When we talk about startups we often do it in multiples. Revenue growth, customer growth, funding growth, etc. etc. But expansion isn’t something to be taken lightly. Do it too early, or without the right foundation, and you can overextend yourself.
If you don’t have the supply chain to handle an extra batch of orders, or the infrastructure to handle those extra users, your customers won’t be happy – and it will be the same for your investors if you expand without a customer base to meet you. You need to build the right foundations and have a good idea of where you are going.
So we consulted some entrepreneurs, to find out how they knew it was the right time to expand.
John Winning, CEO of Appliances Online
“Scaling up and expanding at the right time is critical to the survival of a business”, says John Winning, CEO of Appliances Online. Winning says there are a couple of things to look for when you’re thinking about expanding — are you already receiving outsize demand, and can your finances support the expansion?
“Obviously one of the major things to look out for is consistent indications of demand outweighing supply.” If you have established there is unmet demand, the next thing to do is shore up your finances.
“[You need] cash flow to not only fund the expansion, but also to run the business throughout the expansion period is also required.”
Tony Ward, managing director APAC at Surveymonkey
When SurveyMonkey looks to expand into a new market or segment, they start by taking stock of the opportunity. What is the total addressable market? Are there established competitors?
“If it looks like a big opportunity and we have a good product-market fit, we go for it,” says Tony Ward, managing director APAC at Surveymonkey. Once they have established themselves in their new venture, the company starts using run rate as a guide to how fast they push.
“As you start to scale you look at next quarters revenue forecast vs this quarters actuals and if next quarter is two times plus where you are in the current quarter you pour petrol on the fire.”
Mark Coulter, acting CEO of Temple and Webster
“You will know when it’s the right time to push harder – your customers (and their orders) will tell you,” says Mark Coulter, acting CEO of Temple and Webster. Even then, Coulter suggests keeping in mind the cost of acquiring a new customer through marketing spend, and comparing that with how much revenue you expect them to add.
“As long as the customer lifetime value vs cost of acquisition equation stacks up, then go for it.”
This equation will change slightly depending on your business model. As an online furniture retailer, Coulter’s company aims to make money from repeat business. So lifetime value is important. “We try and break even on the first order from a gross margin perspective – then the repeats are the upside,” says Coulter.
But there’s more to scaling than the straight financials, says Coulter. You need to make sure you infrastructure and human capital can handle the new burden.
“Just make sure your service levels can scale with your customers (customer service, tech, fulfilment) – we learnt this the hard way when we couldn’t hire and train customer service reps fast enough.”
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