Growth May 23, 2017 Last updated May 22nd, 2017 1,492 Reads share

Scaling a Business Up or Down: 5 Things You Need to Know

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Scaling is one of the most difficult challenges a business owner will ever face. The greatest myth is that scaling goes in only one direction: up. Most people think they’re going to either remain static or grow. The truth is that it depends on how your business is performing and pivoting, and scaling isn’t always a companywide initiative.

For example, if one part of your business is more successful than the others, you may pour more resources into that one department. Or if you lose a major client or experience another disastrous setback, you may need to scale back through staff cuts or overhead minimization.

In short, there’s no specific time when you need to scale (up or down), and there are growing pains that every successful business will face.

Room to Grow

One of the most difficult and pitfall-laden aspects of scaling is managing your physical space. Signing a two-year lease can be stressful if you can’t 100 percent count on the revenue to cover the overhead. But a growing business means hiring more employees, and those employees need a place to work.

Buying or renting a new space (and getting everyone settled) can be expensive and inconvenient, and if you don’t time that change correctly, it could become more of a deficit than an advantage.

Co-working spaces are attractive because they seem to solve the problem of finding space. They often offer shorter leases and flexible space to grow into, not to mention a variety of resources and perks for employees.

But co-working spaces have their downsides, too: a lack of privacy, for instance. It’s also important to think about how clients will judge you by your co-working site. Clients will form a first impression based on what your working conditions look like and how your employees utilize that space. In a co-working space, you have no control over the space or the other individuals working there.

Or perhaps you run a virtual business, and your employees work remotely and don’t require a unified physical space. When your workforce skews remote, you’ll still have to figure out how to help the expanding team collaborate and stay connected.

Smart Scaling

Scaling — whether up or down — requires careful thought and consideration. Carelessly hiring the wrong people or spending money in the wrong places can ultimately hurt your business. When the time comes for your business to scale, use the following tips to guide your growth.

#1. Test the waters before fully committing.

Test out your growth with shared external resources, such as contract workers, and see how it works before making a huge commitment. Freelance and contract employees are less of a commitment than full-time workers because you won’t have to worry about paying employee taxes as well as potential healthcare costs and workers’ compensation.

The most important thing to remember is to not make big moves on the basis of your current trajectory. Base decisions only on your signed guaranteed growth. Otherwise, you could end up over your head and in trouble.

#2. Prioritize culture fit.

It’s easy to think that hiring just one new employee won’t make a major difference in how the entire team performs, but each new person creates a ripple effect in the overall culture.

If just one person doesn’t fit the team culture, it will change the entire dynamic. The ultimate goal is to have a community where the entire staff works as one team. That’s tough to do if employees aren’t on the same page.

Whenever you hire a new person, consider not only his or her skills, but also how his or her personality will mesh with the team. If the team doesn’t get along and can’t work together, it doesn’t matter how talented or hardworking the individual employees are.

#3. Small moves are better than big ones.

While every business owner wants his or her company to grow quickly, risks are involved in scaling up too fast.

We work with one company, for instance, that has doubled in size within the past year. Sounds great, right? But one of the problems I’ve noticed as an outsider looking in is that new people haven’t been properly integrated or trained. There’s also a lack of quality control because the leaders are so busy, they’re hiring against their problems and against their workload.

As a result, there aren’t proper systems or protocols to train new hires. For this business, hiring new people isn’t making things better or solving any problems — it’s just throwing more water on the fire.

Before you make a move, take your time to seriously consider the effects it will have on your product or service, your employees, and your reputation.

#4. If you must scale down, use it as a step toward success.

Many business owners view scaling down as a sign of defeat. They form personal connections with their employees, and letting anyone go can rattle them and feel like a personal failing, as well as a business failing.

But scaling down doesn’t mean your business has failed. It simply means you’ll need to readjust, learn from your mistakes, and move forward. And when you come out on the other side stronger than ever, it’s a great underdog success story.

When problems do arise, be transparent with clients and staff. Also have contingencies in place for how you’re going to weather the next storm and move forward. If you plan for everything, you’ll be ready to act if disaster strikes.

#5. Always be fiscally conservative.

Even if your company is growing like crazy, don’t assume it’ll be that way forever. Always err on the side of safety and have the money in your hand and customer contracts signed before you make any big decisions, such as expanding your team or taking on additional overhead.

While it’s important to plan for the future, remember that nothing’s definitive until it actually happens. Be prepared to move the needle, but don’t take those steps until everything is set in stone. No matter how promising something looks, it doesn’t count unless it actually happens.

Scaling a business up or down is one of the hardest things a business owner will ever do, but all companies will go through it at some point. If you hire carefully, plan ahead, and don’t make any major decisions until everything is signed on the dotted line, you’ll come out the other side stronger and more successful. Remember, ups and downs are natural to the life cycle of any business. It’s learning how to weather those fluctuations that will determine your ultimate success.

What challenges have you faced while growing your business? What tactics did you use to scale effectively? Let us know in the comments!

Image: Shutterstock

Jiffy Iuen

Jiffy Iuen

Jiffy Iuen is the founder + CEO of Frank Collective, a bicoastal branding and content company based in Brooklyn and Los Angeles. She lives in East Los Angeles with her husband and two rescue dogs

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