Anything that matures will go through growing pains, and scaling businesses are no exception.
Expanding operations, products, and customer bases can make or break new businesses. Building a larger company also requires bringing on more workers, but taking a team from a dozen people to 50 can create chaos. Processes can break down and bottleneck, company cultures may change, and founders might struggle to keep an eye on day-to-day tasks. All of this can confuse or demoralize owners, investors, early employees, and customers who undergo these changes—particularly when companies are underprepared to make the leap into growth-stage status.
To take a closer look at this issue, Ruby identified 10 major challenges business owners encounter as they grow and highlighted ways they can address or prepare for those challenges. The analysis draws from existing news coverage, small business resources, and insights from experts, including an interview with Karin D. O'Connor, a professor of strategy at Northwestern University and the executive director of the Heizer Center for Private Equity and Venture Capital.
At the most basic level, businesses only succeed if they have customers. As a company scales its operations, customer volume must support that growth. Newer companies often acquire new customers through networking and referrals, so it is imperative to listen to existing and potential customers' needs and ensure that they are satisfied.
"In the early days, you're looking at engagement metrics," said O'Connor, an early-stage investor who has served on the boards of several scaling startups in the last 25 years. "So once a software has been implemented, for example, are people using it? Are they in there every day?"
Other ways companies can attract additional customers include new customer discounts, loyalty programs, partnerships with more established companies, and maintaining a quality website with strong search engine optimization.
Scaling a business to multiple locations can be relatively simple depending on an entrepreneur's experience, but once they cross city or state lines, the process can become more complicated. Branching a business into new localities can be like opening an entirely new company.
Taxes and policies on permitting, zoning, and licensing often vary. Leaders of growing companies should inquire with state offices and research websites to get the full picture of what an expansion will take before moving forward.
Certain types of businesses are less dependent on geographies, especially in the technology space, O'Connor said. But where they find ease in growing across cities, states, and countries, they may encounter challenges in expanding across industries. Entering a new industry requires significant market research, including interviews and testing, to make sure the product will work for the new subset of customers.
"Let's say you sell to franchise restaurants, and you think that gas stations would be another good target," O'Connor said. "You really need to go in and understand those buyers and not just assume that you can just launch."
When considering moving into a new vertical, O'Connor noted a few important questions: "Do they have the same problem? Is this top of their priority list in the same way that it is with your existing customers?"
One of the largest considerations for a growing company is adding personnel. It's a balancing act between how much work is coming in, how many people are needed to complete it, and what skills they need to be efficient.
Recruiting the right people impacts everything else, from how productive the company is to its culture. In a column for Forbes, recruiting expert and "Recruit Rockstars" author Jeff Hyman breaks down how to recruit the right people. Hyman outlines the importance of searching for applicants within networks rather than relying on job boards, having those applicants produce sample work products, and creating a working environment that people want to be a part of.
Having a meticulous recruiting process does take more time and effort, but pays off with longer tenures and higher work quality, Hyman says.
Recruiting the right people plays a huge role in preserving and improving the culture of a growing company. But once new employees are there, companies have to continue to put in work to sustain a positive culture. That includes a comprehensive training and integration strategy that is intentional about promoting culture.
Companies are wise to clearly define their values, including examples that convey what it means to embody that value. For example, "consistency" means meeting deadlines and holding all assignments to the same standard; "collaboration" means allowing everyone to speak, contribute, or lead. Regularly collecting employee feedback can also help ensure that culture isn't lost in the shuffle.
Hiring people and creating a product requires money—sometimes a lot of it. When a founder doesn't have the money upfront to put toward establishing their company, they may struggle to find other resources for capital. Many lenders and investors require credit histories and business details that a growing company may not have yet.
Fortunately, there are resources for entrepreneurs to obtain funding, largely through the Small Business Administration, which provides long-term loans for property, equipment, and other business startup costs. Some private investment firms also partner with the SBA to provide government-backed loans to small business owners to advance local economies.
Venture capital is another way small businesses can access funds to scale, but O'Connor noted that most companies are not well-suited for it.
"Venture investors are looking for companies that have the potential to grow very large and companies that are meant to be exited within a reasonable period of time," she said. "The founder needs to be on board with that. If the founder is seeking to build a business that they're going to run for decades, a legacy business, a family business—that is great, but they're not going to want to capitalize it with venture capital or spend time trying to do that."
Investors are looking for product-market fit; they want to see that whatever product a company has created is something people want and are willing to pay for, that it can have broad reach, and that it has some kind of advantage over potential competitors. Founders should have quantitative and qualitative data to support those ideas when they seek funding.
"Whether you're raising money from investors or it's your own money that's coming in, you need to be really focused on making every dollar work as hard as it can," O'Connor said. "Understand what your expectations are for those dollars, and how you can stretch them. There isn't an endless pile of capital out there that's available to grow businesses."
Name recognition can go a long way in obtaining customers and investors. Press coverage is one advantageous method to gain that popularity, but as a small company, getting the attention of news sites can be difficult.
Growing companies can improve their chances of getting coverage by reaching out to local and industry publications when notable events occur at their companies—including funding rounds, hiring pushes, and leadership changes. Whenever these landmarks are on the horizon—even before the news goes public—company leaders should be prepared to discuss them with journalists.
Entrepreneurs can also establish themselves as industry experts by creating a strong social media presence, registering with sites such as Qwoted and PR Newswire, and offering their insight to reporters when something relevant comes up in the regular news cycle.
Effective processes help a company function. As startups scale their operations and processes, they must decide what tasks to complete internally and what to outsource.
"The infrastructure piece shouldn't suck up a lot of time," O'Connor said. "Too many companies are trying to reinvent the wheel. When there's already Slack, why would we build out a whole communication system on our own? Particularly with technology, we're developing tools every day that are helpful."
From communications to customer management, utilizing existing process and infrastructure tools can help employees focus more of their time on coaching, marketing, selling, and creating the actual product. In markets with many competitors filing the same niche, like instant communications, deciding which products to use can be difficult. O'Connor said speaking with other entrepreneurs who have implemented certain tools helps her vet solutions for the companies she works with. Convening groups of founders, owners, and CEOs to chat about common problems can surface the processes and technologies that work best for various use cases.
When companies employ a handful of people, founders typically have a hand in everything. But as a company scales, founding members can't maintain the same level of oversight.
"This is hard psychologically for some people because they really want to have that control, and that makes them comfortable," O'Connor said. "But it's also hard from a process perspective."
Even with an openness to share decision-making, it can be difficult to delegate properly and to set goals and track metrics effectively, O'Connor said. Again, recruiting and retaining employees with the necessary skills plays a big part in delegating work and trusting that it will be done properly. Effectively delegating also means creating clear expectations and goals, allocating tasks to specific employees that previously fell to founders, and providing continuous training and development for employees to grow in their roles.
While scaling can be intimidating for business owners, if they are intentional with their research and preparations, they can build their companies into something much greater, without too much friction.
This story originally appeared on Ruby and was produced and distributed in partnership with Stacker Studio.