The prospect of scaling a business right now comes with some unfriendly economics: Raising capital is more difficult in many sectors than it was just a few years ago, leaving startups with the challenge of doing more with less. Even in the best of circumstances, scaling a startup is a complicated task, involving countless moving parts and ever-competing priorities.

According to a study by the Kauffman Foundation, only 1 in 10 startups will scale successfully. Nevertheless, startups have many options for maximizing their chances of achieving sustainable scale and long-term success, from streamlining operations, optimizing existing revenue, and prioritizing growth areas to creating a clear roadmap and reinforcing infrastructure to support growth.

Here’s what startup founders and leaders need to know about scaling: how to plan for it, the importance of building to scale from Day 1, and how to scale efficiently in any economic climate.

What’s in this article?

• What is scaling?
  
  • Types of scaling
    
  • Stages of a startup
    
• When are you ready to scale?
  
  • Business areas to watch
    
  • External factors
    
• Strategies and tips for scaling
  
  • Plan early and often
    
  • Cultivate agility—even as you grow
    
  • Streamline operations
    
  • Optimize existing revenue
    
  • Prioritize possible growth areas
    

What is scaling?

Scaling refers to the process of rapidly growing and expanding a business, typically in terms of revenue, customer base, and employee headcount. Startups scale in order to reach a larger market, increase profitability, and establish dominance in the market. While the concept of scaling a startup generally refers to the process of growing all areas of the business in tandem, there are a number of specific types of scaling, all requiring unique—yet interlocking and mutually supportive—strategies.

Types of scaling

• Revenue scaling
  Increasing a business’s revenue by expanding into new markets, launching new products or services, or increasing the frequency of sales to existing customers.
  
• Customer scaling
  Growing a business’s customer base by targeting new segments or markets, improving marketing and sales efforts, or developing new partnerships and collaborations.
  
• Headcount scaling
  Hiring new employees to support the expansion of the business.
  
• Operational scaling
  Improving the operations of a business to handle increased demand, such as improving the supply chain, logistics, and inventory management.
  
• Infrastructure scaling
  Upgrading the technology and infrastructure of a business, such as server capacity, bandwidth, and storage, to support increased demand and growth.
  

Stages of a startup

Not all startups follow a linear path, and many may encounter challenges and decide to pivot—or exit—at any stage. For example, an early-stage startup that is acquired by another company will not reach the expansion stage at all. There are countless definitions and parameters used to describe the different stages a startup will pass through in its evolution. Here are a few key stages:

• Ideation
  This is the initial stage in which the founder(s) have an idea for a product or service and begin to validate their hunch through market research and customer feedback. The focus is on developing a minimum viable product (MVP) and testing the viability of the idea.

• Pre-seed
  This stage involves securing initial funding and building a basic prototype of the product or service. The focus here is on proving the concept and attracting early adopters.

• Seed stage
  This stage involves securing additional funding to develop the product, build the team, and scale operations. The priority is acquiring initial customers and proving the business model’s efficacy.

• Early stage
  Startups in this stage often take on additional funding to expand the team, build the product, and grow the customer base. The goal is finding product-market fit and early traction.

• Growth stage
  This stage involves significant investment in scaling operations, expanding the product line, entering new markets, and acquiring new customers. Key goals include increasing revenue, profitability, and market share.

• Expansion stage
  This is when startups scale the business, which can mean many different things (more on that below), including entering new markets, launching new products, or acquiring other companies. Everything that happens during this stage is aimed at increasing scale, efficiency, and competitiveness.

• Maturity stage
  This stage involves optimizing operations, improving profitability, and securing market position, all of which help maintain growth and stability over the long term.

When are you ready to scale?

Scaling a startup can be challenging and requires a significant investment of time and money. The first indication that your startup is ready to scale is when you have enough concrete validation to confidently invest resources in areas of the business that have proven most advantageous. Most startups can’t skip or rush through this vital testing and learning phase, which precedes scaling.

Often, a startup knows it’s time to scale when it has reached a point of consistent and sustainable revenue growth, amassed a large and loyal customer base, and found a clear path to profitability. Additionally, the company should have a strong and experienced management team in place, as well as the necessary resources and infrastructure to support expansion. It’s also important for the company to have a solid understanding of its target market and the ability to effectively reach and acquire new customers at scale.

Business areas to watch

Knowing when it’s time to scale your startup—and knowing what that should look like—requires understanding what to track and evaluate to get a meaningful picture of the business, both as it exists currently and as it could look in the future. Depending on your industry, the specific products and services you offer, and your target audiences, the areas that will generate the most valuable and actionable insights will vary. But, across the board, most startups will benefit from monitoring the following areas when building a plan to scale:

• Revenue growth
  Consistent and sustainable revenue growth is a strong indication that a startup is ready to scale.

• Customer acquisition and retention
  A high customer acquisition rate and a low customer churn rate indicate that a startup has a strong product or service that resonates with its target market.

• Gross margin
  A high gross margin indicates that a startup has a profitable business model that can support expansion.

• Market size
  A large and growing market size indicates that there is potential for the startup to scale its customer base.

• Product-market fit
  A strong product-market fit indicates that the startup’s product or service fulfills the needs of its target market and is in high demand.

• Management team
  An experienced management team with the necessary skills to scale the company is a key indicator that a startup is ready to scale.

External factors

Choosing the right moment to scale your business requires examining more than just the business itself. Startups should consider factors such as competition, regulatory environment, and macroeconomic conditions. What other forces are shaping the course of your industry right now? Are there any economic or cultural challenges that could amplify your efforts at a particular time? Conversely, what external factors might work against you? When roadmapping key action points in your growth strategy, make sure to look outward and consider external factors as closely as you do your own performance data.

There are several external factors that can affect a startup’s ability to scale, including:

• Competition
  A crowded market with intense competition can make it difficult for a startup to acquire customers and gain market share. This doesn’t necessarily mean scaling in a crowded market is impossible—it happens—but competition is a consequential factor, one that can derail even the most carefully planned scaling efforts unless it’s considered from the beginning of a startup’s growth plan.

• Regulatory environment
  A strict regulatory environment can increase the cost and complexity of scaling a business. Startups should be aware of any specific laws and regulations, such as data privacy laws and international trade regulations.

• Economic conditions
  The overall economic climate can give a startup significant lift to support their scaling efforts, or it can work against them. For instance, a weak economy can make it difficult for a startup to raise capital and acquire customers. Many startups roadmap key moments and future milestones based on when economic conditions are expected to be the most favorable.

• Access to talent
  A shortage of skilled workers in the startup’s industry can make it difficult to find the talent needed to scale the business.

• Geography
  A startup’s location can affect its ability to scale. For example, a startup in a remote area may have a harder time accessing resources and talent than one in a major city.

• Access to funding
  Access to funding is a key factor for startups looking to scale, since a lack of funding can limit the ability to invest in growth and expansion.

• Social and political environment
  Socio-political instability can make it difficult to predict the future of a market and can also disrupt business operations. On the other hand, it’s possible that your business is uniquely positioned to take advantage of certain aspects of the socio-political landscape. Stay informed about the broader cultural and political climate to understand where your business fits within that context, as well as the different ways that current events and trends might help or hinder your efforts.

Of course, these are not the only external factors that might affect a startup’s ability to scale. Other factors, such as technology trends, macroeconomic conditions, and industry dynamics, can also play a role.

Strategies and tips for scaling

Scaling a business is a complex and challenging process, and there is no one-size-fits-all solution. The exact trajectory of your scaling journey, and the tactics it will take to get you where you want to go, are based on countless variables. The ability to synthesize all these variables to craft an action plan is a singular skill that sets apart great leadership teams.

That said, there are certain strategies and tips that all startups can use to put themselves in the optimal position to scale. Startups should review and adjust their strategy as they grow, consistently prioritizing efficiency so they don’t risk growing in an unsustainable way.

Here are some strategic tips startups can use to scale efficiently:

Plan early and often

From Day 1, it’s important to build your business with scaling in mind. This means creating infrastructure and operations that are scalable, even when you’re using them in their most reduced versions. When the core structures of your company are fundamentally designed to grow naturally with the business, you can focus more resources and energy on pursuing growth, rather than scrambling to catch up operationally.

Some things to consider early on:

• Prioritizing customer acquisition and retention
  Focus on both acquiring new customers and retaining existing ones, as this will drive revenue growth and help the startup scale.

• Building a scalable business model
  Develop a business model that can be replicated and scaled easily. This could include opportunities for franchising, licensing, or outsourcing.

• Building a strong team
  As you scale your startup, it’s important to have an experienced team in place that can handle the added complexity and responsibility. This means planning out an organizational structure for your team that works for an initial team of 10 but can expand and accommodate an exponentially larger head count down the road.

• Focusing on key metrics
  Identify and track key metrics such as customer acquisition cost, lifetime value, and customer retention rate. This will provide insights into what’s working and what needs improvement.

Cultivate agility—even as you grow

The bigger the boat, the more time and power it requires to change direction. In the startup world, scaling sometimes comes at the expense of being nimble. As you chart your growth plan, maintaining an emphasis on continued adaptability will keep your startup prepared to adapt to changes in the market, technology, and regulations. This might look like:

• Empowering teams with decision-making authority and trusting them to make decisions that align with the company’s overall strategy
  
• Building workflows that routinely make use of customer feedback to ensure that the customer experience is integrated into business decision-making
  
• Encouraging cross-functional collaboration to break down silos and facilitate communication across teams
  
• Creating a culture that embraces failure as a learning opportunity and incentivizing employees to take calculated risks
  
• Adopting agile methodologies such as Scrum or Kanban to ensure that teams are continuously delivering value and able to pivot quickly when necessary
  
• Implementing regular feedback loops to ensure that all teams are aligned and that employees have the opportunity to learn and grow in their role
  
• Encouraging employees to experiment and innovate as a standard practice, not a deviation from workplace norms
  

Streamline operations

Scaling a startup might seem to focus on maneuvering for the most growth-friendly position in the market and exploiting opportunity areas—and it does. But in practice, the success or failure of a startup’s scaling efforts boils down to how prepared they are on the operations side. Beginning from the startup’s earliest days, streamlining operations provides major benefits while making the business more efficient and insulating it against risk as it grows.

Some ways to streamline operations for startups include:

• Automation
  Automating repetitive tasks and processes such as customer service, accounting, and inventory management can help free up time and resources that can be used to scale the business.

• Outsourcing
  Outsourcing certain tasks or processes to third-party providers can help reduce costs and maximize resources. This can include tasks such as payments and other financial services, manufacturing, logistics, and IT support.

• Data-driven decision-making
  Using data to inform decisions can help make the business more efficient and effective. This typically includes tracking KPIs and using data analytics tools to identify trends and patterns.

• Scalable infrastructure
  Investing in scalable infrastructure, such as cloud computing and software-as-a-service (SaaS) tools, can help the startup scale more efficiently.

• Standardization
  Standardizing processes and procedures can help reduce complexity and improve efficiency across organizations at any size. This can include creating standard operating procedures, templates, and checklists. Standardization will look different for each company—and even for different teams within the same company—but what’s important is deciding what standardization means for your organization and implementing it.

• Process optimization
  Continuously evaluating and optimizing processes can help identify and eliminate bottlenecks and improve efficiency.

Optimize existing revenue

When you think about scaling your startup, your attention might go to opportunities that lie outside the current scope of the business, like new revenue streams and expansion into untapped markets. But a major component of sustainable, lasting growth for startups is maximizing the revenue already being generated from existing products, services, and customers. Here are some ways you can optimize your existing revenue:

• Customer segmentation
  You probably have some working version of customer segmentation, but often it’s an area where startup teams invest time and energy during the early days of building their go-to-market strategy, then neglect to update over time. This is a mistake. Continually updating your customer segmentation and personas based on demographics, purchasing behavior, and other criteria can help you identify the most valuable customers and target them more effectively.

• Pricing optimization
  Analyzing data on customer behavior and market conditions can help identify the optimal pricing for products and services.

• Boost cross-selling and upselling
  Upselling is the process of encouraging existing customers to purchase more or higher-priced products or services. Cross-selling is the process of offering related products or services to existing customers. Creating different customer journeys and packaging new combinations of products and services can help you use everything you know about your customers’ habits to increase average order and customer lifetime value (LTV).

• Increase customer lifetime value
  In addition to focusing on upselling and cross-selling to increase the value of each order, fine-tuning your customer retention strategy is important to growing revenue overall. Implementing strategies to retain customers longer and increase their purchase frequency can increase the overall revenue generated from each customer.

• Optimize the sales funnel
  Evaluating the sales funnel and identifying areas for improvement can help increase the conversion rate and maximize revenue.

• Use existing assets
  Look for avenues to monetize existing assets such as data, customer base, and intellectual property.

Prioritize possible growth areas

A key aspect of scaling a startup involves identifying and focusing on areas of the business that have the greatest potential for growth. This can open up new revenue streams and help diversify the customer base, both of which are important for businesses looking to scale efficiently. For many startups, this means evaluating the feasibility and potential costs and benefits of diversifying products or services, or looking for opportunities to expand into new geographical markets or verticals. Aside from increasing revenue potential, investing in growth areas can also help mitigate the impact of any changes in the market.

Startups can scope out possible expansion into new markets, products, and services using a variety of tactics, including:

• Conducting market research
  Market research is the most straightforward way to identify new opportunities and trends in your industry. This includes analyzing competitors, looking at customer feedback and preferences, and studying industry reports and data—all of which can help identify areas of the market where there is high demand and potential for growth.

• Talking to customers
  Just as you should build processes that incorporate customer feedback when optimizing marketing and product strategies, you should also deploy that same feedback to generate insights that inform possible directions for growth. Talking to your current customers will help you better understand their needs and pain points, which can help you refine your current offerings as well as identify areas where the company can expand. Knowing what your customers think you do best—and where you fall short—is invaluable.

• Examining customer behavior data
  Analyzing data on customer behavior, sales, and other key metrics can help identify areas of the business that are performing well, and where there is potential for growth. Startups can use data from their website, social media, and other online platforms to understand customer behavior and identify patterns that can indicate new product or service opportunities.

• Exploring partnerships
  Forming partnerships with other companies, research institutions, or incubators gives your startup the opportunity to use additional resources and expertise to validate and explore new products or services. The key, of course, is finding partnerships that offer maximum value: When it’s the right fit, strategic relationships can produce significant returns.

• Experimenting with new technologies
  Technologies such as artificial intelligence, blockchain, and the Internet of Things (IoT) can provide new product or service opportunities and help startups stay ahead of the competition as they scale. Investing in technology such as embedded finance, cloud computing, artificial intelligence, and automation can also help startups scale more efficiently.

• Conducting a SWOT analysis
  A SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis can help identify internal strengths and weaknesses as well as external opportunities and threats that could impact growth. This exercise offers startups tremendous insights and advantages as they evaluate possible growth areas.

• Prioritize based on resources
  Any growth prioritization exploration should ask not only “What’s possible?” but also “What’s most available based on current resources?” While it’s important to create a long-term roadmap with goals that exceed the startup’s current capacity and bandwidth, you should prioritize all possible growth areas based on available resources—and focus on the areas that can be scaled with these resources.

• Prioritize based on the potential impact
  In addition to prioritizing growth areas based on near-term feasibility, it’s also useful to prioritize based on the anticipated impact a given growth area could have on the business. Which options have the greatest potential to drive revenue and growth?

• Align with the company’s mission and vision
  Prioritizing the growth areas that align with the company's mission and vision will have the biggest and most positive impact on the company’s long-term goals.

Arriving at a fully scoped, prioritized, and roadmapped plan for growth requires a synthesis of all these different factors. Are there new markets, product or service expansions, or partnerships that will allow you to make a substantial impact? Are these new opportunities aligned with your company’s overall mission and vision? Are you able to move forward on these projects using available resources? Any idea that checks all of these boxes is a strong starting point. By prioritizing your existing customer acquisition and retention efforts and tending to every aspect of operational efficiency, you can put yourself in a strong position to scale for the long term.