To Scale or not to Scale?
In answering the question of why you’re running your small business, one answer you may not have considered yet, is your business’s impact on the South African economy. By Linda Bots
Studies have shown that Small, Medium and Micro Enterprises (SMMEs) all over the world are the key role players in sustaining a country’s economy, however, studies have also shown, that only a small number of SMMEs are job creators in those economies.
Brownhilder Ngek Neneh, Senior Lecturer in the Department of Business Management at the University of the Free State, calls these high quality SMMEs. He says that in South Africa, job creating SMMEs represent around 60% of formal business. If your business has human capital, growth ambition, innovation, motivation and market orientation then you will be classified as a high quality firm. In his article: Problems and Perspectives in Management (Volume 12, Issue 4, 2014) he says that high quality startups can be developed in South Africa, if policies that follow the classifications from the High Quality Model are applied, and new businesses are not registered without evaluation or some definitive scrutiny.
Based on the study done by Neneh, you can rate your business against the same criteria as the developed countries by giving yourself 1 point for each of these 5 criteria:
- Human Capital
Do you have skilled and knowledgeable individuals working for you? Are they trained and qualified for what their daily job entails? ‘Yes’ will give you 1 point.
- Growth Ambition
Not all business owners are willing to grow their businesses. Some prefer to stay small. Are you eager to achieve continuous and substantial growth? ‘Yes’ will give you 1 point.
- Innovation
Are you of the mindset and attitude to continuously create and adopt new ideas that can turn into new innovations for your products or services and by doing so, create a competitive advantage in your industry and market? ‘Yes’ will give you 1 point.
- Motivation
What motivated you to start your business? Was it sheer need in the hope of survival? Or did you start your business because you saw an opportunity in the market? Remember that this criteria is built from a developed economy point of view and therefore, if you have based your business on an opportunity in the market, you can give yourself 1 point.
- Market Orientation
Are you committed and dedicated to creating superior customer value through various marketing activities that will increase business performance? ‘Yes’ will give you 1 point.
A score between 4 and 5 will deem your business a high quality SMME, which means that you are a high contributor of jobs in the economy. It also means that the chances of sustainability are higher than what it would have been if your business was lacking in some of these areas.
If your score is lower than 4, don’t despair! You can still turn your business into a high quality SMME by growing and scaling. The question is, when would be a good time to scale up?
The best way of knowing when to scale your business is to first know the difference between growing and scaling.
You are growing your business when you increase the value of it by investing more resources into your business. Money and people. When the workload is too much and you bring in more employees, you are growing your business. You are also growing when you put processes and systems in place that will greatly assist in the daily running of your business but also set you up for when you scale up.
Scaling means to expand your footprint. You initially were selling to 100 clients and now you are selling to 1000 clients. Same product or service – bigger audience. You are also scaling when you expand from a local company to an international company or if you set up branches or increase the number of branches you already have.
Adding new products and services to your current market is to grow your business, but if you increase your products and services meant for new markets, you are increasing your footprint or market share and thus you are then scaling your business.
Deciding at which stage of your business life cycle you should start scaling your business is dependent on what your vision is and your why, and also on how well your processes and systems are set up. The question is: can you handle a scale-up with the current infrastructure and operations you currently have in place?
Make no mistake: there are nothing keeping you from scaling without having the infrastructure, systems and processes in place. The issue comes when you keep on tripping over the same things and when these things continue to hamper your speed of delivery or quality of service.
Think back on the 5 criteria of a high quality SMME according to Neneh’s definition. Having skilled and competent staff opens the door to almost all the other criteria in the definition. But what does skilled and competent mean?
I once listened to a talk from a very well-educated Occupational Therapist who made it clear that there is no such thing as a brainless child. You get multiple forms of intelligence and it presents itself by means of talent. If you ask me, I would say that talent and attitude is more important than training. But you need all three to create greatness. Don’t employ someone because you need a body in a seat. Be intentional and strategic, and the greatness will follow.
Then, make sure processes and systems are in place. Then it is time to expand to a greater audience. Continuous innovation and a mindfulness of market orientation will get you from a micro- business to a small-, to a medium-, and, who knows, soon you may be the giant who offers a shoulder for other SMMEs to stand on!
Whether you want to grow or scale your business, we can help you take the right steps to achieve your goal. Contact Business Doctors North West today to set up an appointment. Email us at linda.botts@business-doctors.co.za or phone on 084-680-6860. We look forward to hearing from you!