Startup 101: Understanding When To Scale Up A Business

It’s been two years since you left the corporate world to join the rising number of entrepreneurs worldwide. Looking back, who would have thought that a 20-something who’s barely out of college will be running his own business? Welcome to the startup revolution.

The world in 2017

Let’s have a quick overview on what to a startup business owner can expect in 2017. According to Forbes, the US economy will “enjoy a mild cyclical rebound” next year before returning to a lower growth rate through 2018. There are weak expectations for future sales and projections for low labor force participation. On the positive side, business capital spending “should be less of a negative and might even turn positive,” wrote Bill Conerly of Forbes.

Is it time to hit the acceleration pedal?

After doing the groundwork for your business, what’s next for you? Is it time to accelerate your business? Brian Halligan, CEO of HubSpot, offers a guide to know when to scale up the business. The test of knowing when to accelerate is whether or not “you pour lots more money into the top of your machine and keep that at least 3x ratio.” Halligan shares that Hubspot was on the stage of “pouring resources in fast and getting a big return on them without the wheels coming off the bus” after seven years from inception. So how did Halligan’s team do it? They used a monetization playbook that involved a dedicated team of marketers, database segmentation, and personalization, and the introduction of a “clawback” provision in the commission scheme. In clawback, the cost of acquiring a customer will be “clawed back” from the commission of the sales representative or marketer who pursued such customer.

Customer acquisition vs. CLV

David Skok of ForEntrepreneurs.com noted that the green light you need before hitting the acceleration pedal is when you’ve determined that your sales funnel process is working in a “repeatable and scalable way, with a viable business model.” There’s no hard and fast rule as this depends on the type of business you’re in. It’s easier to assess whether you’re ready to scale the business if you have tangible products to measure. It’s a bit more challenging if you’re selling service. However, here’s a test you can try: ask yourself whether or not you’re spending less on customer acquisition than on a customer’s lifetime value (CLV). CLV is the total net profit a business makes from a lifetime relationship with a customer.

Other tests on whether it’s time to scale up

Halligan offers seven questions a startup business owner might ask himself before scaling up. These guide questions include: If I hit the gas on customer acquisition will my customer economics fall apart? Are we chasing too many personas too early? Is my pricing model aligned with the success of my customers? Also ask whether your customers are helping lower the cost of acquiring new ones through “word of mouth and increasing their own monetary value.”

Startup 101 to scaling up your business

Once you’ve determined that it’s indeed time for you to accelerate your business, the next move is to explore ways on how to scale up. Skok, however, raises an important disclaimer: you need to invest aggressively enough. “Basically, you need to grab as much market share as you possibly can before a competitor enters your space.” You may be familiar with the surge and eventual demise of social media platform Friendster. The site was the most popular in Asia, which is an important market for social media networks. However, due to wrong decisions, Friendster failed to capitalize on its captured market and status as a pioneer. It didn’t shut competitors when it had the grand opportunity. It could have been larger than the mammoth Facebook.

Boost your sales and marketing

Now that you have repeatable sales model milestones, the next step is to decide on which part of your business to scale up. Accelerate your business as fast as possible by aggressively investing in sales and marketing. Sales and marketing have two different purposes: sales brings in the money while marketing spends it. Marketing is the means, sales is the end. However, many businesses still confuse the two, building one team to do both tasks. While they are aligned with a single goal of overall profitability, their strategies vary.

Marketing in the digital age

Social media is said to be leveling the playing field. A startup in California can reach the same audience as other global brands. But how does a business make sure that its time and money are not wasted by unintentionally flooding the Internet without getting anything back? This is where digital marketing comes in. Digital marketing involves a facet of strategies that involve online search, social media, email marketing, and website management. Maintaining a Facebook account and posting regular ads are not enough. You’d need a strategic approach with the help of experts such as a digital marketing agency in the Philippines. The Philippines is one of the most promising markets for startup businesses.

What to know when mapping out a digital marketing strategy?

SmartInsights offers a sort of yardstick to help decide whether your scaling up plan should involve a digital channel strategy. Ask yourself: Do I know my online market share? Do I have a powerful online value proposition? Do I know my online customers well enough? Am I wasting resources through duplication? Am I optimizing?

The concept of digital marketing is foreign to many businesses. Others even dismiss it, partly because of their ignorance of its power. Every business, large or small, should acknowledge the fact that the world is moving forward not backwards. Technology and innovation are our way of life, and whether we like it or not, these will command our future.

All startups must envision becoming a scale up. Eventually, your operations should expand, your manpower should increase, and your customers should turn from new businesses to long-term partners. Know where you stand today by measuring your success, investing aggressively in your businesses, expanding your sales and marketing efforts, and mastering the power of digital marketing. Remember that the only path for you is forward.