Like most entrepreneurs, you have likely spent hundreds of hours developing skills to build your business. By the time you start turning a profit, you’re likely to spend thousands of hours and dollars trying out different business models and seeing what works for you.
Many entrepreneurs who start turning a profit think that the hardest part of running a startup is behind them and that it will be smooth sailing moving forward. They simply rinse and repeat the process that made their business successful in the first place. While this can be true, there are a number of complexities that can make scaling a small business difficult.
You’ll make mistakes when scaling your business, just like you did when you were learning how to get it off the ground. The difference in scaling your business and starting a business is that the stakes are much higher. There is more money changing hands once your business is up and running. Unfortunately, entrepreneurs who make missteps at this juncture often lose their business.
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The downside of rapid growth
Growing your business means more expenses and more employees. However, you don’t need to jump into these expenses blind. Just like starting your business, you should have a budget and start small. Making your first hire is an important step and one that should not be rushed into. Once you have found and trained trustworthy employees and are turning a steady profit, you will then be able to reinvest some of that profit back into your business, increasing the rate at which your business scales.
Unfortunately, many entrepreneurs will try to scale their business up as demand for their service increases instead of taking time to properly train their employees, growing the business slower and more methodically. This is how many businesses fail, even when there is plenty of demand from customers.
Three tips for lean and cautious entrepreneurs
- Utilize freelancers
If you think you need to make a full-time hire in order to scale your business, think again. Hiring a freelancer or multiple freelancers may be an easier alternative and comes with much less risk. After all, there are many businesses that shut their doors during the “scaling up” phase because they made the wrong hire.
Online marketplaces like Upwork allow you to hire workers on an hourly, fixed cost or salary arrangement. You can filter individuals by their country of residence, skill set, how long they have been working for and how much they charge per hour. You may end up going through a couple of freelancers before you find the right fit, but there is enough talent available that you can find a temporary or ongoing employee for just about any skill set that you are looking for.
If you have a web design business or an e-commerce business, hiring someone on the other side of the world is not an issue. However, hiring a freelancer will do little good if you need manual labor done at your fulfillment center or someone to file papers for you. If you need boots on the ground in order to perform the tasks at hand, it may be worth looking to temp agencies. This way, you can test out an employee before onboarding him or her as a full-time salaried employee.
- Don’t be afraid to turn away business
A temptation that many startups fall into is trying to scale up the demand for their business. While this certainly can work, there are numerous counts of employees not being properly trained or owners taking out huge loans. Unfortunately, this will often lead to a poor quality of work, which can cause a slowdown in sales as business expenses increase. This is a recipe for disaster and the primary reason why the majority of businesses that survive year one and two in business will fail before they reach year five.
It is painful to turn down business, but the fact is that your new employees do not know your business as well as you do and will need to be trained. You’ll need to set boundaries for how and when work should be completed for the first three to six months of employment for each employee or freelancer to ensure that the work is done properly.
- Utilize crowdfunding
Until crowdfunding came about, the only way to get the capital necessary to run your business was to either take out a loan from the bank or get investments from friends and family. Many entrepreneurs did not have the friends and family that are capable of investing, or, they simply did not want to approach them to ask for fear that they would not be able to deliver on the investment. While the low interest rates that banks promise are enticing, most bank loans come with personal guarantees. This means that if your business fails to service the debt, your bank will seize your personal assets and liquidate them in order to get their principal back.
While some business owners may be weary, crowdfunding platforms have evolved over the past decade. There are now ways for startups to grow with equity or debt investments from members of their own community. In these scenarios, it is much easier to find terms that work for all parties involved and you won’t feel as though your back is up against the wall or your family home is at risk.
Becoming a shareholder
As you already know, you can’t grow the business alone. You’ll need to reinvest some of your profit into hiring some freelancers or employees. While you’ll still need to monitor and train your workers, it is important to get comfortable delegating work to them and letting them do their job. This will allow you to minimize mistakes as you grow. Your role as company owner should be oversight and strategy of the company, not to carry out every day-to-day task within it. If you are working in your business, you aren’t working on it.
By utilizing freelancers or temporary hires, turning away business if you don’t have the capacity to serve customers properly and by either slowly reinvesting profit into your business or utilizing crowdfunding, you’ll be able to grow your business in a sustainable way.
Cashing in on the organization that you’ve built
Throughout your entrepreneurial journey, you’ve no doubt seen how difficult and how rewarding it is to become your own boss. What many successful business owners don’t know is that there are investors and aspiring business owners that would love to own a piece of (or all of) the business that you’ve built. Once you have scaled your business to the point where it has predictable recurring cash flows, you’ll likely have the option of selling it.
For owners of online businesses, there are a number of small investment funds that buy businesses, as well as career changers that are seeking the opportunity to work from home and have a stable income by purchasing an existing business. Many aspiring entrepreneurs also have the ability to buy quality small businesses by utilizing the favorable lending terms provided by the SBA lending program.
In addition to career changers that utilize the SBA lending process, there are small investment companies and funds that have the ability to compensate business owners for what they’ve built. Some firms will focus solely on specific industries, while others are industry agnostic but focus on a certain geographic area or business size. Either way, you have options for cashing in on your hard work.
Originally published Sept. 29, 2020.