Many entrepreneurs start their businesses with the ambition to grow. And if you’re at a point where you’re turning away customers because you don’t have the bandwidth or infrastructure to support them, then you may actually need to scale. But growing your business requires more than grit, verve, or urgency—you need to understand how to scale a business strategically.
To help you better understand when and how to scale your business, we spoke to 12 business owners, experts, and advisors, all of whom have firsthand experience growing businesses successfully.
Growing your business may very well be the natural progression of entrepreneurship—and you’re likely eager to move forward with it—but scaling before you’re ready can be detrimental, even fatal, to your business. So, just like many other things in the business world, it’s important to do your due diligence before you take this major step.
How do you know you’re ready to scale? Consider these indicators, as offered by successful entrepreneurs and experienced business advisors.
Ultimately, your business has to have the processes and foundation in place to support growth. When you have a predictable, repeatable sales process; your current staff has the bandwidth to take on additional tasks before taking on new hires; you’ve identified your endgame and core competencies; and, ultimately, when you have the capacity and capability to do so, then you’re ready to grow.
But you need to be mentally prepared to grow, as well. Do you have the energy, focus, and dedication to take your business to the next level? Are you ready to evolve your current role in service of your larger goals and vision, which may entail either taking on new tasks, or delegating others? Answering “yes” to these questions, too, points to your readiness to scale.
Think you’re ready to scale? Ahead, find six tips on how to scale a business smartly, offered up by our panel of business owners, advisors, and experts.
As you well know from launching and running your business in the first place, it takes money to make money. The same cliche (but a true one) holds when ushering your business into the next phase of growth. If your operational costs are low or steady, sales are up, and your cash flow is strong, then you’re well-positioned to grow.
But you’ll also need to evaluate how much money it’ll take to grow your business—as Casey Halloran, co-founder and CEO of Costa Rican Vacations tells Fundera, “You always need more money than you think”—so you can determine whether scaling is doable, and whether growing will provide a return on investment.
One way to determine how much money you’ll need to expand is by running a break-even analysis.
As Stephens explains, a break-even analysis, “calculates the revenue increase you need to cover the expense increase of the growth (i.e. how much revenue you need to ‘break even’). You can then evaluate whether you think that ‘break-even’ revenue increase is reasonable. You may find that you would have to grow revenue much more than you think.”
Use our guide to learn more about how to calculate a break-even analysis.
If you do need more revenue to grow your business, you’ll need to line up your funding even before you take the first, official step toward expanding your operations.
Several business owners we spoke to in regards to how to scale a business recommended shoring up your cash flow to ensure you have a cushion to fall back on, even if your current finances are strong. “Profitable companies go bankrupt when they increase their expenses before they have the capital to handle growth,” Stephens warns.
Opening a business line of credit is an ideal solution to cash-flow problems, since it’s a guaranteed reserve of cash from which you can pull however much capital you need, whenever you need it. You’ll only pay interest on the funds you use.
Otherwise, a term loan can provide a quick cash infusion for larger, one-time expenses, such as purchasing a piece of equipment, hiring staff, or purchasing real estate. If you’re not in a position to take on more debt, consider a zero-debt financing method like crowdfunding, using a personal loan for business, or good, old-fashioned bootstrapping.
Another common source of funding for this stage of your business is to seek equity investors or venture capital. However, Dalagelis notes, equity financing is “a double-edged sword.” This route can help you “scale quickly,” as your investors can offer resources, cash, connections, and strategic advice that you just couldn’t get with any other form of financing.
On the downside, “by raising external capital you lose some of the ownership and liquidity of your business should you want to sell your company. You also have a fiduciary obligation to external stakeholders that you don’t have when operating bootstrap,” Dalagelis notes.
Learning how to scale a business means you’ll be operating at larger volumes, at virtually every level of your business. As Cairns tells Fundera, “No matter when you expand, you have to assume that your capacity in your current role will drop by around 50%. Few small business owners have the capacity upfront.”
So as much as possible, automate or outsource some of the trickier, more time-consuming tasks to software, freelancers, or outside experts. A good rule of thumb is to try outsourcing anything you’re not good at, whether that’s graphic design, marketing, content writing, or balancing your books. Properly delegating your work increases both your productivity and your profit.
There are lots of tasks you can both automate and outsource to software as a service (SaaS), like bookkeeping, HR and payroll, emails, virtual assistants, and your sales pipelines. If you haven’t already, invest in a scalable system (meaning software that has advanced packages for businesses handling larger volumes), so you don’t have to switch over to an entirely new system when you outgrow your current interface.
Of course, there are some things that humans will always do better than software—and for other things, you may simply need more hands-on support (e.g. taxes). For those tasks, consider hiring freelancers, part-time workers, or experts (like an accountant). It’ll cost you less, and cause less strain on your resources generally, to hire employees on a contract rather than a full-time or in-house basis, too.
All that said, it’s likely that you’ll need to hire full-time employees at some point in order to scale your business. Although you may be tempted to funnel most of your attention into hiring lower-level employees, especially if you’ll no longer be involved in day-to-day operations (which is likely), Andy Kolodgie, co-owner of The House Guys, recommends focusing on managers:
“Find managers who can make thoughtful yet authoritative decisions quickly,” Kolodgie says. He adds that it’s crucial to have a trusting relationship with those managers, since you’ll be handing off a big chunk of your current role to them.
Along those lines, think seriously about your organizational structure, rather than going on a hiring spree. Carefully determine which employees will own which processes at which times. Failing to clearly define roles and responsibilities is counterproductive, and on an individual level, it can lead to burnout and resentment in your employees.
Include your own role in those delineations, too. In other words: Be prepared to give up some control over your operations, and stick to your delegation plan. Stepping on your employees’ toes, even if inadvertently, can also lead to mistrust and confusion.
And before you take to LinkedIn, job boards, or hire a recruiter, look within your current pool of employees (assuming you already have a staff) and see if you can hire internally. Martin Seeley, CEO of MattressNextDay, advises, “Start by checking the people who were with you from the start. Assess their potential and support their career development. Usually, people who were with you from the start already know the ins and outs of your business, and allowing them to learn more by enrolling them in different training will make them stronger professionally and will increase their productivity rates.”
When you’re positive that you have the foundation in place to support more customers, the next thing you’ll want to do in order to scale your business is start expanding your marketing campaign to pull in new leads—whether that’s investing in social media, SEO, email newsletters, pay-per-click ads, working with influencers, or partnering with complementary businesses to run special events or sales incentives.
At this stage, it’s a good idea to focus on nailing down your brand strategy. Greater brand recognition leads to greater brand loyalty; in turn, that creates a reliable, steady stream of high-intent users (i.e. a reliable, steady stream of revenue).
In order to establish brand loyalty, it’s crucial to understand your target demographic. Only invest in marketing tactics that’ll be highly visible to your audience, especially when it comes to social media marketing.
Cody Allen, founder of Digital Cartel Media, uses this as an example: “A business owner who sells walk-in bathtubs for the elderly shouldn’t dump a ton of marketing dollars into Snapchat and TikTok because their user base is primarily under 25 years old. Knowing your demographic and where they spend their time is key to driving high-quality traffic to your sales funnels.”
At this juncture in history, it’s safe to say that social media marketing reigns supreme, but it’s certainly not the only marketing strategy you should be using. Paige Arnoff-Fend, founder and CEO of Mavens & Moguls, recommends engaging in thought leadership strategies, like speaking at events, contributing articles to well-trafficked blogs or newsletters, and hosting webinars or podcasts, as “great ways to build your brand, increase your visibility more broadly, raise your profile, and attract more clients.”
Not only does this type of marketing increase awareness of your company, but showing your expertise establishes “credibility with a larger community,” Arnoff-Fend explains. In turn, potential customers will be more inclined to trust what your business has to offer. And trust, as you know, is probably the most important factor in converting leads into returning customers.
As you probably know from starting your business in the first place, the thoroughness of your planning is directly proportional to your shot at succeeding. Every single business owner we spoke to expounded on the importance of detailed, diligent planning before you dive into scaling your business.
“The devil is in the details when it comes to learning how to scale a business,” says Allan Borch, founder of DotcomDollar. “Give yourself time to plan and prep for it to avoid being overwhelmed or putting your company in a financially vulnerable position.”
For his part, Borch “made sure to plan out every detail and have the support [he] needed when it was time to implement [the changes].” He also hired a team to help him plan and launch new websites. Which brings up another, crucial point: It’s nearly impossible to grow your business on your own. Don’t hesitate to reach out to advisors, coaches, mentors, freelancers, or anyone else who you believe will help you put your plans into motion.
Additionally, while you’re in the planning phase, another strategy to consider is to look toward successful competitors. The procedures and strategies they followed may also work for your business, and may in fact “be one of the keys to a more successful operation,” Seeley says.
And although it may seem counterintuitive, it’s equally important to plan for potential failures as it is potential successes. That way, you’ll have a contingency plan in place if and when you encounter pitfalls, rather than panicking.
Malte Schultz, CEO and co-founder of Airfocus, expanded on this idea of “failing to plan is planning to fail”:
“You need to think of different scenarios that could happen once you scale your business and evaluate whether you can sustain the transition. The more scenarios you come up with, the more you will be equipped with strategies and tools in case things go wrong.
“Finally, you should compile a crisis management plan (or business contingency plan) that will allow you to survive for some time if it turns out that scaling came too soon. People usually take the leap of faith and react to new circumstances in real-time instead of preparing for them in advance and ensuring a more relaxed process.”
Ultimately, a failure to plan out your scaling strategy may result in sacrificing the quality of your product or service. In turn, that means losing customers—the diametric opposite of your intention in learning how to scale a business in the first place.
But by following the advice from our panel of experts, you’ll be able to do what you do best—but even more of it, and better than ever—and that’s the sign of successful growth.
Sally Lauckner is the editor-in-chief of the Fundera Ledger and the editorial director at Fundera.
Sally has over a decade of experience in print and online journalism. Previously she was the senior editor at SmartAsset—a Y Combinator-backed fintech startup that provides personal finance advice. There she edited articles and data reports on topics including taxes, mortgages, banking, credit cards, investing, insurance, and retirement planning. She has also held various editorial roles at AOL.com, Huffington Post, and Glamour magazine. Her work has also appeared in Marie Claire, Teen Vogue, and Cosmopolitan magazines.