Successful startups oftentimes think about scaling. If you’re already discussing doing it, then that means things are going great. But this decision shouldn’t be done lightly.
That’s because, in business, there exists a term called “premature scaling.” Premature scaling means you’re not ready to go down this path. But you’ve already done it, and now you’re in a serious situation.
Premature scaling is the cause for 74% of startup failures. To prevent that from happening, here are the 4 signs that will tell you when your startup is ready to scale.
You Have An Excellent Employee Base
Scaling is impossible without having the people to support it. And for the vast majority of startups, it’s even more important to have quality workers. So the first sign that will help tell you if your startup is ready to scale is your employees.
If your employees are happy, motivated, and eager to take on this challenge, then you’re ready. If you lack a quality work environment, then you should do something about that first. There are ways to create a culture where your employees will thrive.
The better your employees are at their job, the easier to take on the upcoming challenge. If your employees are passionate about this next step, then that puts your startup in a very good position.
You Have Quality Infrastructure
Scaling means growing. But to grow, you need to provide your startup with the infrastructure that will encourage growth. But what do we mean by infrastructure? In business, infrastructure is everything. From leadership down to your product or service, everything needs to be in order before you scale.
If you’re trying to solve problems as you’re trying to scale, you’ll only be putting yourself in a bad spot. When trying to scale, everything has to be in order. And to do that, you have to have the quality infrastructure in place.
Take care of any issues you might have beforehand and only then look to take your startup to the next level.
You Have Positive Cash Flow
There is a clear line of distinction between your startup making profits and generating cash flow. These two terms are known to every entrepreneur, and if you’re not familiar with them – how are you even in a position to scale in the first place?
Generating cash flow means your startup has money in the bank to work with. Profits, on the other hand, include payments that haven’t already gone through – or in other words, pending payments.
Scaling without a positive cash flow is a mistake to avoid making. But if clients aren’t paying, how do you generate more cash flow? To do that, consider the following. To maximize cash flow, you need to maximize how much money comes into your company and minimize the amount of money going out.
Since everyone has business expenses, a fraction of your profits goes into paying business expenses. So to generate more cash flow, you need to find a way to incentivize your clients into paying sooner, while delaying paying for business expenses yourself.
That way, you’ll have more money to work with. But there is a silver lining in this. If you delay too many expenses too long, you’ll drastically build up the amount of money owed. So, you need to be careful with how you manage your money and not fall into a trap.
With scaling come more costs and more expenses. So do take that into account as well.
You’re Can’t Handle New Clients
This is quite possibly the biggest sign that tells startups it’s time to scale. Once you start turning away new clients, you’re ready to hire more people and grow your business.
Many of you think that turning away clients is an impossible task. But sadly, it actually is. While you are losing out on potentially making more money, you simply cannot handle it.
If you have too much on your plate, you will have to compromise something. In most cases, you’ll sacrifice quality. If clients start noticing that you’re offering a lower quality product or service, they’ll end their contract and go elsewhere. And why is that happening? – because you’re taking in more work than you can handle.
When you start turning away clients, it’s time to scale the business.