Derived from his expertise, and recently-launched book, Kevin Brent shares five vital steps to help you build a more valuable business
The journey of scaling a business is not easy. When there are six million private sector small and medium-sized businesses within the UK, why is it that just four per cent of them scale beyond 10 employees or around £1 million turnover? And, equally importantly, what is preventing 75 per cent of these from then scaling beyond 50?
Despite what new or aspiring business owners believe, there isn’t one simple tip or magic bullet that is suddenly going to deliver phenomenal success, proven by the fact half of the start-ups fail within five years and two-thirds within 10. Furthermore, nearly 96 per cent of businesses are unable to scale beyond 10 employees, and less than one per cent beyond 50. Even though 80 per cent of new franchise businesses are still running after the first five years, a far smaller percentage of these are highly profitable and equipped to scale successfully.
Scale versus growth
It’s perhaps worth taking a moment to make the distinction between growing and scaling because this is a mindset change that separates those who scale from those that don’t. Growth is simply increasing the size of the business in a ‘linear’ fashion, by which I mean if the turnover increases by 10 per cent, so do the costs and therefore the bottom-line profits. The key thing about this is that any headaches you have in the business simply get magnified. It can take a lot of resources to sustain growth and while it can be effective in the short term, it doesn’t necessarily create the kind of business that gives the control and freedom that most business owners are looking for.
Scaling, on the other hand, implies that we are able to increase top-line sales and revenue at a faster rate than costs. The business model plays an important part in the strategy here to ensure we do have a model that can scale effectively. Adopting a scaling mindset rather than a growth mindset will lead to a more valuable business, one that’s more resilient and more fun to run, helping us to achieve the freedom and control we’re looking for.
The scale up journey
Scaling can be viewed as a series of stepping stones or staging posts, not a straight or even a wiggly line of growth. The first post, if you think about it, is at one employee, just us. The second is typically three to five employees, the third 8-12, and then 20-25, 40-60, 250-600, and so on. If you prefer to think about it in revenue terms, then broadly speaking, we’re looking at up to £100,000, £0.5 million, £1 million, £2-2.5 million, £5 million, £25-60 million, etc.
On your own you can build a great little business, perhaps a consulting-type model, nicely profitable. We can climb the ladder of success, and that’s great, but it’s a different kind of business from the three-to-five-employee business, where the ladder looks different. Here, we have the challenge of recruiting and managing staff – we’ve got to manage a bit more complexity in terms of communication, and make sure that we have the right business model to enable us to pay decent salaries. And it’s no longer OK to have bad months where we cope by taking less out because we can’t ask our staff to do that too. So, we’ve begun the transition from owning a job, and hopefully a well-paid one at that, to owning a real business.
The three-to-five-employee staging post is a great place to be. We’ve now got a team big enough to benefit from collaborative thinking, as well as people actively building the business, rather than one person trying to do everything. But we can’t just step from the one-person ladder to the five-person ladder at the same level; we have to join at a lower rung at a lower level. We’re going to have to invest in the transition even if it’s just in terms of paying additional staff. And we’re probably also going to have to think more about making our lead generation more consistent.
So, we’re going to have to take a dip before we start to climb the new ladder, and these dips are sometimes referred to as the ‘valley of death’. Because if we get it wrong, we can either languish for ages in a place where we’re busy but struggling to keep control and probably not earning healthy profits, or we can slip back to the previous ladder if a member of staff leaves or we make a bad decision in recruitment or struggle to manage cash flow. Worse still, we might even kill the business altogether.
The same happens throughout the scaleup journey. We need to plan the transition from one ladder to the next; we first need to recognise where we are, and then plan for what the business will look like and need at the next stage.
Think about how long we expect it to take. For example, is it a three-year plan? Or is it shorter, or longer? How much cash will we need to get us through that ‘valley of death’? And can we manage the investment from cash flow, for example, or do we need to access additional finance?
If we’re going to navigate the ‘valley of death’ at each stage, we need to do so from solid platforms where the business is operating as efficiently as possible. It’s perfectly fine to identify the stage approach you want to stop at, and then run your business to be really successful on that ladder. You don’t have to keep moving from one ladder to the next. But just be careful not to slip back.
One of the ways that the Entrepreneurial ScaleUp System (ESUS) works so well is that it not only addresses developing a good strategy, it also champions good execution. It does this by helping to ensure that everyone in the business understands the most important things that need to be done, and that they are aligned around achieving them.
As a franchise owner, you too can employ these successful methods for scaling. Start by following these five steps.
1. Follow the proven system
With growing economic uncertainty, there’s never been a more prudent time to future-proof your business and follow a strategy that delivers proven results.
For a franchise to be successful, it must follow a proven business model. By partnering with a reputable, well-established brand, franchisees can rest assured that they have invested in a business that has been tried, tested, and continues to work effectively for the existing franchise network.
This supports the notion that in business, success leaves clues, meaning that if you replicate the steps taken by other franchisees or business leaders you should experience similar, positive results.
2. Find the right people for the right roles
Recruiting good people is essential for any business and franchise success – however, it’s equally as important to ensure that the right people are working within the right roles.
The first thing franchise owners should analyse when hiring is attitude. It’s widely believed that we’re better off with people who have the right attitude even if they don’t have all the necessary skills; we should ‘hire for will and train for skill’.
Hiring an employee with a positive attitude, passion to learn, and hunger to thrive will prove far more effective than employing a competent, skilled individual who’s lackadaisical in their approach towards business success.
Once we’ve navigated the recruitment process and secured the right people, we must ensure that the team is positioned in the right roles to be able to perform effectively. For a business to thrive, it must listen and work with employees. Even a great person’s flame will wither and die out if they are in the wrong role for any length of time.
To evaluate the best position for employees, businesses and franchisees should examine the individual’s core values, ensuring they align with the objectives, skills, vision, and driving force required for the role.
3. Harness peer-to-peer support
Scaling a franchise can be a daunting task for franchisees. With an eagerness to do well and ensure that they have invested their money wisely, franchisees carry a great deal of performance-related pressure, especially when it comes to trying to scale their business.
An important tool to tackle performance-related pressure is to regularly meet and engage with other like-minded business owners through peer-to-peer support.
Peer-to-peer support networks bring together senior leaders who share similar job roles but work in different sectors, encouraging dynamic thinking while offering fresh perspectives on ideas and challenges.
Each session offers business owners the chance to seek expert advice and invaluable insights from others and their experiences, acting as a sounding board to help each other overcome barriers when scaling up.
The sessions also provide an open space to share fears, concerns, and successes, enabling attendees to express their worries in a nonjudgemental environment where everyone is there to help each other.
4. Self-evaluation and accountability
To achieve any business goal, accountability is essential. Accountability is often coined as a way of ‘owning and tracking’ and is different from responsibility – it‘s about tracking progress, and not about authority.
By taking accountability, franchisees can self-analyse their performance and acknowledge areas where they can improve. However, it doesn’t need to stop with the franchise owner – it can be implemented throughout the business too. This not only works to assess areas for improvement for employees but also signifies areas of excellence, offering a culture of rewarding performance while tackling areas of difficulty.
In a high-functioning team, the team members understand what is expected from them and will ‘self-police’ out-of-line behaviours.
5. Create a 90-day rhythm
By implementing a 90-day rhythm, franchisees can guarantee consistency throughout their operations and provide a clear plan for all team members to follow.
Creating and reviewing a 90-day plan every quarter ensures that there’s enough time to set and achieve realistic business goals, as it’s short enough so that you can see things clearly and long enough to achieve something meaningful.
Furthermore, it provides a clear path for business goals and bridges the gap between strategy and actions. Other benefits include:
Clarity: it enables business owners to set goals and make decisions on the order of priority
Flexibility: it provides agility, allowing users to adjust course quickly and execute accordingly Alignment: it helps establish consistency within the team, ensuring that everyone is on the same page
Communication: it improves communication and enables business owners to set clear responsibilities and ownership.
So, as you can see, scaling a franchise is not an impossible endeavour, and franchisees should action change by following the guidance of others and implementing a proven system for success, while focusing on other key drivers for scalability, such as recruiting a talented and driven team.
In addition, harnessing resources such as The Entrepreneurial Scale Up System can be instrumental to franchise development and help lay the framework for achieving and maintaining performance growth and success.
4 Pillars of success
In order to scale, there are four key pillars that need to be got right: strategy, people, execution and cash. Any business that’s not performing well on all four pillars will find they get stuck, or even fail altogether.
1. STRATEGY – have you got a truly differentiated strategy and scalable business model?
2. PEOPLE – are you attracting, hiring and retaining the right people on the right strategy?
3. EXECUTION – are you getting the right people to execute the strategy with ruthless efficiency and focus and in the right way?
4. CASH – are you managing your cash as you go?
Kevin Brent is the founder of BizSmart and author of The Entrepreneurial Scale Up System.