Issues When Scaling a Startup or SMB

Jul 24, 2021 · 6 mins read
Issues When Scaling a Startup or SMB
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Imagine investing the time and money to get your product off the ground and it’s well received by the general public. This is the first hump to get over as a startup, yet the journey has only begun in your race to become a Fortune 500 company.

Scaling a startup is the end-game goal of pretty much anybody, but a surprising amount of people are poorly prepared for when the time actually comes. This article will over some common problems startups face when they need to scale up their project to meet customer demand.

Future-proofing a Startup

As a fellow blogger Mario Pleshev outlined in his article on scaling a business, you will have a few hurdles when planning for managing the upcoming risk of your startup’s expansion. This may include increasing your expenses, increasing business knowledge, and expanding the skill set of your team.

Increasing your expenses is probably a no-brainer for most readers, but it can seriously be more expensive than you imagined. For example, a tech startup that’s taking on a plethora of new customers will likely need to drop down serious money on new servers and networking infrastructure.

Increasing business knowledge is essential for having a larger workforce to work efficiently at scale.

Expanding the skill set of your team is needed to take on new challenges your small business never had to face before. This may include PR, marketing, or compliance management to name a few.

Scaling the Workforce

Scaling doesn’t just not apply to customers and expenses. Hiring new employees to expand your workforce is probably one of the most important part when scaling a startup.

According to research presented by CB Insights, “not having the right team” is right up there with “running out of money” when it comes to why startups fail.

Source: The Top 20 Reasons Startups Fail, cbinsights.com

And let’s say you need to multiply your current team several times what it currently is. You obviously will need to be delicate at recruiting new employees as to maintain the integrity of your current team.

Here’s a few tips for on-boarding:

  • Revamp your interview process: Conduct more efficient interviews that may include on-site whiteboard tasks, background checks, and reference checks.
  • Incorporate company cuture into your hiring process: Make sure you provide details on how your workplace operates so you don’t invite people in that are not compatible.
  • Recruiting based on referrals: Your most trustworthy team members may also happen to have friends with similar qualifications to join your company. Not only is it a simple recruiting method, it is easy to integrate such people into your company’s culture.
  • Be competitive within your field: Startups get a bad reputation for under-paying or offering speculative shares in a company that may or may not be viable. Once you are scaling up, you should start looking to be competitive with other big brands in the same field to get some serious talent.
  • Create a feedback loop: A simple way to see if your on-boarding process is working is to simply survey recent or potential new employees. Ask them if your hiring process reflects your company culture well, and why they did or didn’t want to work for your company.

Scaling a startup may also mean crossing state our international boundaries. As the internet and e-commerce is facing increased regulation in certain areas of the globe, it’s important for a legitimate startup to be aware of legal compliance

Some legal issues that may arise include:

  • Keeping up with cookie & privacy policies: If you collect cookies or user information, some countries have guidelines to make sure the user is aware of it.
  • Terms and conditions: Startups with a product-based model need to keep up with consumer laws for the specific types of items they are selling.
  • Clear terms for services: If you offer an online service (or SaaS), service based terms and conditions should be clear for clients.
  • Data protection: Not only is it common courtesy to protect the data of your clients, many countries have laws that require you to do so. This may include being registered with an Information Commissioner office, meeting requirements for a privacy policy, and having a dedicated data protection officer.
  • Manufacturing and distribution liability: For companies producing physical products, scaling up will certainly increase liability risks. You may need to prepare for the likes of product recalls, product spoilage, and setting up contract with producers and distributors.
  • Employee contracts and policies: Whether you hire full-time employees or contractors that come and go, be sure to have details and policies thoroughly written up to avoid future disputes.
  • Brand protection: Make sure your brand is registered in every country that you operate. Also, having products patented is also a good idea whenever applicable.

Funding Challenges

Money matters is the root of whether a startup becomes successful enough, and expanding your business probably needs a decent amount of cash. If you take a look at how most startups make it big, chances are that many of them have venture capital well invested into their projects.

Here’s just a few tips to look for external funding sources:

  • Venture capital: VC firms are willing to invest in the multi-million dollar range for companies that have potential to scale at a serious level. Be sure to various firms with your business model, and ultimately how you will help them turn a profit on their investment.
  • Crowdfunding campaigns: Raising money from a broad group of investors may be exactly what a small and unusual startup needs when they don’t qualify for big VC firms. The caveat is that you need to promote your project quite aggressively in hopes that it will become viral.
  • Business grants: There are grants available from all around the world coming from both public and private entities. A few examples for American companies include the SBIR program, the FedEX Small Business Grant Content, and the Amber Grant.
  • Consider bank loans: It may not be te most desirable means of funding, but getting into debt is quite common for small businesses when they need to meet current demand. Banks may require you to demonstrate current profits and credit history to be considered. You may even qualify for government-subsidized loans to improve your chance at getting approved.

Wrapping Up

There really is no cookie cutter way to turn your startup into the next big thing. As your company scales, it will be a constant struggle to make things come together to continue to meet and retain customer demand. Hopefully, the tips in this article will give you hint of what you need to prepare for when you’re ready to take it to the next level.