By Ed McLaughlin and Wyn Lydecker
You’ve launched your business. Congratulations! Now, how will you scale it?
Scaling can be your biggest risk and your greatest opportunity. If you are setting out to raise funding, your investors will ask you how you plan to scale. If you are using your own funds to bootstrap your business, you need to have a solid plan in place for achieving growth and expansion without sacrificing sustainable profits. Research shows that the high failure rate for new businesses – 50% have failed by their fourth year – comes from many factors that affect scaling, for example: lack of focus, lack of planning, growing too fast, no knowledge of pricing, and no understanding of financing. The list goes on.
The Art of Successful Scaling
The art of successful scaling is to adjust the business model to incentivize profitable growth. After bootstrapping my business, we put practices in place to ensure that we would grow organically without sacrificing the bottom line. As I brought on additional talented managers, these new hires came to me with ideas for how we could scale our existing business and expand into new product lines and new geographical regions. Soon our team was working together to draw up plans for how we could achieve the growth while maintaining profits.
In developing our plans, we knew we needed to stick to our core principles. I’ve embedded these principles in the following “5 Keys to Profitable Growth,” outlined in the brief video below (only 35 seconds):
5 Keys to Profitable Growth
To expand your business, apply the 5 keys:
- Create a Profit-Based Reward Structure: If you compensate your managers and your sales force primarily out of profit, then they will all work to bring in profitable accounts. Sacrificing profit margins in the name of growth is a sure recipe for decline and eventual failure.
- Create Profit Centers to Scale Your Business: If you set up product-line and geographic profit centers, then you will turn your managers into P&L managers. They will understand the financial structure of the business and become engaged stakeholders.
- Augment Profits with Proprietary Technology: When you develop proprietary technology to improve information and workflow, you will bring your customers closer to you. At the same time, offering the use of your proprietary technology to your customers can open up new sources of revenue and profits.
- Build a Financial War Chest for Strategic Advantage: When you grow and retain your earnings, you build your company’s equity position. You can use this financial war chest to invest in innovation and expansion, make opportunistic acquisitions, and pursue profitable new accounts.
- Behave Ethically, and Profits Will Follow: Ethical behavior binds your employees and customers to you through trust. It enables you to form lasting, loyal relationships that will always reward the bottom line. We had a rule in our company that if you make a mistake, you need to raise your hand, admit the mistake quickly, and then work to make reparations. We always practiced having open and honest relations with everyone we did business with.
If you follow the 5 keys to profitable growth, you will increase the probability of growing a sustainable and profitable business.
What are you doing to scale your business? What challenges are you facing? Please send us your stories, your views, your challenges and solutions. Jot them in the comments or connect with us via email: Ed@ThePurposeIsProfit.com.
Ed McLaughlin is the author of the upcoming book, The Purpose Is Profit: The Truth about Starting and Building Your Own Business, along with co-authors Wyn Lydecker and Paul McLaughlin. The Purpose Is Profit (Greenleaf Book Group) will be available in bookstores on August 2, 2016.
You can download a complimentary excerpt, “The Ten Commandments of Startups Profit,” here.