scaling a start-up

5 Hurdles to Scaling a Start-Up

Growing a small business into a big one can be pretty tricky. In the beginning stages of building a start-up, often there are two paths. One path is to come up with a concept, raise funding for it, put your shingle out for business and then hire people. The other path is to grow organically, one employee at a time, and build the company incrementally hiring people to fit the business need and only as the enterprise grows.

I recently had the pleasure of talking with Dan Pine, Head of the portfolio management team at Forum Securities Ltd., an entrepreneurial real estate investment firm. Our conversation began on the topic of writing, metrics and analyzing companies. It evolved into one revolving around the challenges of growing a company. We talked about the second scenario, trying to grow a start-up organically. Here are his insights, which I have reassembled into 5 hurdles to scaling a start-up:

1. Scaling a person’s skill set

Every start-up begins with a vision and a founder, someone who saw the need to try a new way of doing things. It’s the vision that drives and motivates the founder, and that person probably has a unique skill set which encompasses many aspects of the growing business. A founder brings key client relationships to the business, supporters who help to get the company off the ground and provide a steady source of revenue. But if the personality or skill set of the founder is impossible to replicate, the business may not grow very much or flounder altogether. Scaling a person’s unique abilities or relationships can be an insurmountable hurdle.

The answer lies in letting the founder do what he or she does best, and remove some of his/her other responsibilities. Scale the business, not the individual, by moving some of the less important duties to others in the organization, and grow those parts of the business with different members of the team.

scaling a start-up

2. Maintaining a strong corporate culture

Start-ups invariably try to keep overheads low. Sometimes you will see a small, core management team and then a trusted team of freelancers that work at arm’s length for larger projects. Often, there is no office, so it can be a challenge to develop a corporate culture or affinity amongst colleagues. They simply don’t see each other enough.

The answer is to establish set meeting dates and times, either weekly or perhaps twice each week. Everyone physically gets together to discuss current projects and the business itself. The meeting can be over lunch or coffee, but everyone has to come. The team will get to know each other and bond. They will work towards the same goals, and the corporate culture will take foot.

3. Leveraging client relationships

The traditional equity structure of a partnership is one way to grow a business. Partners that join a firm bring clients, invest in the equity of the business and adhere to a rigorous work ethic and long hours. A typical dilemma has always been trying to leverage client relationships which are so deeply tied to one of the partners. In a sense, it is a similar problem to scaling a person as opposed to a business.

The answer is to keep the partner who has the client relationship as the main contact, or the face of the firm to the client. At the same time, that partner can make introductions and promote working relationships amongst different areas and individuals in the firm. The key is to try and leverage the relationship, but not compromise it. As younger managers in both the start-up and client emerge, the relationship and points of contact between the organizations will broaden too.

start-up funding

4. Acquiring funding without giving away control

Back to the two paths, and in particular the first one: come up with a concept, raise funding for it, put your shingle out for business and then hire people. With this route, it is possible to build the business faster and scale with immediacy, because funding allows you to bring on managers, hire a core group of employees, perhaps employ a sales team and pay for lead generation software. But, the price may be that in taking on a financial partner(s), you end up losing your controlling interest as well as the ability to build the company the way you envision it.

The answer is the second path, organic growth, if you genuinely want to build a company which is yours. It takes time for visions to unfold, and often the business will evolve quite differently than planned. While it may make strategic sense to motivate partners with equity, it is an entirely different matter to give away control of the business. Use ownership stakes to incentivize and align management, but maintain financial control so that in the end, you will have majority ownership of the company you worked so hard to build.

start-up teamwork

5. Finding talented people to join you

Start-ups demand long hours. Often, the founders wear multiple hats and must do any and everything that needs to be done. As the client base grows, the role of jack of all trades and master of none no longer works. The business simply will not grow unless you find talented people to take on some of the tasks in a more structured way. Another problem is that the clients that you began the business with can often get overlooked as the organization tests its limited resources.

The answer is to always be on the lookout for talented, like-minded people who offer skill sets that you need. Build your business by hiring or partnering with them and start to evolve the organizational structure of the company. It’s not easy to pass responsibilities to others, but the start-up will not grow unless you learn to do so.

If your start-up is beginning to take off, confront the hurdles that go along with scaling it. It’s good for your clients and it’s good for the business. Plus, your company will end up with the bench strength to confront the many challenges ahead.

5 Reasons to Start Your Small Business Right Now

Starting your own business is the iconic American dream. If you have a passion, perhaps it’s time to pursue it in a more serious way and see if you can make a living doing it. The figures are daunting. Approximately 8 out of 10 start-ups fail within the first 18 months, and new entrepreneurs will invariably make mistakes, many of which will be costly. Often there is financial pain along with the uncertainty of how long to keep going if the concept isn’t working. At times, you will feel like you jumped off a cliff, but nevertheless, there are so many reasons to try.

Here are 5 reasons to start your small business right now:

1. Be Your Own Boss

Work Life Balance is the enviable state of successfully managing a career and life. A highly-regarded online medical resource, WebMD, even has a section on how to improve your work life balance, and the pursuit of it is one of the key drivers behind the exponential rise in the freelancing industry. Starting your own business will certainly throw your work life balance off for a while as you build, fund and grow a new venture. Ultimately, the rewards include the ability to manage your own time and be your own boss. You can decide how large to grow your business and who to hire. You can even work from home until such time as you choose to expand your company.

pursuing a passion is good for your health

2. Pursuing a Creative Passion is Good for Your Health

Having a creative outlet is important to your mental well-being. For many people, it takes the form of a hobby that is enjoyed around a structured work week. But why not try to build your hobby into a business. In Six Tips for Turning Your Hobby Into Your Job, Jacquelyn Smith encourages people to figure out if there is an income stream in their hobby and pursue it. Do you like to crochet? Help others learn how to enjoy your hobby by teaching at a local community college or develop a series of classes from home. Doing so can be good for your health. A study in the Journal for Aging and Health found that creative people had lower levels of stress and healthier brains.

SBA Loan Rates

(Effective Loan Rate of SBA Loan Portion from

3. Interest Rates are at Historic Lows

Whether it’s seed capital or money for day-to-day operations, many aspiring entrepreneurs need funding. One of the primary reasons for small business failure is lack of cash flow, and small businesses are perceived as risky, so they pay much higher interest rates on loans than large corporations. If you are looking to start a new business, the interest rate environment matters. In the United States, the Small Business Association (SBA) has a loan program that will guarantee up to $5 million dollars or 75% of the loan repayment called the 7(a) Loan Program. Typically, interest rates on SBA loans are benchmarked off prime rates and the Federal Funds rate. The Federal Funds rate is at historic lows.

4. Age Discrimination in the Workplace

As workers age, many find it nearly impossible to re-enter the workforce after any lapse in employment, particularly after the age of 50. Age discrimination is well-documented. Not surprisingly, many older Americans apply their skill set to starting their own business. With a lifetime of experience and a wealth of knowledge, olderpreneurs are on the rise. And because older business owners typically have more money than their younger peers, they borrow less and their ventures have a higher rate of survival.

5. Individual Health Insurance under the Affordable Care Act

The landmark healthcare legislation, the Affordable Care Act, made individual healthcare plans available to many Americans who previously did not qualify. One of the main reasons employees hesitated to leave a traditional workplace environment was the ensuing loss of health coverage, but solopreneurs can now purchase individual health plans on the Federal open marketplace. Small businesses can even set-up a defined contribution plan for employees and provide allowances to reimburse employees for their individual health insurance costs, and it is typically cheaper than a group healthcare option.

So, if starting a new business has been on your to-do list, there is no time like the present. From the practicalities of finding funding and getting health coverage to the benefits of achieving employment flexibility and work life balance, it’s a great time to consider pursuing your passion. If you choose to take the leap, contact Resourceful Business and we will create a digital marketing strategy to make your new business soar!