When considering how to improve the value of a business, we need to think about what contributes to value. What is a prospective buyer looking for, and what will prompt them to pay more for that business? Prospective buyers of businesses seek an investment with untapped growth potential, or scalability.
In this article, we delve into what scalability is and how to improve it. We’ll discuss the critical considerations that can either be stepping stones or stumbling blocks on the path to scalability and sustained growth. Showcasing your business’s capacity for expansion is essential to securing a profitable exit from your company in the future.
Scalability is the ability to grow – to flex and adapt production and operations to accommodate a rising demand for products or services. Most business owners want to grow, but the process often introduces new challenges they haven’t faced before.
Several hurdles can impede scalability, including:
- Poor infrastructure. You lack the internal systems, physical space, equipment, etc. to produce more at the same pace or for the same cost.
- Lack of resources. You lack the ingredients, raw materials, trained staff, or other essential pieces to deliver high volume.
- Insufficient capital. You lack the cash reserves to fulfil a large order with net-180 payment terms.
- Disorganized processes. The way you run the business, create the product, or deliver the service only works well at a small scale. Once you double, triple, or more the amount you’re delivering, those processes fall apart because they’re not efficient or effective.
- Rigid policies & procedures. Just as you can have processes that are too loose and undefined, you can also have polices and procedures that are too rigid and prescribed. When the pressure is on and the deadlines are looming, do these impose too much on the team working to meet the customer’s needs?
Failure to scale successfully can be expensive and result in financial losses, despite the increase in demand! It can even cause some businesses to fail altogether.
HOW TO IMPROVE BUSINESS GROWTH POTENTIAL
Some business owners face different problems. They may have the ability to scale, but the demand is either capped or is shrinking. The landscape of business is ever-evolving. If you’re an owner in this situation, your question around scaling may be quite different:
“How can my business be an enticing investment for buyers when growth potential seems capped, or worse, the market is shrinking?”
We’re currently working with two clients entrenched in such scenarios. Both boast extensive customer bases but the owners have been reluctant to adjust prices for the past 5-6 years. We’re navigating uncharted waters to redefine their markets, enlist specialized professionals, dissect marketing strategies, and analyze competitive pricing landscapes.
The focal point for growth diverges for each business. For one, we’re focused on reducing customer churn. For the other, we’re working on expanding offerings to cover a comprehensive spectrum of needs. While the nature of these enterprises differs significantly, the shared emphasis lies in fostering longer customer retention.
We’ve identified four pivotal strategies to amplify growth potential — even in markets undergoing contraction:
1. Investing in modern, efficient technology enhances production rates and curbs operational costs. Leveraging data-driven customer analytics tools proves essential to identifying needs and trends, enabling businesses to craft more competitive products and services.
2. Pursuing new markets is key for sustained growth. Diligent market research can unveil untapped territories, potential profit spikes, and opportunities to outshine rivals.
3. Cultivating strategic partnerships is a game-changer. By granting access to resources otherwise out of reach, these networks fortify growth potential.
4. Converting customer engagement into tangible transactions is key. While having engaged customers is a stepping stone, transforming this engagement into sales requires you to be proactive. These measure could include promotional incentives, discounts, or personalized relationships, to name a few.
These strategies transcend the limitations of a stagnant or contracting market, providing a roadmap for businesses to do more than get by – to thrive. The beauty of these principles is that anyone can apply them in any size business. Regardless of your desired exit timeline, adopting these strategies becomes a catalyst for ongoing business improvement.
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