10 Business Strategy Mistakes All Scale-ups Need to Avoid

You’ve been successful in getting your business started. Those early customers have come flooding in. You’ve put together a workforce with the skills and knowhow to cope with demand. You may even have secured funding to ensure your short-term future and give you some options of where to go next.

Your next step is to look to scale up your business. To start expanding and growing in order to capitalise on your early successes. The process of scaling up is key to any business and business owner. Whether you’re looking for a payday by selling down the road. Or trying to establish a formidable and future-proof brand.

Before you start trying to scale up, it’s a good idea to take a brief step back. You need to take time to think about exactly how you’re going to take your scale-up to the next level. A good place to start is by learning some of the most common business strategy mistakes that scale-ups make.

The Business Strategy Mistakes to Avoid

Scaling up a business isn’t easy. If it were, every company would do it and none of them would fail. We all know that isn’t the case. There are many different pitfalls that firms can fall into when trying to scale up and grow.

Often, it’s the same kinds of mistakes made in the early days of a scale-up’s life that prove their downfall. The same errors and issues which afflict businesses of all shapes and sizes. If you’re going to avoid those business strategy mistakes, you first need to know what they are.

We’re going to give you a brief rundown of ten common mistakes in business strategy. All firms can fall foul of these issues, but for scale-ups their results can be fatal. These mistakes have put paid to the hopes of many a firm looking to grow and develop (click links to move to details on each section below):

  1. Failing to define a strategic direction
  2. Prioritising the wrong things or failing to focus
  3. Making errors in funding and financing
  4. Not properly monitoring performance
  5. Missing or pursuing the wrong opportunities
  6. Refusing to change in order to grow
  7. Misjudging the pace of hiring
  8. Not knowing when to seek help or to delegate
  9. Failure to communicate
  10. Not implementing the right practical support to aid growth

1. Failing to Define a Strategic Direction

You’re looking to scale up your business. That’s a given, but it’s not enough. What you need before you start the process of scaling up, is to define a clear strategic direction for your company. In fact, it’s ideal to think about and decide upon a strategic direction before even starting a business, if you can.

Developing a strategic direction is about identifying an end goal for your company. You need to think about what it is you want your firm to achieve. You could frame it as a mission statement or as a vision of what you want a future version of your company to look like.

From there, it’s possible to work backwards. With an end goal defined, you can build a business structure that will help you to achieve it. You can determine the duties and responsibilities of each of your departments. You may even goes as far as to ID them for each employee. You can also set incremental goals to aim at, which will lead you down a path toward your overall objective.

Without a clear strategic direction, it’s easy for your business to lose focus. To get bogged down in the day-to-day and fail to grow. That’s what happens to a scale-up that makes this mistake. Departments stop pulling in the same direction. Morale falls and the desired development doesn’t happen.

2. Prioritising The Wrong Things or Failing to Focus

As well as determining a practical strategic direction it’s also crucial for a firm to have a well-defined culture. A set of values by which the business and its staff should all look to adhere. Having that set of values makes it easier for owners to inspire their wider teams and keep them motivated.

As a company looks to grow, too, it’s crucial that these key tenets aren’t forgotten. It’s easy for a scale-up’s management team to get caught up in the excitement of trying to grow their firm. In doing so, they can lose sight of the qualities that helped their business get off the ground in the first place.

A business might, for instance, have in their early days achieved an admirably low level of complaints. It might be tempting for the firm to accept a rise in their rate of complaints as an unavoidable symptom of growth. That, though, will take them away from a source of their early success; delivering top-level customer service.

Such issues often stem from problems with focus or skewed priorities. Decision makers get too wrapped up in strategy and the methodology behind scaling up. Instead, what they should do is to keep their customers and the value they deliver to them as a primary focus. That way, they can be sure that any attempts to grow don’t come at the expense of customer retention.

Continuing to listen to customers can also help keep a firm on the straight and narrow in a different way. It stops a business from losing its identity and its initial raison d’être. Making sure you continue to deliver for your customers, ensures you don’t start believing your own hype. It will stop you seeking a dream of a more ‘corporate’ version of your firm, based on an ill-defined idea that you’re expected to move in that direction.

3. Making Errors in Funding and Financing

Scaling up a business requires capital. In some cases, taking the decision to embark on a period of sustained growth can plunge a business owner into the world of raising finance for the first time. With little experience to fall back on, it’s no surprise that scale-ups can often make mistakes in this area.

One common error stems from a misconception of what a business plan is and is for. Inexperienced decision makers at a scale-up can often make their business plan a function of fundraising. Rather than the other way around.

They tailor their business plan as if it were merely a document to persuade would-be investors. What it should be is a well-rounded roadmap for the growth of the company. That roadmap can then determine what funding is needed to achieve that growth.

There are more practical errors as regards to financing which scale-ups often make, too. One which can be very damaging is an error that will only reveal itself further down the road. That’s the mistake of closing an investment round at too high a valuation of your company.

Where this causes problems is if you fail to meet the milestones related to that valuation. That makes it impossible to justify a higher valuation down the road and ensures that a future round of investment will be tricky at best.

4. Not Properly Monitoring Performance

Having pre-determined goals and aims is helpful to keep your firm on track toward your end game. It also gives you a way of assessing how your company performs over time. That’s critical. It’s the only way for business owners or boards to recognise when a change in business strategy may be needed.

When you’re looking to grow your business, you must keep track of key performance indicators. They’re the things that tell you how your firm is doing. Both from day to day and over the longer term. Key metrics in this regard can be any of the following:

  • Customer or client numbers
  • Turnover
  • Cash flow
  • Profit and loss accounts

Whichever data points and indicators you use, what you need is a consistent process. Data needs to be acquired and assessed in a consistent fashion over time. That’s what ensures that you’ll know that any trends or patterns in the data are meaningful.

Those trends and patterns are what show you how your company is doing. You can assess whether you’re trending toward the ultimate aims of the business. If you’re not, you can take action to change your business strategy.

It’s also critical to understand and track all the factors that affect your bottom line. As well as how those different things may change as you adopt any new strategies for growth. Things like excessive stock holding, increased product returns and rising IT costs can all make a big difference.

They might be able to point you toward the right path for sustained growth. At the very least, they could help you avoid setting out down a wrong one. Speaking of which…

5. Missing or Pursuing The Wrong Opportunities

Having a long-term business strategy and plan is critical. As you move along the scale-up process, however, you will also have to make important decisions. You need to recognise and identify the right opportunities for your firm to seize.

Missing such opportunities or pursuing the wrong ones is a common mistake for scale-ups. Avoiding that particular mistake isn’t easy. It has a lot to do with your business acumen and instinct. You can help those things along, however, in a few different ways.

Discussing decisions with a mentor or outside consultant is one such way. Seeking an outside perspective when it comes to business growth can be invaluable. It will be a perspective that comes with distance and no emotional attachment. Such an outsider may be able to identify an opportunity that you’ve been blind to, without realising it.

Using analysis tools like Ansoff’s Box is another way to make better informed decisions. Ansoff’s Box is a tool for planning business growth. It can help companies explore various options. Those include new market penetration, product development or diversification.

Once you’ve identified what you feel is the right opportunity, you should adopt a ‘measure twice, cut once’ attitude. Rather than jumping into things with two feet, take the time to do as much market research as you can. Try to make certain that your idea is supported by evidence. That way you can be more confident that you’re taking your business in the right direction.

A final easy trap for scale-ups to fall into in this area is that of trying to do too much. In their eagerness to achieve success, small business owners can jump quickly from one idea or one strategy to another. That’s not a good recipe for growth. Sustainable, manageable growth takes time and focus. You need to make sure of the right opportunity to pursue and dedicate yourself to making it work.

6. Refusing to Change in Order to Grow

When owners or boards think about business growth, they often tend to look outwards. They think about expanding their company and becoming bigger. That might be in terms of workforce, product range or property. What’s important is to also recognise the utility of looking inward.

A growing scale-up is an ever-evolving entity. The same processes and management that have brought success won’t always remain effective. The same workforce who served you so well in the early days may also need, at some point, to be shaken up.

The boards or owners of scale-ups often struggle with this. The attitude of ‘we’ve always done it this way’, often proves hard to shake off. Decision makers tend to view certain things as ‘sacred cows’. As things, people or processes that are untouchable. To ensure successful growth, you have to get away from this. You must regularly turn an unbiased and critical eye upon your own firm. The result will be hard but helpful choices that can aid growth.

There’s one circumstance where scale-ups find this particularly difficult. That’s if they have sunk a significant amount of investment into a certain process, piece of equipment or something similar. In that case it’s easy to allow the prior investment to impact future decision making. That needs to be avoided as much as possible, in order to ensure clear and unencumbered decision making.

7. Misjudging the Pace of Hiring

Having the right people on board can be the difference between success and failure for any scale-up. Appointments early in a growth period are particularly important. Roles to be filled won’t yet be fully defined. They’re likely to grow and develop with your firm. The people you need to hire, then, are those who fit the role as it is now and who will also be able to maximise future opportunities.

Getting the pace of hiring right is a problem that many scale-ups face. Particularly cost-conscious business owners can be reticent to invest in expanding their staff. Such under-staffing, though, can lead firms to being unable to efficiently serve customers or deliver products as demands increase. Under-staffing isn’t the only issue that dogs scale-ups, however.

In fact, over hiring when looking to grow and develop is one of the most common scale-up mistakes. Business owners often place too much emphasis on growing the size of their workforce. Either by instinct or as a result of misjudged advice.

Rather than aid growth, that often only leads to a firm’s workforce – and its wage bill – outstripping its needs. Companies start to burn through their capital. That can undo any progress they’re making in other areas. It often also leads to inefficiency and shrunken profit margins.

A drive to hire quickly can also lead to mistakes. Scale-ups don’t often have a proven hiring process. Bringing lots of new staff onboard in a short amount of time can lead to the wrong people being hired. That will most often mean poor employee retention and high turnover of staff.

8. Not Knowing When to Get Help or to Delegate

Entrepreneurs and those who found start-ups are highly skilled. They’re great at developing ideas. They excel at big picture thinking that’s crucial to getting new businesses off the ground. That doesn’t necessarily mean they’re also the right people to spearhead a scaling up process.

There’s a whole different skillset required for scaling up a business. It often requires the careful study of data. Small, repeated tweaks to business strategy then have to be performed over time. That’s what ensures a scale-up stays on track to meet its long-term aims.

What’s sensible is for a business’s founder to seek help with or even to delegate the scale-up process. This doesn’t always happen, however. Many business owners struggle to cede control over what has been their baby. That can lead to problems and even the ultimate failure to grow the business.

9. Failure to Communicate

Starting out, businesses often have only a handful of staff at most. Many will only have one or two in their earliest days. At that stage of development, things can be quite informal. Plans can be devised and tweaked in one person’s head. Processes can be implemented with nothing more than a quick chat.

As a business grows, things need to become more formalised. Staff and decision makers have to be well-informed to stay on the same page. Regular meetings or conference calls become an important part of operations.

Such meetings don’t have to be long or onerous. They simply need to keep every member of your team pulling in the same direction. That’s what helps ensure sustainable and successful growth.

10. Not Implementing the Right Practical Support for Growth

A lot of what’s been discussed up to now has related to decision making, attitude and aptitude. There are also plenty of practical aids to sustainable growth which many scale-ups simply fail to put in place. Doing so, can aid a firm massively, whatever their niche or chosen growth strategy.

It’s advisable for scale-ups, for instance, to take legal matters seriously from the get-go. Even if in those early days of operation, it seems to be beyond the firm’s remit. Take, for instance, a company which negotiates contracts for work with individual clients. When the firm’s small it can be tempting to take an ad hoc approach and adapt those contracts for each client.

That can create significant issues down the road. Inconsistencies and errors in contracts might mean that the documents are not fair and balanced. It can also mean that at some point in the future you’ll have serious legal difficulties. Investing in the legal aspects of your operation, therefore, is best done as you’re beginning the scale-up process and no later.

In the same vein, you should also look to ensure you get the right tech setup in place for your company early on. That means implementing CRM software, communications and other systems which are both efficient and scalable. If you’re hoping to grow your firm, you want your chosen tech solutions to be able to grow with you. Continually upgrading or replacing systems is far from cost-efficient.

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Written by: John Courtney

John is highly ranked in the Top 100 UK Entrepreneurs list by City AM and is winner of the Lifetime Achievement Award from techSPARK. He has been a Board Director himself for over 40 years and first started placing Non-Executive Directors over 25 years ago. John founded and ran seven of his own businesses including a Management Consultancy for 10 years, a Corporate Finance offering for 10 years and a mid-sized Digital Agency for another 10 years.