May 25, 2021 News

How to Know When It’s Time to Scale Your Startup

Scale

7 signs that your business is ready to scale up

You've launched your business and made it through the initial stages of getting it off the ground. Now, you think it's time to turn your attention on scaling. But is it? When is the right time to scale your startup?

When to scale is as important as how to scale. Scaling prematurely can unleash numerous organizational problems that can lead to failure. According to a Startup Genome report, 74% of startups fail due to premature scaling. On the other hand, waiting too long to scale can result in your business missing out on key opportunities to increase revenue.

Fortunately, there are signs you can watch for to determine when it’s a good time to scale up.

Scale your business

7 signs your startup is ready to scale

1. You Have a Validated Product/Market Fit

Having a validated product/market fit is a good sign that your startup is ready for scaling. Before you scale your business, you should already have a minimum viable product, a well-defined target audience and an effective marketing strategy. Without these, scaling is too risky because you don't know if there will be enough demand for your product.

2. You're Exceeding Your Own Expectations

When your startup exceeds your goals and expectations, repeatedly, it's a good indication that it's ready for scaling. Exceeding expectations typically involves having more customers, sales, revenue and profit than projected. When you not only meet your expectations but exceed them, it's time to scale.

3. You Have a Positive Cash Flow

Cash flow refers to the amount of money going in or out of your business. Having positive cash flow means that there's more money going in (not pending, but already in your bank account) than going out. Although not as much as the traditional growth model, scaling can increase your expenses before you see the additional revenue. A positive cash flow and a strong cash flow forecast show you're ready for scaling.

4. You Have the Right Core Team

Your startup is only as strong as the team behind it. Before you scale, you should consider your team’s performance, skills and dedication to the company. You need three to five people (not necessarily in management) whom you can count on and who are likely to be with over the long run. These people are as passionate about your goals and as committed to your startup's success as you are. You can trust them to handle your business when you're away.

5. You're Turning Away Customers

If you’re frequently faced with more orders than you can fill and you have to turn away customers, it’s probably time to scale your business. Having more orders that you can handle means your product or service is in high demand. Sustainable increased demand that does not stem from a holiday rush or a competitor dropping out shows that it's time to scale up in order to meet that demand and benefit from new business opportunities.

6. You've Been Profitable for a While

Sustained profitability over a longer period of time, usually two or three years, is a great sign that the time is right for scaling. Sustained profitability demonstrates that you have a sound business model and that you're in a strong position to expand your startup. When you consistently turn a profit, chances are you’ll be able to do so at a larger scale, as long as you don't attempt to scale too much too quickly.

7. You're Facing Minimal Risk

When you start seeing signs that it’s a good time to scale, and after you’ve honed your business and marketing strategies, gone over every single process and system with your team, and covered your legal and financial bases, you’re probably in an atmosphere of minimal risk. Although risk is inherent in business, you can minimize risk by scaling when your startup shows signs that it’s ready for it. Don't create unnecessary risk by rushing into it.

Final Thoughts

Most entrepreneurs can't wait to scale their startups, but waiting for the right time is crucial for a successful scaling. However tempting it may be to rush into it, you need to watch for signs that tell you it’s the right time to scale your business.

Meanwhile, you have plenty to do.

Take the time to lay a strong foundation for your startup that will allow it to build on its strengths and overcome its weaknesses. By making sure that your company is truly ready to scale, you'll improve your odds of achieving something much better and greater than quickly exploding success: long-term success.