For most small enterprises, growing pains are unavoidable. Your company will outgrow its previous self at some point along your journey.
And you’ll soon be faced with some perplexing forks in the road, such as whether to:
• Expand your team by hiring new people, or remain small and nimble.
• Raise money or remain self-sufficient
• Stick to your specialization or branch out into other markets.
• Acquire or be purchased by other start-ups
When you’re confronted with a problem like this, don’t overlook your scaling options—and don’t allow the pressure of success ruin your company.
Fortunately, scaling up is typically referred to as a “growth concern.” It’s a chance for you to focus your issues in the proper direction and increase the influence of your company.
In this article, we’ll teach you how to expand your company properly, particularly if you’re a tech startup.
Before scaling, what should Tech firms think about?
To begin, it’s critical to understand the difference between growth and scaling.
There is a little distinction between the two, even though they may be used interchangeably.
When your company’s revenue increases in tandem with the addition of additional resources, such as assets, technology, labor, and product features, you’ve achieved growth. Consider a company that expands the size of its contact center to meet increased demand for its product.
Scaling is a kind of growth that lacks the additional flourishes. Companies “scale” when their income grows dramatically without having to spend a lot of money on extra resources, allowing them to increase profit margins while keeping expenses low. (This is why, in particular, entrepreneurs are concerned with efficiency.) The idea is to have a larger output while keeping the input to a minimum.)
Consider a rapidly expanding company that, rather of adding more people, automates a substantial portion of its customer support without increasing costs:
To be clear, we are not arguing that one is superior to the other. Growth and scaling are both viable options depending on your company’s eventual aim.
When you find out what’s best for your company, your team, and your customers, deciding whether to expand or scale becomes simpler.
There are a few more things to be aware of as a Tech-based firm before growing.
For example, you must ensure that your product and market fit is correct. Product-market fit refers to creating the correct product and selling it to the right target market (a match made in heaven).
It’s difficult to develop product-market fit at first, but recognizing when you’ve done so is simple. When you establish your product-market fit, your customer acquisition expenses plummet, and client retention becomes simple.
It’s a recipe for disaster to try to expand your firm without a product-market fit. Why bother growing if you haven’t previously confirmed the demand for your product?
Airware, a now-defunct drone company, is a cautionary tale about why scaling isn’t for everyone.
(Here’s a condensed summary of the story: Airware couldn’t find the appropriate product-market fit for their drones, despite receiving USD 118 million from prominent investors like Andreessen Horowitz.)
Another thing to think about is whether or not you have a reliable source of income. A constant stream of income confirms that your company has established product-market fit and is ready to grow.
This is particularly true if you’re considering soliciting investors to help finance your company’s expansion—a frequent scaling strategy. Most venture investors are looking for how predictable your sales engine is in a business they wish to invest in.
Investors, like risk-averse gamblers, want to put their money on firms that can show them the money. They will only invest in your business if you can demonstrate the financial health of your firm, the stability of your product, and the capacity to expand.
Scaling is probably not the greatest plan for you right now if your software firm is still working things out, hasn’t discovered its perfect market yet, or doesn’t have a consistent sales funnel.
4 suggestions for scaling a tech company
Here are four suggestions for growing a tech company. (See the corporate examples below for further information.)
1. Outsource, automate, and streamline
Scaling up entails getting rid of the extra baggage that has been holding you back. Consider all of the manual procedures that made sense when you had a 10-person team, the four-day approval period, or the communication overload that slows down your already-slow staff.
If you’re serious about scaling, you’ll have to get rid of them all.
So, what’s the solution? To increase your operational efficiency, you may automate, simplify, or outsource the redundancies. To put it another way, figure out what technologies can help you scale without jeopardizing your startup’s growth.
One of the simplest things you can do, for example, is to streamline the tools you use. Are you utilizing a different platform for video conferencing, file sharing, team messaging, and so on? Why not save money and your team’s precious time by utilizing fewer, more adaptable tools instead of many diverse technologies?
2. Put client retention at the top of your priority list.
As you’re just getting started, getting new customers is a no-brainer, but when you’re expanding up, your focus should be on client retention.
It makes sense to maintain customers since it lowers acquisition costs while increasing profits. Retention also fosters consumer loyalty and aids in the development of a reliable income stream.
Improved subscription renewal can help you compound your development if you’re a startup in the subscription-based SaaS (software as a service) business, for example.
However, how can you increase client retention? When you’re building a business, you need to be aware of what others are saying about your brand and when clients want assistance. But how can you maintain track of all of the discussions that are taking place across all of those various social media platforms?
3. Raise funds
Money sounds good to start-ups, particularly if it helps them move ahead and develop quickly.
Raising capital is a rapid approach to acquire top people, broaden your product’s capabilities, increase marketing and sales, and expand your global presence.
Obtaining seed cash from friends and family, seeking angel investors to invest in your firm, or taking out bank or credit card loans to support your development are all options for raising funding for your startup.
Just make sure you do your research before approaching investors for funding for your firm. Consider how much cash you want to raise, what you’ll do after you’ve raised the funds, and if you’re willing to relinquish control of your company when you ask investors to buy a piece of it.
4. Make wise hiring and firing decisions.
When expanding a software business, it’s a frequent misconception that you need to recruit slowly and terminate rapidly.
We advise you to ignore such counsel since it is based on a half-baked, contemptuous, and downright hazardous premise.
Scaling also entails hiring additional employees, cultivating a positive brand image, and creating a firm that contributes to the economy. You won’t be able to achieve those objectives if you terminate your staff based on the advice of a few Silicon Valley experts.
Instead, be as selective as possible in your recruiting, personnel management, and firing. Hire the best employees to avoid having to terminate them later.
Don’t recruit someone with the goal of firing them later. Keep in mind that your aim is to keep expenses down while generating profit, which means there is very little room for mistake.
3 examples of successful scale-ups in the IT industry
The examples below explain how you might employ out-of-the-box thinking to your firm while expanding a tech startup.
When Pinterest first debuted in March 2010 as a one-of-a-kind image-sharing network, few people were interested in what it had to offer.
Pinterest raised various rounds of investment in 2012, including a USD 100 million Series C round at a USD 1.5 billion valuation, a USD 225 million Series E round at a USD 3.8 billion valuation, and a USD 553 million Series G round at a USD 11 billion valuation:
Pinterest launched its initial public offering (IPO) in April 2019 at a USD 10 billion valuation, raking in millions of dollars for its founders, important stakeholders, and many of the early employees as a result of its quick development and popularity.
The firm is now valued at USD 26.19 billion on the stock market6 and has 335 million monthly active users worldwide.
The takeaway: Understanding your clients from the inside out is one of the keys to expanding your company. Pinterest’s desire to learn more about its power users aided them in developing the proper product features and using the correct growth channels (such as Facebook).
In a book he co-authored in 2018, LinkedIn co-founder Reid Hoffman invented the phrase “blitzscaling” to describe organizations that scale up “at a dizzying velocity that blasts rival out of the water.”
And if there’s one corporation that embodies blitzscaling to a tee, it’s Amazon.
After reading a forecast predicting that the internet will expand by 2,300 percent per year, Jeff Bezos resigned his full-time job to create Amazon in 1994.
Amazon has continued to use its “flywheel effect” to chart its trajectory as a giant “scaleup” from its modest beginnings as an online bookshop business.
Today, the corporation is valued at USD 1 trillion, boasts the world’s second-best paid membership program (after Netflix)10, and employs over 935,000 people globally.
The takeaway: Scaling is a never-ending process, and a major part of it is determined by the quality of hiring you make to help your firm develop.
Amazon is still thriving, due in large part to the high quality of individuals it recruits to drive its expansion.
Airbnb began as a knockoff of Craigslist, America’s favorite classified advertising website, in 2007 in San Francisco.
Because it danced to a different song of company development, Airbnb grew from a three-member bed-and-breakfast booking website to become the world’s biggest vacation rental marketplace.
In the same way that Pinterest’s founders went door to door in their early years to meet local house owners and persuade them to rent their homes as Airbnb hosts, Airbnb’s founders went door to door in their early years to meet local house owners and persuade them to rent their homes as Airbnb hosts.
This not only allowed them to better understand their target market, but it also provided them with information on how to enhance the product experience for potential consumers.
By 2016, Airbnb had amassed over 227,093 listings in 14 cities, with over 65,000 reservations in prominent European locations like Paris, thanks to its quick-thinking approach of fighting the competition as soon as it arrived.
The takeaway: There’s a lot to learn from Airbnb’s growth story. To begin, try things that don’t scale in order to have a better understanding of your user base.
Second, if it doesn’t violate business ethics or is a sensible and rapid approach to build your firm, don’t be afraid to ride on the coattails of your competitors.
Finally, when faced with competition, act quicker than your competitors to establish market domination.