Stages of Scaling a Business
One of the most frequently asked questions I get is, “How do I successfully build or grow my business?” People tend to believe that chasing money and investment are the best ways to grow a business. In reality, people are the key to successfully scaling a business.
I teach that there are three stages to scaling a business: learning, execution, and the partnership or equity stage.
The learning stage is a very simple investment phase for the employer. This is when you are focusing on investing in human or relationship capital. At our company, Sports 1 Marketing, our 90-day internship program is an investment that takes a lot of time, training, and money that we put not only into our current interns and employees but our future business as well. Many people focus on interns making money for them, but the business goal is simply to break even at the end, having gained the human capital to start the next phase, called the execution phase. If the learning stage is a success, then we have empowered individuals to go back to school, to go to other companies and become future leaders, or integrated them into our company and our culture.
The execution stage begins once your employees have been able to recoup your investment, and are prepared to grow and to profit. The execution stage has no set time limit. It only relates to the amount of time between the learning and the partnership stage. Unlike the previous stage, there is a focus on the financial reward that an employee earns and receives. Balancing these financial amounts is important if you want to retain employees. At S1M for example, we try to split things evenly. When gross revenue comes in, 33% goes to the person who earned it, 33% goes into the company (for example, back into the learning stage to pay for more interns and employees), and 33% is saved for the final stage, called partnership or equity.
Partnership (Equity) Stage
Finally, the partnership or equity stage occurs once an employee has shown consistent productivity in the execution stage for a period of time that is adequate or agreed upon by the partnership. This reward is well deserved for the people whose drive and desire is to scale our business. The people who are willing to make that investment need to be invested in. Having an equity or partnership program to recognize the efforts of your employees is essential if you want to retain the best people. Companies that do not adequately reinvest in themselves cannot continue to grow and scale, just as individuals who don’t reinvest in themselves cannot continue to grow.
Pitfalls in Scaling a Business
One of the biggest mistakes a company makes is being flexible with the length of time of the learning stage. Instead of letting an intern and employee go after their learning stage is over, they try to keep them on. Don’t waste energy trying to change something that hasn’t changed already; be kind to your future self and be firm. Do not keep stragglers around, they slow everyone else down. Another problem that companies face focusing too much on the monetary investment needed in the learning stage. They’re not willing to invest in themselves and they’re not willing to invest in their company. Remember that you are investing in human capital, not just for yourself, but for every business that your employee works with in the future.
By: David Meltzer