No business wants to stay in a fledgling state for too long. Every founder dreams that one day, their operations will grow. New branches in new cities, and if they’re lucky, even new countries. However, it’s so crucial that these dreams of expansion are handled with tact. Even the biggest and most popular companies have to be careful.
Look at the situation with OpenAI and its rapid scaling efforts. Some reports indicate that the company will be burning through $115 billion over the coming 4 years. Other reports believe that the company is actually on the verge of running out of cash within 18 months.
The same risks apply to everyone, and being able to learn and adapt before it happens to you is critical. That said, it’s tough to highlight the risks without understanding how and where the cracks start to show. This is what we’ll be exploring today.
Logistics and Compliance Are the First Systems To Crack
While it’s a given that scaling up will dip into your reserves, the next biggest impact is felt in logistics. Expanding an operation warrants serious planning because of the many factors that are at play. Even if you’re just opening a new branch in the town, it places new stress on your logistics.
If the expansion involves setting up a presence in a new country, it’s even more intensive. What’s more, if you overlook just a tiny aspect, it can be an expensive mistake. Remote, a global HR and payroll platform, points out that compliance is one such area where scaling brings trouble. They note that the consequences can involve fines in the millions, backpay claims, and even being forced out of the market.
Most companies are not ready for this, and data backs it up. Consulting firm PwC found that 85% of companies state that compliance requirements have become more complex over the last three years. In fact, only 7% consider themselves ‘leaders’ in compliance maturity. So, take a good, hard look at your business and evaluate if you have the agility to be compliant in multiple markets.
Hiring and Workforce Management Gets Trickier
This is the second area that sees significant stress during rapid scaling. At the simplest level, the quality of hires begins to drop because you’re hiring urgently, and the process gets rushed.
As McKinsey & Company notes, even businesses that do workforce planning struggle with talent execution. They found that only 56% of job offers are accepted in key markets and 18% of new hires leave during their probation period.
However, if you’re dealing with serious scaling efforts or perhaps have remote workers, then workforce management is an even bigger issue. Businesses that manage to deal with the scaling pains usually make use of a global payroll management service.
According to Remote, this takes the burden of worrying about tax, benefits, labor laws, and methods of payment in other countries. Is it possible to work out on your own? Yes, but 99% of the time, you’ll be swamped with all the other demands that scaling up brings.
Cash Flow Undoubtedly Takes a Big Hit
If there’s one thing that brings any company, both small and big, to its knees, it’s cash flow problems. Sadly, owners address issues relating to it too late. They convince themselves that they can manage by juggling between finding angel investors.
Unfortunately, just one investor pulling out for some reason can bring your scaling-up goals to a screeching halt. This is true even in normal circumstances, but it applies even more when you’re spending significant amounts suddenly.
Even if your new branch is projected to be highly profitable, it’s still not going to happen overnight. There’s a decent lag between the expenses you incur and when they get offset by new income. The worst situation happens when the crunch happens early in the process of scaling up.
You might find that you have to start making compromises, opting for what you can afford instead of the best option. Sometimes, these choices may be the kind that can’t be easily reversed later on. So, unless you’ve planned the expansion carefully, your cash flow is likely to be one of the hardest-hit areas.
Ultimately, growing your business is not a bad thing. Every business owner ought to be planning for it. The problem only begins if you have unrealistic expectations and goals for the timeline. Besides, even if you do have a surplus of funds and can afford the cost, it’s rarely worth it.
You’re likely to see better returns using that money for strategic investments at just the right time.
