Will my startup scale to meet growing demand?

This image by Ravi Roshan

Problems with scaling

Many small startups take pride in the personal touch and the intimate involvement of the owner in the day to day operation of the business. This pride is to be congratulated and is the reason that such firms are valued by customers over the grey impersonal engagement with large businesses. Ironically a strategic advantage achieved in small scale through the personality and care of the owner in the service engagement is one of the things that can be hard to scale as the business grows. It can be hard for the owner to stretch their engagement across multiple branches or larger scale operations. Edith Penrose (1959), the celebrated economist, was the first to observe that issues with the scalability of management capacity and capability can put the brakes on the growth of a business. The owner is a clear example, but this extends to other managers in small businesses as growth occurs. They may not have the time or skills to deal with the complexity of scale. It is not as simple as just employing more managers as they need to be familiar with the business and to appreciate the culture of service.

The scalability of technology and systems is another area that can restrict growth. Most businesses startup with limited funds and low demand. Understandably, businesses start with manual labour intensive back office systems that work fine with small numbers of customers. Indeed, they are often very personal, such as individual emails to customers when there is a problem, the owner personally serving the consumer and making sales. This is great, customers love it, but it does not scale. Five customer enquiries a day, can be dealt with in a personalized way. Twenty, starts to stretch the management’s time. A hundred, and the personal touch is being lost to cut and paste emails. Ten thousand and the system is not working anymore. Equally, technology often does not scale. Many small firms have relied on spreadsheets and small personal databases at the start, they are great for quickly knocking up a working system, but there is a limit to scalability. Suddenly to add more users is a problem and firms need to change their systems perhaps migrating to a server based database. This is often just when the firm is successful and management are dealing with all the other challenges of growth. Startups are also encouraged to build Minimum Viable Products (MVP), so they can test demand without the risk of investment in a full product, this makes sense, but can leave the business vulnerable if the MVP is successful and cannot really cope with demand. Perhaps there is a lot of back-end manual intervention that appears to make the MVP work automatically to the user, but is actually just human intervention. For example, order fulfilment may appear automated to the customer, but is actually all done manually. Clearly there are scaling issues.

Solutions to scaling problems

There is no silver bullet that will magically deal with these scalability issues. The key is awareness and forethought. Even at startup the entrepreneur should consider how the people and systems will scale to manage success. Too often you hear the fateful words that “it will be a nice problem to have”. When you are just starting the idea of too many enquiries or sales you can process might seem attractive, less so when you are facing the actual situation and working until midnight with customer complaints building. Therefore, even at the start think about scalability, it does not have to be expensive, good planning and effort can achieve more preparedness without investing in very expensive infrastructure. If you take on staff, train them to be your next layer of managers, delegate to them and help them become part of your business and ready to take on roles as the business grows. Take time to get the best staff with potential and value them. When building the back-end systems consider the next stage in scale. Is the data captured in the small scale system easily exported to more scalable higher cost systems? Is the structure you are using for the data ready for a larger scale system? This does not have to be expensive, it is about doing your homework now, rather than firefighting later. If you build an MVP, make sure you have a plan for how to integrate automation for scale. Use a back end system that can scale later.

Overall, growth in demand seems like a “nice problem to have”, but it can be a nightmare that causes stress and at worse threatens the survival of your business. A little bit of forward thinking can at least help alleviate some of the pressure.

Lew Perren Developer of Business Plan Quick Builder and BizzLink

References

Penrose, E. (1959) The Theory of the Growth of the Firm, Chichester: John Wiley.