Just as starting a business requires careful planning, so does growing its operations – here are some of the pitfalls to watch out for.
Some small business owners have scaling up in their sights from the get-go, while others are ill-prepared for significant growth. So how do you decide if scaling up is right for your business and what are the pitfalls to avoid?
When Oliver Warburton, director of vaping brand, Ecigwizard, was giving a presentation at a networking event, he realised that he was a “gibbering wreck” – and that he was probably making an underwhelming impression on his employees and customers.
But hiring a business coach to improve his confidence and leadership skills helped him build a better, more robust business; the firm launched with zero marketing budget and £500 from both directors, but now turns over £7m per year.
“You can’t focus purely on profit and turnover and expect success. You're the biggest driver in your business," he says. "You’ve also got to work on yourself.”
Mr Warburton says that he saw results in the business almost immediately; in less than a year, the company went from employing 20 people to a team of almost 100.
Scaling up isn’t all about the money. The right investor will bring more to the table than their cheque book, explains Clare Nicholls, senior partner at Invenio Corporate Finance, an independent boutique investment bank.
“Scaling up is a sea change," she says. "Getting from two to 10 people or £5m in revenue is one thing, but getting to £20m is a completely different game, and most scale-ups need more than just cash to get there.”
Wherever you are on the scale-up spectrum, it’s important not to get “seduced by a valuation point or finance offer” as you contemplate growth, says Ms Nicholls. “Instead, drill down into where you want the business to go and focus on plugging any gaps that might hold back growth.
“Scaling from 10 people to 50 requires a completely different skill-set, which a lot of entrepreneurs don’t instinctively have, but the right investor can help with everything from building networks and contacts, to helping you better understand international markets or deal with operational change."
Scale-ups are risky, she adds: "You need people who understand that and who won’t pull the plug at the first sign of things not going to plan.”
Callum Negus-Fancey is chief executive and cofounder of peer-to-peer sales software company StreetTeam. He advises paying “top of the market” to build your team, because the “tangible savings you make in paying less” won’t compensate for the “intangible cost in the loss of quality”.
"Scaling is hard and fast, and the top 1pc of your talent will be the difference between success or failure,” he says. “It’s often said that start-ups can’t afford to pay as much as bigger companies, but I recommend paying as much as is reasonable in cash and then making up the difference with equity. Top people have choices and staying competitive is vital – this approach lets you attract the best talent with a meaningful stake in your business who are more motivated to make it succeed."
Scaling up usually means growing your team, but don’t rush into recruiting before considering how it might change your business, says Olga Egorsheva, chief executive at social media content marketplace, Lobster.
"You get to a point where it’s just impossible to keep every plate spinning without expanding your team, but that involves learning to let go and trusting who you hire,” she says.
According to Ms Egorsheva, business owners should avoid hiring people purely based on brilliant CVs peppered with household names, as they may not fit the culture of a growing business.
"The attributes that really matter relate to attitude, and that’s hard to gauge in a traditional interview, so I set tasks to see how candidates respond," she explains. "Some applicants turn these down flat, but I need people to demonstrate how much they want the job before I can trust them enough to hand over responsibility."
However, increasing the size of your team isn’t a pre-requisite for achieving significant business growth, adds small business coach, Nadia Finer.
“I work by myself, but I've deliberately created a company that scales, so that I’m able to work internationally with a much larger client
base than if I just worked locally,” says Ms Finer, who leverages her time by delivering an online programme worldwide and outsourcing work to freelances, including copywriters and designers.
“I want to do the school run every day, but I also want to run a big business and a global brand,” she says. “Many SME owners are put off by the idea of scaling up, but the way technology has evolved means that the traditional distinction between a micro business and a bigger enterprise is outdated.
"If you wish, scaling up can mean running a multi-million pound business from your kitchen table.”
This article was originally published in The Telegraph and can be found here.