Taking your business to the next level requires judicious deployment of capital and human resources even as putting systems and processes in place is a must.

Presuming that you are now ready to celebrate three years of your start-up and have a proven business model supported by regular cash-flows and stable revenue cycles, it could be time to take your business to the next level.

Often, during the first three years of your journey as an entrepreneur, you might have felt tempted to grow fast in terms of revenue, acquire more customers and hire more people. These are scaling up pangs when you think that you can do more than what you are already doing. Just like you worked on your idea to give it a shape before starting up, you have got to similarly sit down and plan as to how you would grow your business.

Scaling up is all about entering the new league, where your competition could be bigger and tougher in the form of businesses that are well established, have well-known brands, and have deeper pockets to spend on marketing. It would also mean that you are ready to bid for that big order from your prospective customer and yet deliver within the given time-frame and with better quality. You could aspire to take your company public eventually and make that mark as a large corporate organization in the world of business. Scaling up means a lot of responsibilities, yet decentralization of power, as you bring in trained professionals to run your enterprise and give them charge to function and deliver fairly independently.

This also involves putting in place systems and processes that would work despite your presence. No business can scale smoothly and swiftly in the absence of set processes. For instance, say, you run a soap manufacturing unit, and want to grow your distribution network to Chennai. It would involve keeping track of the inventory. You would want to use a system to be able to keep track that would inform you well in advance if the inventory is nearing its finish. Thus you have got to plan well in advance so that your supply chain is well in order and complements your desire to scale.

As an entrepreneur, you must ponder on some quick questions: Is my business scalable? If yes, to what extent do I want to grow my business; what will be the roadmap for that growth; and will I be able to manage that growth.

Limitations to scale
It is great that you want to take your business to the next level, but it is important to assess if your business is scalable at all, and even if it is, what is it that comes in the way of your growth strategy. "There are certain businesses that won’t be scalable by definition," says Kartik Varma, Co-founder, iTrust, a financial advisory firm. He cites the example of a heart surgeon. "Can he scale? No. Because it is a one-man shop. He cannot perform more than two or five surgeries a day," he adds. But a hospital where he operates can perform 100 procedures a day. So there are certain businesses that would not scale, no matter what.

Similarly, if one has a very niche idea, there is a chance of limitation to which it can scale as a business proposition. "But if you have got an idea that can get mass adoption, then it can scale to whatever extent. Is the market for ultra-high luxury homes scalable or the low-cost homes?" So the concept has to be scalable, he adds.

Sometimes going alone is not a great idea when you are thinking of taking your business to the next level. You may have to piggyback on a bigger player to extend your reach. For instance, if you are into the publishing business but don’t have the circulation numbers, you may want to tie-up with a bigger player to get a reach. This way you are able to slowly increase your subscribers and convince the advertisers that your magazine has a greater reach. "Certain businesses are more scalable when you plug them into the existing portfolio of businesses."

How to scale up?
A number of questions will automatically start popping up in your mind at the time you start thinking of scaling up your business. These would vary from where to expand, in your own city, state or region or country or whether to go global. The other question would be about the products or service offerings: should you increase the services that are on offer or should you try and innovate on the existing products or services portfolio. Either way, you will have to device a strategy that would stand the test of time.

Some entrepreneurs believe that growing inorganically by acquiring a smaller business or the one with a matching product line would be a quick way of reaching to the next level. That would require due diligence in terms of assessing the target and then roping in investment bankers to broker the deal. A bad acquisition could push you back by many years. But nonetheless, acquiring a company would require capital that could come from internal accruals or as a loan.

In many cases, tying up with a bigger player can make things easy. It could be in the form of a joint venture agreement or a merger. If you merge with a larger player, it would involve losing your control over your company to some extent, but you would still see it grow. In some cases, you would be giving up a part of the equity in your company to an investor, such as a venture capitalist or a private equity to get in the much-needed growth capital. While you run your company and take it on a growth path, the investor would give inputs when you need to grow big. After about 5-7 years, the investor would exit.

Whatever the case may be, scaling up requires capital, human resources and systems and processes in place to help you take the big leap. Here we look at the three aspects:

Capital
Scaling up increases the demand for more money to be infused into the business. This money is needed to build in new capacities or launch new services and also to utilize and maintain fresh capacities. "The quantum of investments required to create capacity will be determined by the nature of the capacity-building process—whether it is incremental or in quantum lumps. This will also be influenced by the mode of capacity addition—whether organic, through a green field initiative, or inorganic, by acquiring an existing capacity from the market," says K Kumar, Professor, IIM-Bangalore. "There are certain businesses where you have to put in new capacities every time to scale," says Varma. "For instance, a steel plant. If you have to manufacture more steel, you have to set up a new plant," he adds. Similarly, in the case of a restaurant, if you want to scale, you will have to open a new branch to be able to accommodate new customers.

"The requirement of working capital will be influenced by whether the capacity creation leads market demand (in which case it will be more due to the longer lead time involved in demand maturing) or lags it (in which case it will be less as there will be pent up demand waiting to be satisfied)," adds Kumar. Depending upon the requirement of this capital, you would want to tap into the available sources of funding. The capital does not necessarily have to come from a single source. For instance, you may request your friends and family to lend some, while for a bigger chunk of money you may approach a bank. "The capital can also come from various sources—internal generation, outside equity—either from public or private sources—or debt," says Kumar.

But each of these sources has advantages and disadvantages. "While depending only on internally generated funds can limit the extent of scaling by tying it to the funds available, raising capital from external sources will impact the ‘freedom’ of the entrepreneur in some way or the other," adds Kumar. Thus one has to clearly understand the implications of raising capital for various sources. For instance, banks would give growth capital at a certain interest rate but would demand collateral, while a venture capital firm would seek equity into the company while lending money.

People
Not matter how great an idea, it is the people who make it or break it. People within an organization are the most important when it comes to scaling. It is eventually people who would drive the growth or share the failure. Thus while planning to scale up your business, try and get the right people in the organization. Even if you manage to scale you would not be not be able to sustain it for too long if you don’t have the right people at the helm of affairs. It becomes necessary to focus on the right skills and experience.

"Getting people per se may not be real challenge—often the excitement of growth can be skillfully projected to attract the right talent," says Kumar. Agrees Jay Desai, Founder, Universal Consulting. "For a services company, the big issue is that of people. The difficulty is not in finding the right people but taking them up the learning curve, delegating responsibilities to them and giving them the skills to manage different tasks that contribute to the growth of the business," he says.

"The essence of the people related challenge lies in the entrepreneur developing the ability to let go—delegate—and redefine their own role in the company as a leader rather than (continuing to be) a foot soldier. Related to this challenge is that of integrating the new team with the old, without getting blinded by emotional and non-business considerations," adds Kumar.

Organization
No matter how much amount of money you put into the business and how bright the people you hire, if you do not put the right systems and processes in place, your effort to scale up will go waste. Therefore, the organizational structure and processes should be in sync with your strategy to grow. It is quite a challenge but also the most interesting part of doing business. After all, it is your business and you would want to see it on the fast track.

"Delegation without a supporting organizational structure and processes can be suicidal, and here lies the biggest challenge for the entrepreneur as she tries to scale up," says Kumar. Processes reduce the chances of confusion, and would help the employees work as a team towards the desired goals. Processes are aimed at perfection, be it about the quality of the products or services, or the training of employees or customer handling. This has to be a top-down approach within an organization. The values and ethics that flow from the top determine how other employees would perform. "Paradoxical as it may sound, the same factors that foster the need for formalized organizational structure and systems will not allow the entrepreneur to take time off to build them," says Kumar. The entrepreneur has to build the organization even as she is scaling up, he adds.

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Hiring Right Talent
written by Rashmi Priya, March 10, 2010

I fully agree that all the thee Capital, People and Organization are important if we think of scaling our business. Most important is people. Its very difficult to get right people to do the job with a far sighted vision.

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