Business Finance

The Importance Of Scaling Your Small Business

Businesses are created for one of two purposes. Because those purposes exist, your business can end up with one of two outcomes: Either you grow or die. It’s that simple. Do you know Why?

I like to flirt with the idea that business is a game.

What type of game you might ask?

Before we get there I’d like to introduce a very simple concept. On the cover of his New York Times Best Selling Book. James P. Carse describes the two types of games:

  1. Finite Games - Games played to win.
  2. Infinite Games - Games played to continue the play.

On it, he continues to say that “If a finite game is to be won by someone, it must come to a definite end..”

Whether you agree with his definition of the two categories of games then you’ll have to agree that businesses are either created for me of two purposes:

  • Winning the game aka reaching the top of your industry and selling the business.
  • Continuing play aka creating an empire.

I wrote a more detailed post about the financial endgames of business here. For now, I want you to consider one thing...whatever type of business game you decide to play, either you grow or die. It’s that simple. Why?

Your small business is working against a never-ending resistance. The resistance can be very well summed up into 4 categories:

  1. Economic Forces
  2. Industry Forces
  3. Market Forces
  4. Key Trends

These four forces make scaling an inevitable part of business. To find out why let’s start by exploring the economic forces.

Economic Forces

Economic forces are factors that impact a business’ ability to take part in commerce.

Economic forces include

  • Inflation Rates
  • Employment Rates
  • Interest rates
  • Fiscal Policy
  • Monetary Policy

These fundamental elements of the economy are indicators of the resistance you have to scaling a business. To understand their impact let’s consider inflation.

Inflation is the increase in prices over time. Simply put, when inflation sets in, you get less of a bang for your buck. But the thing is, the prices of goods and services are always increasing. Maybe not every week, maybe not every month, but they will increase.

What does that mean for your business?

It means that your business, by being in operation, will have to face higher expenses every year. Eventually, if you don’t raise your prices, then your expenses will be higher than your revenue. The result: you’ll go bankrupt.

Just by being in operation, your business is at risk! Just by that singular economic “force.”

Financial growth is the only way that you can overcome the economic forces. Forces that are fighting tooth and nail against your business.

Financial Growth is one form of scaling.

Industry Forces

Listen up. I’m gonna tell you something that isn’t new. You know it. I know it. Even a young child might know this. Business involves competition. Everyone is always trying to get a leg up on their competitors. Just another reason why I consider business to be one of the many games that life has to offer.

Industry forces include:

  • New and Existing Competitors
  • Substitute Products and Services
  • Complementary Products and Services
  • Vendors along the supply chain

You can consider these components of industry the physical manifestations of “players.” These players are joining you in the game of business.

Have you ever seen an industry where business owners shout to the world "Here's how much profit I'm making!" I'd guess not. Do you know what happens next?

It's like the idea of water following the path of least resistance. Competitors and in that industry will start promoting the same product for sale. After all, if the business is so profitable, wouldn’t you want to get a piece too?

See the thing is, you can’t hide your business profits forever. Plus, businesses that don’t turn a profit don’t stay in existence for long. So by the virtue of existing in an industry, you will draw competitors.

To fight off competitors, you'll need to innovate your business. Conducting research and development leads to innovation.

Innovation is yet another form of scaling.

Market Forces

Businesses all take part in markets. We are going to define a market as the group of people targeted by marketers in an industry. Marketers sell goods and services offered by that industry to their target market. The success of those marketers will depend on the factors that make up market forces. Here are a few:

  • Market Segments - Groups of people with similar issues.
  • Market Needs and Demands - Requirements people make before buying a brand's products.
  • Market Issues - Problems that the people in the market face.
  • Switching costs - How much a consumer has to pay to switch to a different brand.

Markets and people change over time. Desires of today become forgotten memories tomorrow. This is true of today’s fast-paced and changing environment. Your business will have to adapt to the needs and issues facing the market.

Twenty years ago social media did not exist. Businesses used to buy television advertisements and radio spots. Nowadays, entire businesses are being built from blogging and social media.

If your business does not scale its marketing by using new methods, Will it Survive?

Scaling new marketing practices and retiring old ones is another way businesses can fight the invisible resistance.

Key Trends

Businesses exist to facilitate transactions between buyers and sellers. Do you know another word that we can use to refer to buyers and sellers? People. That’s right. And people change. But do you know why?

As new inventions come into existence they start to change what is possible. In the beginning, new inventions and technologies are able to exist without opposition. Technologies have the power to change cultures. Think about the internet, cell phone, cryptocurrencies, or even the printing press. Each of those technologies has been revolutionary enough to create new business trends.

But like any other novelty, people will take advantage. Take advantage to:

  • Make money
  • Hurt people
  • Turn the tide of politics
  • etc.

As things happen around technologies there will come a need for regulations. The trends that impact businesses at large can be summed up as the following:

  • Socioeconomic
  • Cultural
  • Regulatory
  • Technological

These trends are not the type you can fight against. They are trends that you choose to align with or separate from your business. Riding the wave of a trend is also a form of scaling.

Trends are elements that your business will have to scale past. Look at how many businesses have died due to COVID 19. That should be enough of a reminder to think that you have to scale in more ways than revenue growth.

Summary

The way you deliver products and services needs to scale, grow, and branch off. Same for your revenue streams. Same for any part of your business.

Industry forces, economic forces, market forces, and general business trends can all work for your business if you scale. This makes scaling quintessential to business growth. Don’t ignore it. If you do you will become a victim of the invisible resistance that is pushing against all business.

Savvy business owners know that they need to scale a business or die. The secret to scaling is to make strategic financial decisions at every step of the way.

If you want to be more strategic in business join our email list.

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