Business owners easily fall into the trap of misunderstanding the difference between truly scaling a firm and just letting it get bigger
Few business owners genuinely scale their firms; most just let them get bigger. The difference is not so much a question of semantics. Scale is about having a model that can easily and efficiently be made bigger, with sustainable benefits and greater profitability from the increased size. Simply getting bigger without scalability often leads to failure and certainly increases risk.
All of this came to mind chairing a panel at the recent Money Marketing Interactive conference, where I had the privilege of listening to three wise and experienced people on the matter: Rebecca Aldridge, who has built her greatly admired financial planning business Balance: Wealth; Jeannie Boyle, who runs the environmental, social and corporate governance oriented wealth management company EQ Investors; and Malcolm Kerr, industry veteran and now non-executive director of consolidator Fairstone.
The normal approach to starting a business – or running a small one – is to set up processes, systems and structures that will be just about good enough to scrape by for now. After all, why over-engineer the firm when the key issue is to get enough clients through the door and provide enough to satisfy their needs?
Growing pains However, with a business based on that approach, the systems will always struggle to keep up with the demands of it and its clients. Every spate of growth will be a pang of pain and involve some avoidable risk.
Such businesses can grow but they will develop erratically and with high levels of hazard, subject to poor recruiting, inadequate monitoring, strained record-keeping, inconsistent treatment of clients, and sporadic or non-existent profitability.
As more advisers and other staff are added to the mix, it will deteriorate further.
What is needed from the start is a systematic and scalable approach, so that key staff and functions can be added relatively painlessly.
Even more important, according to the experts, is the need for a clear vision for the business that can be communicated to clients and colleagues. Culture is what makes good things happen and stops bad things occurring when the systems and processes alone are not enough.
Taking on new staff always involves a major risk. Most of us are much worse at judging character and capability than we think we are. The more that is clearly expressed about what the business is aiming to do and its direction of travel, the lower the risk of misaligned expectations.
Hire slowly, fire quickly
That said, with all the preparation in the world, and with the best systems, processes and structures going, things can still go wrong with bringing in new people. So remember the old adage about employing people: hire slowly (take your time, get to know them really well, explain the business thoroughly and listen a lot) but fire quickly (once someone is on the inside of the business, you will see them for real; be prepared to say goodbye fast if it is not working out).
All businesses should be scalable from the start. A single-person operation will double when the first employee is taken on.
All the thinking that hitherto only went on in the pioneer’s head now has to be transmitted to the second person in the team.
Finally, decide what is likely to be the future of the business. Does it make sense to fatten it up for sale to a consolidator or some other large organisation? Or is a lifestyle operation an option, with a good income and limited objectives of making a large lump sum? Whatever the aim, scalability remains a good way to get there.
Danby Bloch is chairman of Helm Godfrey and head of editorial strategy at Platforum