What is Scale Up?
According to Wikipedia: Endeavor defines scaleups as companies growing at 20% over the past three years, usually with at least 10 employees. Given the nature of freelancing and subcontracting, many businesses can scale with a couple of employees but many sub-contractors.
What is the difference between Growth and Scaling a business?
Often people refer to scaling up when they mean business growth, there is a difference.
Growth is when a company increases its revenue and associated costs rise. Manufacturing is a prime example, when unit sales increase, so do production and distribution costs.
Scaling on the other hand is where a company experiences higher revenue generation but does not have to incrementally boost resources to meet this demand. Google is the prime example of a business that has boosted its revenue without incurring higher running costs.
The most scalable sector is the tech sector. There are high up-front costs in terms of time and money to develop a programme or an app, but once it has been developed it can be replicated and resold for very little extra overhead.
Anything that involves automation or replication, which is inexpensive to produce and predictable from an overhead perspective, is a scalable business model.
What steps do I need to take when considering scaling my business?
Have clear objectives, where do you want to be?
Define your objectives clearly and make sure your team has bought into them 100% and are willing to embark on the journey with you.
You may set a goal based on turnover, profit or market penetration. It is an individual aspiration and one only you and your staff can determine.
Build a collaborative partnership
Scaling is tough, and you can’t do it alone. Make sure you bring in the right expertise either through employing your own team or pooling the skills of freelancers. Yes, this will mean an initial increase in costs, but the investment will reap rewards by having the best people in place, who are all working towards the same outcome, which will drive the vision forward effectively and resourcefully.
As well as increasing internal resource, it is necessary to build up a stakeholder network to have an extended pool of knowledge and skills; such as sales partners, distributors, suppliers, customers, complimentary private and public-sector organisations. Contact your local Growth Hub or LEP to see what support is available in your area.
An injection of capital is required to scaleup quickly and it is rare for this influx to come purely from the business or the directors themselves. It is necessary to determine what sort of capital will be required to sustain your business through an expansion period. It could be a bank loan, an overdraft, private investment, crowdfunding, venture capitalists, angel investors or surplus cash flow.
What is the difference between an Angel Investor and Venture Capitalists?
An Angel Investor is normally an individual of high net worth who is looking for projects that interest them in which they can invest. The angel investor will usually empower a small business to help it grow, whilst providing advice and guidance as part of the package, even bringing in contacts.
The investor will ask for an equity stake in your business but won’t run it for you. Angel Investors can be informal such as friends or family, could be a business associate or someone introduced to you through an Angel Investment Network or the UK Business Angel Association
Angel investors choose to invest because they have an affiliation or liking of the product or service being offered and although they still want a return on their investment, their reasons for investing aren’t purely financial. Angel investors can also provide funding as a group.
This type of funding is best suited to start ups or early stage businesses with a capital requirement under £1m.
Venture Capitalists are a lot more formal and are more suited to companies that have been trading for some time that have a track record, a healthy balance sheet and high growth potential. The high growth element is key for venture capitalists and they are seeking a high return, ideally one that could not be rivalled by other forms of saving or investment. This means that there is a higher element of risk for the investor, but this is mitigated by the VC company playing more of a direct role in the operations of the business that they are funding, requiring a seat on the board.
Who are Venture Capitalists?
Venture capitalists are financed by other people’s money, secured through providing investors with opportunities to obtain shares in a private company through a managed fund. These investors could be corporations, pension funds, or foundations.
Venture capital companies usually only invest in companies requiring over £1m worth of finance because of the nature of due diligence checks and length of time it can take to broker a deal.
Limited Partners are the investors who place their finances into the investment funds and the general partners are the people who manage the fund and account manage individual companies seeking the investment.
Venture capital is not suitable for early stage businesses.
Grants are another way to inject cash into your business. Grants come from either the UK Government, European Funding or Innovation Funding.
Below is an article outlining 276 key funding streams in the UK at present
Factor in investment in IT systems as an absolute must for Scaling.
Whether this be a CRM package that can offer slick workflow and reporting that can also grow with the business, an EPOS system to manage stock and daily sales, or accounting software to record transactions, generate invoices and reports, reconcile bank statements and interact with banking applications.
These tools will provide a firm foundation and solid infrastructure as the business grows, eliminating waste, duplication and providing up to the minute intelligence for future strategy planning.
Can you answer all these questions?
Market research is integral to any scaleup strategy.
- Do you have all the information about your existing market?
- Is it a while since you analysed your current client base?
- Do you know where most of your business comes from?
- Do you encourage direct feedback from your customers, so you are aware of the true perceptions of your brand?
- Do you know which of your marketing channels are successful and which yield no return at all?
- Do you know which new markets you wish to penetrate and what the needs of those markets are?
- Who are your main competitors?
- Is there potential for collaboration instead of competition?
- Have you revisited your suppliers and costs of materials in the last 2 years?
- Have you carried out a SWOT analysis on your key strengths and weaknesses?
- Have you carried out a SWOT analysis of your competitors?
- How do you differentiate from your competitors?
- Have you carried out a PESTLE analysis? Particularly with Brexit, our trading foundations are being rocked and policies and legislation changes could affect your business model significantly.
These are just some of the areas you need to research and be confident in with your current business model, if you are to scale confidently. If part of the scale up process involves new markets it is imperative that thorough research has been carried out. This is the main scrutiny that investors will undertake, so make sure you are prepared.
LCR Future Energy can help you scale your business in several ways:
- Production of market research reports
- Production of a business plan
- Product validation
- Grants towards any external consultancy you may require
- Grants towards hiring a stand at a tradeshow
- Signposting to other funded providers for wider business assistance or grants
- Signposting objectively to complimentary service providers based on needs that you have identified
Want more information on the finance options available for your business? Why not attend our breakfast networking event on September 19th, find more information here.