For a business to be ready to scale, there are three stages involved (How to prepare for scaling of a business is stage two):
1) Search for product market fit
2) Search for repeatable and scalable infrastructure (preparing to scale)
3) Scaling the business.
Stage 1 and 2 require the business to conserve cash while stage 3 involves investing aggressively.
We will focus on stage two, preparing to scale. Achieving product market fit under stage one can be very traumatizing to the workforce, and, of course, most entrepreneurs would like to achieve product market fit. Be careful what you hope for.
Scaling a business and hitting product market fit is not for the faint of heart, it’s a lot more work, and you’re under heavy enemy fire. It is a very complex situation, and that is why a lot of people don’t make it through.
Stage two is typically when you’ve hit product market fit. Now we want to add gas, get ready to scale. It is about preparation to scale. You can actually do this in stage one, and you should be thinking this way. Here are the things that we want to think about in how to prepare for scaling of a business:
Think Whole Product Solution
You first need to think about the whole product solution. Remember, the mainstream market doesn’t want a piece of it, they want the end-to-end solution. You need to be thinking, what is the end-to-end solution that the mainstream market would be interested in?
Prepare infrastructure to scale
Second, you need to prepare your infrastructure to scale. There are a number of things to look at here, people, production, platforms, processes and sales model. I will touch on each one of these one at a time.
How to prepare for scaling of a business involves growing the capacity of the business infrastructure. We are going to look at scalable infrastructure.
The first thing I want you to do though is I want you to shift your mindset to think what I would have to do to function if I am to achieve 10x growth next year. Not 100% but 1,000% growth because when you hit product market fit, you’re going to go through the roof. If you don’t think like this, you are not going to be close to prepared.
You got to be thinking at least 10x growth. You want a mindset that if I just explode in growth, what do I need in place?
Let us start with dealing with people, which is the most difficult piece of this equation. Getting A level players is not simple, and they only make up about 5% to 10% of the population. You have got to look for them a long time ahead of when you need them.
I recommend that you put together a staffing plan. What skills do you need and when? Put in place a staffing pipeline. Who will you hire when you’re able to hire and then go find A level players that meet that need and start courting them 6, 12 months ahead of when you’re going to hire because when you need them, you’re not going to find them.
Why? This is because A level players never have a problem getting a job, they’re not unemployed, you don’t find them waiting for somebody to hire them. You almost have to court them into your organization. Prepare a staffing plan and staffing pipeline. Think 10x growth and when you are going to need those people.
Some scaling of production can take a long period of time. Can you actually 10x scale your production if you grew out the roof right now? Whether it is a product or a service, that, of course, if it’s a service, we are back to people again, but if it’s a product, the manufacturers that you’re working with, what are you going to have to go through for 10x scaling? Think about that with production.
When it comes to your platforms, what platforms do you use? Can they handle the growth? Can they handle the speed? Can they handle the traffic? Whether it’s a virtual platform or a physical real world platform? Can the platform handle 10x growth? What kind of stuff do you need now to get ready for that?
When you start scaling, one of the most critical issues is standardizing your processes. Customized processes are not scalable. If you go to another location, if you go to a different product, everything that you do you want to try to standardize the processes because then they’re rapidly scalable. That’s one of the reasons why franchise models work great. They take all the processes and standardize them.
That doesn’t mean that the franchise doesn’t have to go through customer intimacy and primary market research in the environment in which they’re trying to sell the product, but the process issue is taken care of.
There is a lot more to getting ready to scale than just the sales model, but the sales model is a critical component. Do you have a scalable, predictable sales model? That means if I’m pulling people into the top of the funnel, and they’re finding you, can I accurately predict what’s going to come out the bottom?
How many closures? Can I predict the conversion rates at each stage of the funnel? You should be able to zero those in to where they’re predictable. Do you have predictable and scalable sales? Do you have other networks and markets that you can go through because you’re going to saturate the markets that you’re in? Do you have other readily available markets to keep expanding your sales?
These are all the things that you should be thinking about before you get to product market fit because you’re going to have to deal with these in the middle of the tornado while you’re being shot at from the mainstream if you don’t do them ahead of time. The good news is you can minimize the trauma of hitting Product Market Fit. Be able to more smoothly navigate that period, even though it’s very difficult if you prepare infrastructure ahead of time, even in stage one.
Other things to think about are
Acquire funding to outrace competition and fast followers.
You are going to scale to the mainstream market. Remember, mainstream markets are watching you come across going, oh, here’s the new innovative solution, and it’s making money, let’s just take some research & development money and outrace them. If you’re going to race the mainstream, you’re going to want funding to race, there’s only a couple of times you ever need funding.
o If you got demand for your product that so high that you can’t cash-flow your revenue, to build the company fast enough.
o You are racing across the chasm to the mainstream.
Life Time Value (LTV) should be 3-5x of your Cost of Customer Acquisition (COCA), COCA recoverable in 12-18 months.
Then at this point, your LTV to coca ratio should be in that 3 to 5x range and your cost of customer acquisition, COCA should be recoverable in about 18 months.
Maintain Low Burn Rate
Even in stage two, you’re trying to maintain a low burn rate. You are trying to do all this while you are pinching pennies and really controlling that burn rate because you’re not scaling yet. You’re getting ready to scale, and you want to be very efficient, very effective in the use of your resources in managing your burn-flow rate.
Your focus in Stage Two is scalable infrastructure and then managing your burn rate very closely. You may want to do this in stage one.
How to prepare for scaling of a business involves having a staffing plan and pipeline and the fact that you can 10x your production, platforms and have a scalable, predictable sales model. You may also need to acquire funds to outrace competition and fast followers.