost of customer acquisition, inventory costs, and other key metrics. Here is my summary of the key focus activities of that challenge for every business owner:
- Manage cash flow daily and plot a plan to profitability. That initial customer surge may loosen the purse strings of investors, so it’s easy to forget how quickly cash can be burned and how fast the spigot can be turned off. Even huge valuation increases will evaporate overnight when profitability is nowhere in sight, and you run out of money.
- Control costs and adjust prices to maintain your margin. As transaction volume increases, delivery costs go up, returns increase, and quality problems can cost you plenty. Suddenly you face new overhead, with hiring, office space, benefits, and new advertising campaigns. Tight margins may get you in business, but no margin will kill you.
- Follow-up on receivables and watch the terms of big orders. Too many startups I know have celebrated the success of big orders to Walmart or Home Depot, only to find they suffer from the long payment schedules and up-front inventory costs. Other customers routinely pay late, or only after they receive one or more prompts from you.
- Document processes and metrics for economies of scale. As your business grows, you need employees who can execute quickly and consistently, with minimal training. That means written processes and measurements to maximize quality and productivity. Key metrics for scaling, such as customer loyalty, are very important after initial rollout.
- Convert to working “on the business” vs “in the business.” Working on the business includes expansion strategy and planning, hiring, training, and managing employees. You can’t afford to close every sale, or handle every customer complaint. It’s time to build relationships with advisors, be visible in industry forums, and be a community leader.
- Seek out strategic partners to expedite business growth. Organic growth takes time, and can only take you so far. Look for potential partners who are at about your size and growth level to complement your business strengths, and bring new customers sets, create production efficiencies, and share corporate responsibilities, or vice versa.
- Ramp up your communication efforts and vehicles. If you want scaling to be a success, communication to all constituents must be done consistently and often. Calling everyone together for a weekly town-hall meeting won’t work as your business expands in size and around the world. It’s time to really focus on social media, videos, and email.
- Start working on the next generation of your own product. It’s never too early to start figuring out how to obsolete your own product, before someone else does, and customers stop coming. It’s amazing how fast copycat competitors can spring up, as you attempt to scale, and how fast customers will switch to new innovations and lower prices.
Completing the initial product and generating that first surge of business are necessary, but not sufficient to build and sustain a long-lasting business. With that first wave of customers comes a whole set of additional demands on your time and energy. Change, hard work, and learning should be nothing new to you, so don’t let these new demands of scaling be your downfall.
*** First published on Inc.com on 04/15/2019 ***
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