Scaling: What Impact Entrepreneurs Need to Know

This article is co-authored by Laura Faulkner and Renata Hron Gomez. Originally published at www.forbes.com on March 21, 2016.

EntrepreneurXchange.org

This is the second post in the Entrepreneur Xchange Series, a collection of articles that feature insights on five topics that impact entrepreneurs consider critical to success: scaling, raising capital, customer acquisition, human capital, and social impact. This post focuses on the challenges early-stage firms face as they scale.

Entrepreneurs are under constant pressure to scale their firms. As they plan to scale, they receive different advice from advisors and investors — perspectives that can range from “scale quickly” to “scale patiently and thoughtfully.” Scaling a company entails more than just ramping up sales and expanding distribution — it requires a long-term strategy and vision that includes hiring and managing new people, acquiring sufficient capital to support expansion, and a timeline for realizing anticipated milestones.

Conventional wisdom is that successful scaling achieves the highest amount of growth in the shortest period of time. But bigger isn’t always better, particularly for impact firms that must be conscious of how scale affects social impact projections.

Crafting a plan to scale that is both ambitious and realistic is challenging — and determining the financial and human capital necessary to fulfill the vision adds complexity. As growth plans are presented to potential investors, entrepreneurs must be prepared for tough questions about viability.

Moving Forward Education co-founders Elana Metz and Lacy Asbill learned a powerful lesson after scaling their B Corp too quickly: revenue was the highest it had ever been — but they weren’t happy with the quality of their product and the co-founders were burning out. In response, Lacy and Elana made the intentional decision to scale back and were surprised that even though revenue was down, the company was much more profitable at this smaller size. This revelation changed the way they approached scale entirely. Instead of thinking about how big they could become, they focused on the quality of existing customer relationships. They recognized that, for them, bigger wasn’t better.

Tyler Gage of Runa found that entrepreneurs and investors can sometimes have competing goals: “Investors often want scale and want to see results quickly. This can sometimes be damaging to the actual success of the organization because you are so focused on growth that you lose sight of the stability and core impact.” One of the biggest mistakes entrepreneurs make is scaling too fast, too soon. In an earlier Forbes article, Nathan Furr contends that premature scaling is the number one reason startups go out of business.

As entrepreneurs look to investors and mentors for guidance on scaling, they often overlook a valuable and accessible resource — their peers.

In the videos that follow, entrepreneurs share the lessons they’ve learned about scaling — from those who grew too big, too fast to those who found the right balance by trial and error.

Why one firm decided to scale back after rapid growth:

What one entrepreneur learned from scaling too fast:

What one entrepreneur learned about having sufficient capital to scale:

How one venture scaled in an unconventional way:

Why one firm advocates for getting as much customer feedback as possible before scaling:

While some may view scaling as a roadmap toward a profitable exit, others think of scaling as a way to determine the “right size” at which a firm can become sustainable for the long-term. As the entrepreneurs in the videos above illustrate, being intentional and clear about your goals is necessary. These entrepreneurs also demonstrate that there is no special formula for scaling a business — plans to scale must be approached thoughtfully on a case-by-case basis.

What’s the best advice you’ve received on scaling your business?

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