Scaling a Business
What does it mean to Scale a business?
If scaling a business is important, why isn’t this taught?
This article starts out with two good questions that are asked thousands of times each day by business owners looking for answers to fundamental business issues regarding sustainability and growth.
Absent answers, it is likely that current business practices will be repeated ad infinitum until the business collapses. There are alternatives to business collapse, and scaling your business is one of the most rewarding and financially-sound practices to incorporate in your business’s development.
Scaling in this case refers to intentionally building your business to be a fun, profitable endeavor that retains value over time.
Let’s start with a simple illustration. Business “A” has rent and expenses of $1000 / month to keep the doors open. To produce anything, whether it be a gadget, a retail sale, or a service sale, it costs $0.50 per item sold. What does it cost to produce and sell 1000 items each month and what is the resulting gross profit?
$1000 basic costs + (1000 units produced at $0.50) = $1500 expended for the 1000 units sold.
At a $3.00 sales price, the 1000 units bring in $3000 in sales revenue.
Subtracting the $1500 cost from the $3000 revenue results in a gross profit of $1500 for the month.
If Business “A” scales to 2000 units per month, assuming a more efficient use of basic resources, we have:
$1000 basic costs + (2000 units produced at $0.50) = $2000 expended for the 2000 units sold.
At a $3.00 sales price, the 2000 units bring in $6000 in sales revenue.
Subtracting the $2000 cost from the $6000 revenue results in a gross profit of $4000 for the month.
The result: A 33.34% cost increase from $1500 to $2000 results in a 267% profit increase from $1500 to $4000.
This illustrates the power of scaling a business to result in greater profitability. In this case, greater profitability can translate to a whole lot of options for enjoying the results of your labors as business owners.
If this illustration is valid as one method for scaling a business, and can increase the returns available to ownership, why isn’t this taught anywhere?
The answer to this question is that this is taught and the information is available to you if you are willing to learn. Not only are the concepts taught, but the accounting and the logic are presented and taught as well. It is important to not take any one incremental bit of knowledge gained as the complete answer, but to learn the fundamentals of business management, including scaling a business, in order to have the tools at the ready to deal with any of the challenges that you, as owner, face on a daily basis.
A good program should cover leveraging business finance, marketing, leadership and strategies for development, it should have examples of best practices, deal with HR and employee issues, and include strategic planning as scaling a business is an enterprise-wide endeavor. It would even be better if a business development program would alternate between classroom instruction and confidential advising so that the lessons learned in general could be applied to the specific issues faced every day to craft solutions.
The Southern Oregon University Small Business Development Center offers you a Small Business Management Class which is a ten-month business development course, built to help you understand your finances, how to market, assess risk, build staff and relationships, and how to scale your business to take advantage of the unique attributes you inherently have to create sustainability and wealth. The next cohort starts at the end of September and enrollment is open now. Space is limited and tuition remains at $599 until Fall Quarter starts when it will be raised for successive years cohorts. The investment is well worth the cost with all the features that are included in the package.
Please give the SOU SBDC a call or mail at: 541-552-8300 or firstname.lastname@example.org to enroll.
Marshall Doak is the Director of the Southern Oregon University Small Business Development Center and a huge supporter of innovation and the community that forms around innovation in the economy. In private practice, he works with businesses that plan to transition to new ownership within the next five years, assisting them to build value that can be converted to retirement income when the business sells. He can be reached through: email@example.com or 541-646-4126.