How to Scale a Startup Successfully? Three Outstanding Financial Considerations

If you are reading this article, it is very likely that you are interested in scaling your startup as soon as possible.

That’s right. Many startups focus on growth earlier than they should, but not you. In order to scale a startup, you have clearly identified and validated a problem and your solution and have a product-market fit as explained in this blog post.

To scale your company, you need to think outside of the box and make some hard decisions. Some teams will resist these changes more than others and that’s okay because many of these decisions are difficult anyway.

In this article, we talk about the three main considerations that will help you scale your company successfully.

What is growth? What is scaling?

As your startup grows, your team has to get ready to scale. Business growth is the process of increasing the output (another key measure) of the company (source). Mostly, growth refers to the number of customers, revenue, profit, or number of employees.

As a founder, you have to start to plan how you are going to increase your company’s capacity as your business grows.

Scaling your company involves growing your team, finding new customers, upgrading your technology, and reaching a more mature stage in your business rapidly (source).

In the early days of your startup, you might have been able to get by with a much smaller team. However, as your company starts to take off, you will have to increase the pace of your growth.

As we explain in this post in more details, the growth rate you are seeking massively influence the amount of capital and the valuation of the startup.

From an operational perspective, scaling is about growing the size of your team and organization. From a business perspective, scaling is about growing the size of your customer base, revenue, and market share.

Companies that have scaled successfully have been able to increase their revenue from $1 million to $10 million to $100 million.

Below we will discuss 3 key considerations of scaling your startup.

1. Have a Good Estimate

To scale a startup, you should have an estimate of how much it will cost. When you are planning to scale, you will have to make costs calculation with some contingencies.

You can’t simply grow the business without a plan. Successful scaling is all about understanding the scope of growth and budgeting accordingly. Nobody wants to spend money needlessly or with no business purpose.

If you can’t account for each expense, you could find yourself in serious financial difficulty as your business grows at a faster rate than you can manage.

There are many ways to estimate how much it will cost to scale a startup. You can look at the cost of your current operations, estimate at the growth rate of your business, or look at data from similar companies in your sector.

Once you know how much it will cost to scale your company, you can choose how you want to increase the costs. You can choose to increase your costs incrementally or all at once.

When companies increase customers and revenue exponentially, costs should only increase incrementally (if at all). For example, Google is a great example of founders defining growth versus scale for their company and keeping it. Alphabet’s crown jewel has solidified an operating philosophy that has allowed it to continually add customers (either paying business clients or ad-supported free users) while keeping costs at a minimum.

Companies that incrementally increase the cost of their products or services are less likely to experience a decline in revenue once they have scaled.

2. Plan your funding strategy carefully

Once you have an estimate for scaling your company, you need to plan your funding strategy carefully in order to scale a startup.

If you don’t have a funding plan in place, you could find yourself in serious trouble as your company scales. It is important to understand that your funding plan is the blueprint for how you are going to raise money in the future.

Funding strategy can help you to prepare in advance because fundraising can take quite some time (between 3 to 6 months typically). You can prepare a business plan (or an investor’s deck) which is a basis for consideration by many investors.

The business plan provides much more details than a pitch deck on financial projections, current estate of the startup, etc. that is vital for investors to know before moving forward.

There are many things to consider when planning your funding strategy as explained in this post such as your investors’ network, willingness to take risks, equity stake offered to investors, operational costs, hiring new employees, etc.

3. Define the right metrics for your startup

Once you have decided to scale your business and defined milestones and fundraising strategies, you will be able to focus on your metrics more carefully.

The right business metrics will help you to understand how your business is performing. Understanding your business metrics will allow you to make decisions that will help you to scale a startup successfully.

The right metrics for your business will depend on your specific industry and product or service. If you are in the tech industry and you are operating in a digital market, some of the metrics you should be looking at include the following:

– Customer retention rate: How long do your customers stay with your company? Do they churn, or do they stay with your company?

– Net new customer: How many new customers have signed up for your product or service in the past month, for example?

– Revenue: What is the total revenue generated by your product or service in the past month and how has it grown monthly?

– Cost per customer: What is the total cost of acquiring a new customer?

– Cost per customer retention: What is the average time that customers stay with your company?

Defining clear measures that would fit your business is a major advantage to measure growth and success.

Wrapping Up: Is It Time To Scale Your Startup Yet?

As you can see, scaling your company is not so easy. Successful scaling is all about understanding the scope of growth and budgeting accordingly. Nobody wants to spend money needlessly or with no business purpose.

If you can’t account for each expense, you could find yourself in serious financial difficulty as your business scales. There are many ways to estimate how much it will cost to scale your company.

You can look at the cost of your current operations, estimate at the growth rate of your business, or look at data from similar companies in your sector. Once you have an estimate for scaling your company, you need to plan your funding strategy carefully.

It’s important to understand that your funding plan is the blueprint for how you are going to raise money in the future. You need to have a funding plan so that you don’t make mistakes along the way.

Once you have scaled your business, you need to reinvest in growth. Successful scaling involves a healthy dose of reinvestment.