8 key takeaways we can learn from companies before scaling up
If you take a look around you, there is plenty to learn from companies who have succeeded or flopped. Giants like Starbucks and Coke, and startups that have made it big like Grab, all provide critical learning points for every entrepreneur.
That pivotal point for every business resides in the moment you decide to scale up. Before you do, you need to ask yourself if you have the foundation to do so because scaling up at the wrong time might be detrimental to your company's future. Here are 8 key takeaways from companies from all around the globe who have scaled up or at least tried to.
1. Do Not Commoditise Your Product
If you believe that your product is a commodity and not a unique and special offering to your customers, profit margins will be wafer-thin and each sale will be difficult to achieve.
On the other hand if you can make yourself indispensable to customers, the industry you serve and the community, higher profitability and growing business volumes are assured.
Coffee was a commodity until Starbucks replaced the 50 cent cup with a product which was ten times the cost. The company also had a ‘cheaper’ option at $2, which was four times the cost of what others were offering.
If you think consumer products are easier to de-commoditize compared to industrial or high-tech products, think of the microprocessors manufactured by Intel and AMD. The former is more expensive but routinely outsells the latter.
2. Mission And Vision Statements Are More Important Than You Think
A majority of companies spend a lot of time thinking up their mission and vision statements and proudly put them up on the wall yet promptly forgets about them. If you ask the average employee what his or her organisation’s mission and vision statements are, it most probably would not be accurate.
Both statements ought to be simple and relatable. How do you test if it is a good vision statement or mission? If you can explain it fairly simply to a friend outside of the company, and actually believe the words you are spouting, then that statement is a good start.
Amazon’s vision statement is a good example: “Our vision is to be earth’s most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online.”
Your mission statement should be able to establish a connection with each of your employees.
Consider the motto of The Ritz-Carlton, a chain of luxury hotels: “We are ladies and gentlemen serving ladies and gentlemen”.
These statement are unambiguous and impossible to forget. Now think of some of the convoluted mission and vision statements you have seen. If you want to be successful at scaling up your business, it will be much easier to do so if your employees believe what company stands for.
3. Find Something That Your Customers Love But Your Competitors Hate To Do
Getting a new client is much more difficult than retaining an existing one and the best way to get repeat business is to provide quality customer service that is unforgettable.
Every company knows the impact of a good customer service but few are able to do that, what more build an emotional connection with their customers. The rule of thumb is to understand what makes your customers tick within the industry you are operating in.
Google’s mantra: “Focus on the user and all else will follow”, seems simple enough yet hard to do. This is because a company gets bogged down by its internal processes, stakeholders, and other deliverables that need to be met, which will ultimately cloud the needs and wants of their customers.
Back then, when Google was choosing a blue shade for its toolbar, it tested 41 different shades before settling after understanding which is most ideal for the end-user. It takes time and effort but not many companies are willing to put in the work as they might be short-sighted in their goals.
4. Build On Your Competencies
First, you need to identify the traits that make your company unique. This is harder than you think because it should apply across your business and not only to a single product line.
The test of whether that trait is a core competency is if it is hard for others to develop and/or replicate.
Consider Nike, a sports shoe and apparel maker. With stiff competitors selling similar products, the company knew that it needed to be at the forefront of the industry. How did they do that? They branched out into tech and data; using these tools to help athletes all around the world achieve their personal best. Today, they're the creators of a number of proprietary product lines such as the React foam and the FuelBand, which was the first few wearables introduced to the world.
Similarly, Netflix was known as a company that specialised in content delivery. There weren't the only ones. But they pulled away from the crowd by creating original content - something no other content company were doing; at least not on a large scale like Netflix. Since then, Netflix has been producing award-winning shows and isn't showing any signs of stopping.
Once you have identified your core competence, it is important to enhance your capabilities in your chosen area so that you don't lose your advantage.
5. Your Branding Is Everything. Build It Strong.
For an entrepreneur just starting his business, sales is important. When the revenue stream is between 0 to $1 million, it is essential to devote all your energy to this aspect of the venture.
But when the company moves to the next level of $1 to $10 million, the brand assumes great importance. Strong brands regularly command a premium and customers are willingly to pay for the brand even if many others are selling the same product.
Take Apple for instance. Simon Sinek, the author of best-selling book 'Start With Why", puts their success into perspective. He explains: "People don't buy what you do. They buy why you do it." Apple is a status symbol that happens to make great products to better your everyday life. Essentially, we don't buy into an Apple product, what we're really buying is the brand Apple.
6. Scaling Up Requires The Right People And Processes
Every large company has detailed internal processes in place. It is not possible for a company to scale up its operations unless it follows a practice of standardising the way it responds to everyday matters.
But it is equally important to have the correct people in place to manage the additional responsibilities when the business grows. Companies should strive to recruit people who are a cultural fit but come from diverse backgrounds.
The best approach is to hire workers who complement the skills already existing within the organisation but are willing to adapt and grow with the company.
The recruitment process itself should get the attention it deserves. One of the most successful companies of all time, Google, is famous for being extremely selective. Of the 2 million applications it receives every year, it recruits only an estimated 7,000.
7. Managing Cash Is Critical To Your Success
For any company, the cash conversion cycle has four stages. These are inventory, sales, billing, and accounts receivable. You need to identify which stages you can influence and what the are processes for each stage. Shortening the duration for any of these stages might help with cash flow so it is essential to really look at what is amenable.
Many small businesses pay extremely high rates of interest for working capital. It is important to calculate the cost you are incurring because of delayed payment from customers and work out if the transaction gives you a net gain or a loss.
8. Hierarchy of revenue
A new enterprise needs to increase sales as fast as it can else, it will not be able to cover its overheads and survive in the medium term.
Unfortunately, in the hurry to generate business volume and revenue, many companies do not realise that a new customer does not necessarily add to their profits and/or cash balance.
It is important for companies to analyse their sales to discover if they have customers who take up too much of their time without proportionate returns.
American company Homejoy, which is now bankrupt, made this very mistake. The company provided home cleaning services at $85 for every 2.5 hours. In a bid to grow its customer base, it ran a promotion for the service at $19.
The reason it flopped? They had a hard time getting and retaining repeat customers because no one would book a session for $85 (original price) after using their services for $19.
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