7 Ways to Prove Scalability to Investors
Small business startups and entrepreneurs often think that investors will be ready and waiting to sink thousands and millions of dollars into their idea. The dramatized investment process seen on television isn’t how it works for the majority of individuals looking to get their ideas out into the market. Investors look for startups that are scalable. They want businesses on the verge of growth and ready to handle the changes growth brings. Being ready to scale is when your business model and product have been proven to be ready to go into new markets and territories. To show investors that your business is worth their input and finances, here are some tips for making your new venture scalable.
Start With an Idea That Can Grow
If you checked with your friends and family for approval on your business idea, you might be sorely disappointed when you present the idea to experienced investors and market gurus. Your idea may seem fine for your location or community, but this doesn’t mean that it will be scalable. Investors pay attention when market research has been done and experts from outside your circle of friends support the possibilities of expansions. You may not be able to show massive increases in the first year, but a strong predicted growth rate over the next five to 10 years will cause an investor to sit up and take notice. Start your journey with an idea and an intention that is scalable.
Develop an Attractive Business Model
Small business owners don’t always put an adequate amount of time into their business plan or model. Many don’t have the right understanding of how important these elements are, especially when it comes to investment needs. Many entrepreneurs establish a plan that focuses on the customers, either what kind of products will be selected or what features will be on the priority lists. Products that require a lot of support, with employees being expected to offer those resources at no charge, will not build you a successful business. For a scalable business to be profitable, it needs products with high margins (at least 50% or higher), low support, and very little staff involvement.
Establish a Working Product
Your business plan might show well to investors, but scalability can’t really be judged until it can be seen through customers paying full price for the product and proving loyal to the brand. Investors need to see a minimum viable product to bring validity to your business model. Real customers can be fickle, causing you time and additional efforts to get your business going successfully. If you can finally get the product right, then you have something scalable to bring to investors.
Set Up the Operations
As you work to develop your business and brand, you need to build a team of people that can support the critical functions of the business. When your time is monopolized by working in the business rather than continuing to develop and plan for the future, potential investors won’t consider your company ready to scale. You should already have people in place to take care of your day-to-day operations with the same skill and effort that you display. By demonstrating hiring practices that mimic your own passion and work ethics, you demonstrate the business can be scaled without any major labor gaps.
Integrate Technology Wisely
There are many benefits from bringing tech developments to the business but only when the decisions are strategically made. For instance, buying a software package is useful for accounting, payroll, or record keeping, but only if the software is able to be continually updated with new features as the business grows. Cloud-based options, like a hosted PBX service, are generally designed to work for any size business, making them great opportunities when scalability is a concern. Putting equipment or software in place that can keep up with the changes to your company’s size or needs demonstrates flexibility without loss of efficiency to potential investors.
Choose Outsourcing as Necessary
As a new business owner, you probably aren’t an expert in all the different areas of business management, product development, marketing, or IT security. Your area of expertise rests with what you know and can do. Never try to build a business by putting all your efforts into bringing experts for your areas of deficiency. Outsource to thirds parties in order to save both time and money. Scaling looks at the potential for other agencies to fill in your expertise gaps, and investors appreciate the stability that this outsourcing provides. Outsourcing items that are non-strategic to your development is a way to optimize leverage.
Be Marketing Savvy
When it comes to your marketing strategy, if you remain committed to a direct marketing strategy, you will find that most of the time this approach is not scalable. This is particularly true with high-volume but low-cost products. As a startup, you will need heavy marketing to make your brand and product visible across all the mediums consumers are checking. In times past, word-of-mouth could have gotten you some attention. Now, consumers turn to digital sources like websites and social networking platforms to find out a business or read a review. Investors want to see that you have expanded your reach beyond the immediate community or hometown where your business is operating. Indirect channels can help get your message out a lot faster to a bigger audience.
These are just a few of the ways you can make your business more scalable. Nail these areas and investors are more likely to pay attention when you start to speak.