Is Your Business Scalable or a Hobby?
By Doug Zeisel, TCV Growth Partner -
I have been involved in many startups over the years in various roles ranging from Founder to CFO to investor. Some were successful, some not. One thing I learned – success does not depend on scale, but scale depends on the success of many factors. You can run a successful small business that will provide a comfortable income and may be able to be sold when you reach retirement. Some people call this a hobby business. Whether it be a corner deli or an auto repair shop, the owner likely didn’t start the business with the notion of becoming McDonalds or The Pep Boys. These hobby businesses require the owner’s involvement in virtually every aspect of operations. The owner likes being the center of the business’s success and that is one reason it is referred to as a hobby business.
In contrast, a scalable enterprise is one where the owner/founder is able to put into place systems and talent so that at some point in the growth trajectory, the business can virtually run on autopilot. At that point the owner/founder acts as the visionary leader who keeps all rowers pulling the oars in the same direction and the business focused on growth. This is called a Scalable enterprise.
What does it take to be scalable? First and foremost is intention. Ask yourself - what was your ultimate goal in starting your business? Maybe you had a great idea and the passion to go thru the arduous stages of product development and commercialization. For your business to be scalable, you need more than a passion to build a business that employs managers overseeing dozens of dedicated workers. For your idea to have social impact your business must be scalable and to be scalable you must have the intention to grow the business.
If your intention is to build a business that positively impacts people’s lives, what will you need to achieve that goal? Essential considerations:
Market – Initially, you need to understand if there is a market for your great idea. Is there a real need or is your idea just something that you have become obsessed with. You certainly need passion to have the courage to move forward, but unless people see that your idea solves a problem or improves their lives your idea is a waste of your time. This is why there has been much emphasis on Customer Discovery – finding out if your target audience really needs your idea. But marketing is so much more than finding and alleviating customer pain points. You will need to understand basic principles such as value proposition and positioning. You will need to be able to determine the best way to communicate your value proposition to your end customers and drive them to your doorstep begging for your product. How will you do that? Learn more Here.
Money – No business has ever started without money to fund everything from infrastructure to hiring people to get your product in the hands of customers. Money can come from a variety of sources but at each stage of your growth, you will find different relevant sources. At the beginning you will probably self-fund your startup. As you prove your idea has traction (customer discovery) you may be able to find some angel investors who see your vision. And when you start generating sales, which proves your business case to skeptical investors, then you may get Venture Capital to fund rapid scaling of the business. When you are generating steady profits banks will be happy to lend money. Each stage of growth can be financed by an appropriate source. Find out more Here.
Operations and Systems - As you scale your business you will need to create systems to operate the various functions that are required to efficiently deliver your product(s) or services to your customers. These systems need to function smoothly so as to not create bottlenecks or conflicts within the operations of the company. Systematizing operations makes them repeatable and more easily learned by new employees as the company grows. Well-designed systems provide a means to measure the success of each segment of operations. Have you begun to think through how your company will operate? Or are you already operating by the seat of your pants? Learn more about implementing systems Here.
Management – When you start, you only have yourself and maybe a partner and hopefully an advisor. But as you grow and add employees, you will need to think about what skills and personalities you will need to help you grow the business. You need to consider how you will build and lead that team. What kind of culture you will instill in the organization? How will you create that culture?
Much depends on what vital functions will be required to solicit business and deliver the promises made by your marketing campaign. What departments will be created and what are the profiles of managers needed to run each department. At various stages you will need expertise in various business functions. Where will you find these people? Consider fractional executives from TCV.
Planning – If your company is a technology company you most likely had to create a business plan that investors reviewed to validate your assertions as to the ultimate scale and profitability of your company. But as the company grows, does that plan get updated to include the actual results, learning's and changes in your marketplace? Are the assumptions made when you developed that plan relevant anymore?
To sensibly grow your business you should create a strategic growth plan that reflects existing realities and maps out all the aspects of growth mentioned above. It will describe what key personnel will be added, how you will go to market, what systems will be put into place and how you will finance the growth of employees, overhead and fixed assets. The overall strategic plan should set goals that are able to be broken down into discrete actions that will achieve these goals.
Creating a strategic plan for growth is challenging and requires a disciplined approach that takes a dedicated effort. Business owners wishing to create such a plan should consider applying to the spring cohort of SCALEUP MD developed by TCV Growth Partner in cooperation with bwtech@UMBC. Or contact Doug Zeisel for a consultation on how we can facilitate your plan development. We can help – that is our mission!