In economics, an economy of scale allows companies to lower costs by increasing their production. The idea behind scaling up is fairly simple. All you have to do is think back to the last time you made dinner for a bunch of people to see how it works.
When you make a dinner for 30 people, you save money by buying in bulk. The average amount of time you spend preparing one meal is lower because you are making 30 meals at once. If you were to make the same meal for just yourself, the time and money costs would be higher.
For a business, the same idea comes into play. When you scale up your business, you can reduce your labor costs, equipment expenses, and materials costs per unit. If you can increase your company’s production, you can lower the number of inputs you need to produce each unit you sell to clients.
What Does It Mean to Scale a Business?
Scaling up a business is all about growing and expanding a company to achieve a higher profit. Many kinds of systems have scalability characteristics such as financial markets, corporations, or entire industries.
When a system scales well, it means it is able to boost efficiency or performance as it increases operations. Basically, this means you are able to increase your profit margins as you increase your sales volume. On the other hand, if your profit margins decline as you boost your sales volume, your company isn’t scaling well.
The important question is how do you scale up effectively? If your company isn’t growing, it can’t gain a larger market share, increase profits, or drive competitors from the industry. Thanks to new technology, it is becoming easier than ever to scale up quickly.
Things like custom acquisition and marketing are easier to increase quickly because of modern apps and other technological advances. But in the end, it is the structure of the business which determines whether scalability is possible. For the business to be scalable, it must design its processes to encourage a more efficient operation.
Best Practices for Scaling Your Business
Other than avoiding common mistakes, there are a few things you can do to make scaling your company a bit easier. By planning in advance and building your team, you can make this process simpler and more successful.
One of the first things you should do is get the right managers in place. Your management team will train and manage all of your other employees, so they need to know what they’re doing. Spend extra time hiring and training the right managers and key players.
Next, decide on your core competence and what your business is all about. Sometimes, companies try to do too many things as they grow and stray from their core mission or vision. For your brand to succeed, you must identify and focus on your core competencies.
Your managers, core values, and other factors all play a role in your competitive strength. As your company grows, you should focus on what gives you a competitive edge. This advantage is what will determine your future success or failure.
For some companies, a competitive edge is developed by creating partnerships and collaborations with other companies. These collaborators may be service providers, suppliers, or sales channel partners. Whether you collaborate with distributors for lower transportation costs or customers for word-of-mouth sales, these groups can make growing your company even easier.
If you want to simplify your company’s growth, standardize every process possible. From managing administrative tasks on project management platforms like Teamweek to requiring a set training process, you’ll want every part of your operations to be consistent. When a process is standardized, it can be delegated, copied, and easily repeated by your personnel.
Common Mistakes to Avoid When Scaling Up Your Business
While each business is different, there are a few common mistakes companies make when they start scaling up. Smart business owners plan in advance for company growth and know how to avoid these common pitfalls. Before you take your organization to the next level, check to see if your company will actually be able to handle the sudden growth.
1. Poor Planning Systems
When a business goes from a small organization to a large corporation, there are a few things which naturally have to change. If you are running a five-person company, you probably know exactly what each team member is doing at any given moment in time. Whenever you start a new project, each person already knows exactly what their responsibilities are.
This drastically changes when you begin to grow. You might be able to oversee 5, 10, or even 20 people individually, but no one can mentally manage 200 team members without some help. If you want all of your planning and administrative work to get done, you need to have a solid system in place.
With the right management techniques or platform, you can keep tasks from slipping through cracks in your system. Decades ago, managers had to use spreadsheets or bulletin boards to relay messages and manage employees. Now, you can enjoy easier management options through online platforms like Toggl Plan.
As an online platform to simplify managing your organization, Toggl Plan offers an easy-to-use system for planning both large and small projects. Thanks to the intuitive design, Toggl Plan is an easy program for people to learn how to use.
When you incorporate this platform into your processes, you can easily get everyone on the platform and assign them tasks. Then, you can monitor the status of each individual task and see if it will be done by the set deadline. Toggl Plan helps you delegate each role and meet your project scopes no matter how large your company becomes.
2. Misunderstanding Your Workload
When it comes to running a successful business, having too many employees is just as bad as having too few. Every manager should be aware of how important it is to have the right number of workers to be the most efficient. While a lack of employees will make finishing projects on time even harder, having too many employees means you are wasting resources on training and labor costs.
The main reason many managers don’t understand the proper number of employees is because they don’t understand their workload. If you have no clue how many clients you will take on in the next three or more months, it’s nearly impossible to prepare for them by hiring or firing workers.
If you’re unable to take on additional clients, you won’t be able to grow your revenue and achieve a new level of profitability. Your revenue will grind to a halt until you learn how much work your team can safely handle at its current capacity.
But the opposite problem also happens. Some managers take on too many clients because they think their team can handle it. But this often leads people to become overworked and to miss important deadlines.
Thankfully, there are simple ways to prioritize tasks and keep track of a company’s long-term plans. Toggl Plan helps managers instantly check on their team to see how busy each person is. With this information, the manager can decide if they are able to take on more work or if it should be passed on to someone else.
The Toggl Plan platform also makes it easier for team members to see what projects they have coming up in the near future. They know what tasks they will have to finish and how to optimize their schedule. Ultimately, all of these tools make it possible for companies to become more efficient as they optimize their schedule and boost their marginal revenue.
3. Inefficient Hiring Processes
Another one of the most common scalability mistakes involves hiring new employees. Managers must know when to hire in order to train employees on time. If managers don’t understand how much work they have ahead of them, they won’t be able to plan for it.
If a manager hires too soon, they spend money on unnecessary labor costs and may even have to let these new employees go before they can get started. But when managers hire people too late, they end up overworking their other employees because the new hires are still being trained. To move through the project without a hitch, the manager needs to know the exact number of people they should hire and when to hire them.
You want to boost your company’s growth, so you need to know when to hire and when new work will appear in your pipeline. Toggl Plan helps you get the answers you need. With Toggl Plan, you can use their weekly, monthly, and annual overview features to see which projects are coming up and how many employees you will need to complete them.
Planning things out on a visual timeline allows you to know what you’ll need in a set timeframe, whether it’s a social media specialist in another two months or a video editor by next month. When companies can plan in advance, they’re able to be proactive instead of reactive. This entirely different approach makes scalability and growth possible.
Are You Ready to Start Scaling Up Your Business?
By scaling up, you can take your company to the next level. Once you’re operating at an economy of scale, you can lower your company’s costs while also boosting your overall revenue. But for this to work, you have to avoid common mistakes like the ones mentioned above as you scale your business.
Most errors can be avoided through advanced planning. By knowing the number of employees needed and upcoming projects, managers can make the right decision about hiring. In addition, the right administrative systems make it easier to manage a larger number of employees as the business grows.
Thankfully, scalability is easier than ever through the latest technologies. With platforms like Toggl Plan, managers and entrepreneurs can easily handle the next stage of their company’s growth.