Scaling a business up from its initial startup phase to a major corporation with massive market value is full of obstacles. As most founders and entrepreneurs already understand all too well, the potential for failure looms at every step.
According to finance and investment guru Dutch Mendenhall, who leads multiple real estate investment companies, scaling up is a choice for the vast majority of companies, and certain signs can help business leaders determine whether or not they’re actually ready.
“Profit should always be your first consideration,” Mendenhall says. “Scaling up should never be done for the sake of appearances or the founder’s ego. Nothing should ever get in the way of making money — just ask many investors. There’s a lot to be said for a small business that operates at maximum efficiency. You’ll need to do a dispassionate analysis to determine if the business would benefit from expansion.”
Here are Mendenhall’s top tips for scaling your enterprise.
Tip #1: Analyze the signs
Can you deliver excellent products or services on a reliable basis? Are your customers happy? Is your team resilient enough to produce positive outcomes even when someone goes on vacation? Does your cash flow continue across market cycles?
These are some of the questions that Mendenhall encourages business leaders to ask themselves.
“If your processes are still chaotic, then you’re not ready to scale up,” Mendenhall says. “Businesses that are ready to grow are purpose-built and operate in a calm manner.”
Reliable demand is another indication that you may be ready to take the next step. “You should be getting business from repeat customers and referrals,” Mendenhall explains. “Your sales need to be growing naturally.”
Since scaling up requires money, Mendenhall also advises tracking cash flow and cultivating external sources of possible funding. “You’ll need both a detailed financial plan and a thick financial cushion,” he says.
Tip #2: Invest in leadership
Mendenhall’s first recommendation is to invest in your organization’s leadership. “It makes a huge difference,” he says. “Successful scaling starts with your leadership. If you don’t invest in your leadership, then your people will never be who they need to be for you to succeed, and you will fail.”
To ensure your business has the strong, effective leadership that scaling requires, Mendenhall emphasizes the importance of professional development, customized leadership training programs, and mentoring opportunities.
“Avoid generic courses and that sort of thing,” he advises. “Developing close personal relationships and being able to talk real talk are key to fostering talent.”
He also highlights the importance of accountability. “When founders and members of the C-Suite fail to take accountability, they can expect the rest of their team to do the same,” he says. “It’s important to be able to own your mistakes. It’s also okay to admit that you might not always know everything. Here’s the secret — no one expects you to.”
Tip #3: Choose the right people for investment
Investing in leadership also means understanding what makes a great leader and promoting those people. “Look for someone who communicates proactively. Someone who knows how to think critically and displays excellent judgment, empathizes with others and makes them feel safe, and takes initiative effectively and skillfully,” Mendenhall says. “People with those qualities should be your future leaders. Cultivate them the same way you would a strategic acquisition of the best real estate.”
Once you find those trustworthy people, however, it’s necessary for founders and other members of leadership to surrender the wheel. “You have to face facts,” Mendenhall says. “Once the business reaches a certain level, entrepreneurs can’t do everything themselves. As difficult as it might seem, you’ll need to relinquish some control.”
In addition, Mendenhall says bad hires are inevitable. “You’re going to make some great and incredible hires, but you’re also going to make some bad hires along the way,” he says. “Don’t stick with your bad hires. Terminate and move on.”
Tip # 4: Create value in waves
“Growth doesn’t happen in a straight line,” Mendenhall says. “It ebbs and flows in waves. You shouldn’t even start to scale until you have a stable business. At that point, you can do a surge of expansion, which should be followed by a stage of recuperation and consolidation. With growth comes new problems that need to be addressed. Otherwise, they will just get bigger as you scale up. Only once the business is stable, fully integrated, and working at maximum efficiency again should you unleash the next wave of growth.”
For Mendenhall, thinking about scaling up in a series of waves is a more sustainable approach than attempting to grow continuously.
“The timing matters, and you need to be in tune with the reality on the ground,” Mendenhall says. “Slow down — don’t force it. If you do, you can easily overwhelm your team and operational systems, not to mention your finances. Many entrepreneurs fear what will happen if they slow the momentum, but pausing and being strategic can unlock much more profitability than charging full force ahead in the wrong direction. Tap into your company’s natural rhythm and go with the flow.”
Build a profitable business for the long haul
For Mendenhall, successful scaling isn’t just about hiring lots of people and appearing to grow quickly. Instead, it’s about building a profitable business for the long haul.
“Don’t confuse a bigger team with a more profitable business,” he says. “Pay attention to what your data and spreadsheets are saying. If the track record isn’t good or is mixed, don’t be afraid to pull back. Be patient. The time will come to surf your wave.”
