Should I Scale my Business?

This is a question that I get very often. This question comes from small business owners, solopreneurs, and even owners of medium sized enterprises. At first glance it may seem like an easy question to answer, YES. Why wouldn’t someone want to grow their company, hire more employees, and create more revenue for the company.

This topic is mildly more complicated than the initial knee jerk reaction. It basically comes down to two influences; what are your motives/goals as an owner for the business? And the question of economies of scale.

Let’s first talk about motives and goals. A lot of people start a business to escape the rat race and develop some financial freedom. Often times business owners never expect to be in a place where they need to decide if they want to scale the business, typically they just expect to hopefully replace their income and live a bit happier. Unexpected success is quite common for this type of person as it takes a specific personality to quit their job and take the big leap. If you are in this position, you have to take a moment and set some goals, sit down with a piece of paper and identify why you started this business and what the ultimate goal is. Without identifying these facts you will be unhappy or chasing something that you do not even want. Identify if you simply want to make a certain income every year and remain in your current state. Satisfaction and having enough is something that not a lot of people are capable of accomplishing, there is certainly piece in being able to make this realization. On the flip side, if your business is doing well and has grown as much as it can with you, then it may be time to hire some more employees, reevaluate your plan, increase marketing, and scale the business.

Until you understand what your motives are and where you are going you are going to constantly feel in limbo with your current life even if you are making $10,000,000 per year. Every task, job, business, etc. needs to begin with the end in mind, “why are you doing this?”

The second thing you need to evaluate when deciding whether or not to scale the business is economies of scale. This basically means that as you grow profits may diminish. If you are profiting $100k per year and you hire another employee at $30k per year now your profit diminishes to $70k. What you have to consider is what sort of return will that employee bring you? Do they allow you to focus more on new business? Are they a sales representative that will add revenue to the bottom line?

With new infrastructure (employees, office space, building, computers, desks, etc) profits decrease. These capital expenditures need to be discussed by looking at your books or speaking with your accountant.

Bottom line is scaling a business is not for everybody and it may ultimately mean some short term losses in order to get to your finish line. Before you even consider scaling be sure to understand what your motives are and be sure to understanding the financial implications (good or bad).

There is always room for growth within an organization and it starts with evaluating every process.

Leave a Reply

Your email address will not be published. Required fields are marked *