Scaling and Funding for Growth: Making Moves in the Middle

Oct 20, 2022

In this article, we’re discussing concerns and insights for how to scale and fund growth for companies that have maybe moved past start-up or initial funding and are now looking for next-round investments and opportunities. Today’s market is more crowded than ever before, and even if you’re moving out of start-up mode, the increasing number of startups means that there are more competitors for investment. Let’s understand various strategies that can be used to finance growth and touch on the challenges companies face when scaling up and how to overcome them.

What is Scaling?

Let’s first make sure we’re sharing a vocabulary. Scaling is growing your business from a small company to one that can compete on a larger scale. There are several vital components to scaling your business, including: 

Product: You need to make sure that your product is scalable. This means it can be produced cost-effectively with efficient, predictable, repeatable processes. 

Sales & Marketing: You need to create a sales and marketing strategy and infrastructure that allows you to reach as many customers as possible. This is necessary to grow your business while maintaining profitability. 

Operations: How you run your operations can make or break your business. The operations side ensures your business can handle increased demand with minimal disruption. This includes employees, production costs and other overhead.

Funding these components comes down to raising money.

Are You Ready To Scale?

There are no complex rules about when, how, or if you should scale, but let’s look at a few indicators.

You’re no longer seeking market acceptance

You’ve started your fire, stoked it and there’s a small but healthy flame. If you’re still trying to understand product-market fit or determine your audience and define your customer base, it’s probably premature to start worrying about how to get bigger, faster.

You’ve identified some levers

As mentioned, a company on the verge of growth has clear ideas of what new funding would mean where marketing or advertising is concerned because they’re trying to broaden appeal. Or how new salespeople or structures could widen opportunities. Increased product development or manufacturing can put more goods in more hands. Penetrating new geographies might mean new buildings or locations.

You’ve moved past the founder’s hustle

Many startups have initial growth because of the founder’s network, hard work and personal involvement. When the organization is better systematized for success away from those characteristics, it indicates that your next move might be to scale and grow.

Knowing when you’re ready – and when you’re not – is key to next-level success.

Round and Round

A start-up seeks financing from investors or venture capitalists when it has a good idea and can demonstrate and articulate demand and potential market share. When you’re moving past that and into growth mode, your needs are different – and so are the expectations of financial partners.

Raising Debt

Debt financing is a common way to fund a business. Still, unless you’re already profitable it has some inherent risks, like higher interest rates and set payment schedules that may not align with your trajectory. Pressures to solve debt can leave unprepared companies making short-term decisions that may not solve long-term goals.

Raising Equity

On the other hand, equity is the ownership of your company that you give to your investors. The advantage of equity financing is that it allows you to keep control of your company. However, before you approach investors for a Series B or the next round of funding, make sure you’re prepared. Have the basics in hand and well understood, like your financial model, a detailed business plan, and financial projections. Additionally, investors at this stage want to understand your path to profitability.

Know The Roles to Grow Your Roles

Finding the right employees is one of the biggest challenges you will face when scaling your company. This means that you’ll need to do some research and put a hiring strategy in place, as well as interviewing and onboarding practices that are part of a process and a system designed to achieve growth goals. 

Your CFO is an essential part of your growth machine and should help you build the basics (like your business plan and revenue model) but also help you articulate your advantages in the proper context to the right audience. Banks or investors are looking for some of the same things to have the confidence to fund you, but they’re also looking for some very different, specific things. A fractional CFO is especially smart to bring aboard at this stage. The company is insulated from high overhead, while responsibilities are designed to achieve precise outcomes while avoiding costly mistakes or overlooking potential obstacles.

Conclusion

Scaling for growth means ensuring that your product is scalable and your business runs on systems and processes rather than strictly hard work and hustle. Then you’re ready to secure the right financing to grow your potential. Build a strong team around you to lead, follow or support your path and potential for growth.