What every entrepreneur needs to know about scaling
by Martin Ruckensteiner – innovation expert and Christine Spernbauer – Impact Hub Vienna Scaling Manager
This is the first part of our scaling trilogy: “Scaling your social business”. In the next two parts we will cover:
How to diagnose if you are fit for scaling
What’s the difference between scaling your business and scaling impact?
When social enterprises enter the scaling phase, they open the door into a completely new stage. Compare it with an airplane which takes off: Before take-off you train the crew, you fuel the plane, passengers board, food and drinks are catered. Now, the plane is on the runway, accelerating and then – in the moment of truth – taking off. Once the pilots take the decision to take off, there is no way back any more.
Similarly, as a social entrepreneur in the infancy stage you develop business ideas, you prototype solutions, you explore customers, you understand financial mechanics, and you plan your business model. In this baby stage, your downside risk is transparent and minimal. You risk your time and some family-and-friends-money.
At the moment of truth – when you scale – you are in the same situation as the pilot taking off with his airplane. Now you build a team, you contract suppliers, you sell to customers, and you raise money from investors. You are taking off. After you have launched your business, there is no way back anymore.
Scaling mindset and financial dynamics
There are two major aspects which are critical to successful scaling: Mindset and money.
- Scaling mindset: Become a leader – build your business
Every successful scaler has developed a “scaling mindset”: In the early stage, you and your co-founders do everything yourself. In the scaling stage, you change your role from a ‘do-it-all-yourself-start-up-experimenter’ to a ‘business leader’. Your role is to think and plan ahead, to foresee the next steps, to prepare the ground for growth. Now, your attention is on growing a business, about building an organization. Now, you create a vision for your team, you prepare an organizational structure where everyone in your team assumes roles and acts accordingly. You delegate. Now, you lead and others will do the work. Like a music conductor you direct, others play and dance.
Until you reach the moment of truth it is great to experiment with different types of target customers and alternative value propositions. – This time is over now. Once you decide to switch into scaling mode, target customer profiles and value propositions are fixed. Did you hear us? – Target customer profiles and value propositions are fixed! The Business Model Canvas below can be used to help you identify the areas you can work with.
Remember: As a scaler, don’t fool around with new target customers, products or solutions. You will not scale, you will fail.
However, there are other areas where experimentation is key: How to engage your team, how to get lead generation and customer acquisition right, how to grow your sales channels, how to build and optimize your supply chain, how to win business partners and so forth.
- Financial scaling dynamics: Minimizing the time to break-even
Be aware of the financial dynamics of scaling. In financial terms, what can you predict pretty well? – for example, your fixed cost and your investment. – And what is extremely difficult to forecast? – for example: Customer and revenue growth. At the beginning of the scaling stage, your revenue will not cover your cost, every single day you burn money.
Financially, it is super-critical to minimize the time between the start of the scaling phase and the time your venture breaks even but how can you do that?
Trials, tests, pilots, experiments – In areas that matter most for scaling: Customer and partner acquisition, operations, and service delivery. Before you really scale and before you invest big money you should: test customer and partner acquisition, do trial marketing campaigns, experiment with different sales pitches to low priority customers, test different models of operations and service delivery. Do it with a lean structure. Analyze and optimize your tests. Build evidence on which scaling models works best for your company.
Once you found an effective scaling model, then you invest more money, you build up your resources and you scale up to the next level.
What do you think? What are your scaling experiences? share with us what you have learned?
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Stay tuned for the next part next week.
About the authors
Martin Ruckensteiner is an innovation expert. He co-founded several start-up companies and social impact initiatives and consults organizations on developing and scaling innovation with impact. He was a member of the management team of Roland Berger Strategy Consultants.
Christine Spernbauer has more than 4 years experience in social entrepreneurship, innovation, venture acceleration and passionately seeks at driving change and diversity. She is leading Impact Hub Vienna’s accelerate circle, that focuses on supporting ventures in different development stages to make the next step. Currently she is managing the programs: Greenstart, Start:e, RE:WIEN, Impact Hub Scaling and therefore has a solid understanding about venture needs and the best support structures.