How to know when to scale a start-up up or down

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The fact that 70 per cent of start-ups struggle with scalability is proof that knowing when to scale a business up or down is a hard decision. If done accurately, scaling a business can lead to significant growth and profits, but if it isn’t done correctly it’s a move that can lead to the demise of any brand.

Through my years of experience with building start-ups into successful companies, my tips to knowing when to scale a small business up or down are:

  • Establish the brand’s potential by trying a range of tactics, and then invest heavily in those that pay off. As a small company, trying various sales and marketing activities is an effective way of knowing where you should focus your money and energy on, and if there is room to grow. For example, put a small portion of funds into Ad Words, SEO, and promotions, and then at the end of the trial period assess which converted the most sales and then invest a more significant amount into that approach. This is a great way to know what will work, without risking too much money. If all tactics work then it’s time to scale, and if they don’t, then it’s worth reconsidering whether the company is prepared enough yet.
  • Trust the numbers. The saying “numbers don’t lie” is definitely true in business. Too often business owners get emotionally attached to their decisions and hire someone on a whim even though it might not be economically viable. Don’t base the decision to scale up or down on feelings, instead spend the time assessing overheads and cashflow, and base your decision strictly on the numbers at hand.
  • Count your loyal customers. It’s all well and good to have a large number of one off sales, but how many of them come back? In the early days of a business, consumers are often interested in giving new businesses a chance, but if they aren’t satisfied with the service they won’t be back. Having a high number of loyal customers is a sign that your business is ready for growth, and if you don’t – you aren’t ready for scaling up yet.

Steve Orenstein, CEO, Zoom2U