What does scaling really mean?

What it means to scale a business and questions investors might ask a startup seeking funds to scale

6 min read
Few concepts are more significant than growth in today's corporate environment. Even market veterans like McDonald's and General Motors are evaluated based on their quarterly growth rates. And growth failure may be devastating.

But for younger organizations, and especially for startups, there is an equally intense focus on scale. Scaling occurs when revenue increases without a corresponding increase in resources. "Scalable" processes can be performed en masse without additional effort. Thus, scaling is essentially rapidly expanding a business.

The OECD defines a firm with strong growth as one that has seen annual employment or revenue growth of at least 20% for at least two years and has at least 10 employees at the start of the observation period.

A startup, having reached a given size, is prepared to exploit its proven success to scale and expand its business dramatically. The scaling phase is often the quickest and most significant growth stage, as well as the most challenging.


Scaleup Nation defines the time to scale as the moment "a business has achieved product-market fit and now faces the "second valley of death," or the point of exponential expansion.

In other words, after a business has demonstrated that its product is desirable, it is time to market it to the public. Typically, this demands a substantial investment in new personnel, offices in several areas, and an abundance of promotion.

However, if successful, scaling will result in exponential growth with linear or marginal investment.

The smooth transition from early-stage startup to scaling and how to do it

When to scale is equally as crucial as how to scale. Premature scaling can unleash a number of organizational challenges that can result in failure. According to a survey by Startup Genome, premature scaling causes 74% of firms to fail. However, if your organization waits too long to grow, it may miss out on critical opportunities to boost income.

Fortunately, there are pointers that could help you think through the process.

1. Proceed to the Next Funding Phase

If your firm has thus far pursued the usual sequence of fundraising, it may be time to move on to the next round. Create a clean and simple pitch deck and organize your financial statements and other relevant documentation. You might anticipate difficult inquiries from investors who will seek a return on their investment. However, avoid telling investors only what they like to hear. Ensure you are transparent about your expansion goals, present and future profitability, and when investors may anticipate a return on their investment.

2. Invest in innovation

Scaling requires eliminating the unnecessary baggage slowing you down. Consider all the manual processes that made sense when you were a 10-person team; the multiple approval procedures; and the communication overload that slows down an already overburdened team.

Those processes should be automated to help you scale your startup.

Investing more in your infrastructure is a necessity when scaling as, if you successfully grow, you may get more traffic coming through your website or demanding your product. Having a strong and dependable infrastructure in place will aid in retaining current customers while attracting new ones.

3. Implement a fresh marketing plan

Spreading the word is one of the most successful tactics for scaling up a company. Your firm may be transformed overnight by a new, audacious, and effective marketing approach. Due to the viral nature of social media, a single video may have a substantial effect on the number of sales and orders you receive.

Conduct your own research to determine which form of marketing approach will best suit your company. Popular methods include the production of entertaining and valuable content, paid advertising, video blogs and tutorials, SEO, email marketing, and direct marketing.

Consider speaking with a marketing expert or advertising firm to discover more about the plan that may be the best fit for your company.

4. Employing seasoned management

When scaling, it is a frequent misconception within tech startup circles that you must hire slowly and terminate rapidly. We advise you to disregard such counsel since it is half-baked, contemptuous, and risky to adopt.

Scaling also entails hiring additional employees, cultivating a positive view of your brand, and creating a business that contributes to the economy. On the contrary, exercise the utmost discretion in all personnel matters, including hiring, managing, and terminating employees. If you want to avoid having to terminate employees, choose the best possible candidates.

A seasoned employee with managerial experience would usually have greater objectivity and might be useful in some cases. The manager you employ will be able to handle stressful situations with more composure since they are less invested in the company. Because you have so much invested in your business, the founder(s) could often make poor mistakes. Having an experienced manager in your corner, particularly one with a history of expanding businesses effectively, may make your firm stronger and more organized.

This is also essential for the retention of your top personnel. If your startup is a hectic and unpleasant place to work, your best employees will ultimately depart. According to Gallop, a global analytics and consulting organization, voluntary employee turnover costs U.S. businesses $1 trillion annually. In addition, replacing a departing employee might cost anywhere from one-half to two times the individual's yearly compensation.

5. Prioritize customer retention

It's obvious that you need to increase your customer base while you're just getting started, but as you grow, you should shift your attention to ensuring that your existing customers stay with you.

Keeping your existing customers is a smart business move that will save you money on marketing, as you do not have to spend to acquire new customers and could potentially increase your earnings in the long run. With the aid of retention strategies, you may increase client loyalty and create a sustainable source of income.

A company in the subscription-based SaaS (software as a service) market, for example, can increase its growth by increasing its subscriber base. But what good is gaining new customers, if they are not able to retain the old customers? As a corporation, it's important to monitor online conversations involving your product or service, as well as customer service requests.

Key questions prospective investors might ask a startup seeking funds to scale

These inquiries cut through the bluster of the founder(s) "vision to transform the world" and dive into the nuts and bolts of an organization's actual strengths, weaknesses, and state of health.

What is your current burn rate and runway?

These are investor slang expressions referring to the rate at which money is being spent, with the underlying issue of how long a firm can continue until reaching breakeven or another financial injection is necessary.

How much “skin” is already in the game?

The goal of this question is to ascertain the founders' degree of involvement, including their financial and "sweat equity" contributions, as well as the total amount of outside funding for this strategy. How much progress has been achieved on the investment and how steady the firm is currently are factors that are implicit in the analysis of the responses.

How do the founders get along?

The most intelligent individuals sometimes aren’t the best team players, so disagreements between colleagues are bound to happen. Investors are interested in the history of the team - How did the co-founders meet? Or is there an existing relationship? Founders who have previously collaborated on a project would usually be seen as a good signal.

What do I stand to benefit?

Investing in a company or joining a startup is always accompanied by substantial risk, thus the potential return must be tangible. Investors seek a 10-fold return on the initial investment, so founders have to think about how to capture a piece of a big market.

Final thought

Scaling a business may be difficult. However, if you automate and optimize internal procedures and outsource everything that isn't directly connected to your key strengths, you may make this process more efficient and less stressful. If you have the correct procedures, people, and strategies, you will scale successfully.

© Figg Africa 2022. All right reserved