Scalability – can your business scale for massive growth?

Is your business ready to grow?

Some ideas just don’t scale. Some businesses, though profitable are just not suited to expanding.

This could be for several reasons, including:

• being dependent on a founder with a highly technical skill
• being dependent on a founder with personal connections
• having a small overall target market
• lacking a unique position in the market

Under these conditions you may have a business which is able to survive even thrive. But even though it may provide a good income for the owners of the business it may not excite an investor. You may see these conditions in a small business which has been started by its founder with or without a core team and has grown because of their skill, persistence, and tenacity. But with the addition of a few employees, it has stagnated. To clarify, this kind of business can be profitable but still not right for an outside investor.

Take as an example a builder who buys properties to renovate then sell. His business may be excellent, but unless he has the ability to systemise and leverage his skills, the profits are limited to what he is capable of doing himself. Thus, not scalable. So while this builder may make a good profit, an investor is unlikely to back this as a business.

An investor wants to see growth opportunities – by several multiples, not steady improvements. They want their money (and potentially their skill) to be the catalyst that propels the business, exponentially.

If your business is not one that fits the ideal profile for an investor, the options are to raising capital may be:

• seek it from friends and family, who have different criteria as an investor
• raise money through debt through a bank (usually secured against personal assets)
• grow organically

Another option is to isolate the constraint you have and design a strategy to minimise the effect on growth. For example if you, as the business owner, are the biggest asset and the biggest liability then the following may work:

• recognise that you are the bottleneck in the business, and due to which factors (sales ability, technical knowledge for example)
• hire/organise to duplicate these skills (not replace them) thus spreading the risk
• hire/organise to remove your non-core duties. If you are the best sales person for your product, and also do the accounts, cease to perform accounting duties yourself. It is unlikely you are the best at everything.

Every business has constraints. If the constraint is YOU, then it is unlikely that your business will attract an investor. If you rearrange your business in the right way you may still become an attractive investor target.