Fast Scaling

What is Fast Scaling

Fast Scaling is a popular way to build up a business with the use of external sources of finance. Thorough planning is needed for this method to ensure that all funds are allocated and utilized effectively to further grow the business. The help of external sources of funding provides a business enough capital to help it achieve its goals by hiring people faster and spending more on paid marketing to grow at a rapid rate. Without the need to bootstrap and worry over tight budgets, businesses can invest the capital to focus on  scaling their company faster to acquire higher market share or enter a new market faster than competitors. Taking market share quickly is important because other companies will copy your business model when you start becoming successful, you want to establish a lead quickly before this happens.

Who Should Consider Fast Scaling

Experienced business owners interested in dipping into niche growing markets should consider fast scaling their company. This is because a predictable environment where costs are well understood is needed to ensure you do not overspend or spend too quickly. Fast scaling involves investors who want to finance companies with plenty of potential to grow and a somewhat high degree of certainty to not fail. The more successful companies you have founded, the easier it becomes to acquire capital from external investors to invest in your company. However, if you have a brilliant idea and have a unique background that can make this a reality, many investors will have no problem investing in a first time founder.

Currently, tech startups have been the most successful at fast scaling. As technology is rapidly developing and advancing, venture/angel investors are looking to be a part of that growth. According to Forbes, come trends to look out for in 2021 were automation, hybrid work, and infrastructure. As finding external funding is a highly competitive process, entrepreneurs need to be prepared to make sure that their ideas will become the next big thing.

Stages of Fast Scaling

1. Idea Creation

A unique start up idea is needed. During this stage of fast scaling, entrepreneurs must do in depth research on their market to create a unique value proposition. Entrepreneurs will have to investigate all types of external funding to find what options are out there and which options are best suited for their company, for example: venture capital, private equity, and loans. 

2. Eternal Funding

Once the source of external funding has been decided, agreements must be made so that the partnership will be fair for both parties. For bank loans, terms, rates, and repayments plans will be established. For investors, the process of due diligence needs to be completed to evaluate your company. Conditions, objectives, and stock shares will then be settled.

Banks will typically make this decision based on your business plan if you are pre-sales or how much predictable monthly/yearly revenue you can achieve as a company that is in the post-sales stage. For venture and angel capital, they will typically want to only fund founders who have already found product market fit for the service or product.  

Growth Graph

By Reid Hoffman and Chris Yeh

Fast scaling follows a simple S curve growth. Initially, it starts off with slow growth while the business owner maps out their ideas which later accelerates once the business establishes its position in the market and gets funding to help out with its operations. At the end, the growth will ease as the company settles down.

Pros of fast scaling

Learning Experience

Venture scaling allows entrepreneurs to gain invaluable business skills. With the bootstrapping and slow scaling methods, individuals must start their business growth journey alone or through their personal network. In venture scaling, they will not have to face the challenge of starting by themselves. Business owners will have external support and advice from experienced investors, advisors, third party companies, and the start-up community as whole. Having finances to fall back upon provides businesses the chance to experiment without high risks of personal insolvency to the business founder.

Competitive Edge

Along with financial support, investors will also provide the support of business connections. Networking is essential in the business world, connecting like minded passionate individuals. This will give businesses opportunities to collaborate with other organizations, resulting in increased exposure and further publicity. Because the majority of companies backed by venture capital are in niche growing markets, they will be in an especially competitive business environment. And so, speed is a necessity to stay ahead of competition. Additionally, successful entrepreneurs usually love meeting new founders with great ideas, so if your idea can attract venture capital, you are also likely to attract a successful owner who will provide free mentorship and guidance.

Cons of fast scaling

Limited Control and Ownership

Having external funding means that business owners will have to work with the sources of those funds. They will have to take into consideration the thoughts and opinions of investors and adjust their business plans and products accordingly. Furthermore, venture capital firms would normally want to take a board member seat and you will reach a point where they can vote you out of the company you started.

Lack of Work Life Balance for Beginner Entrepreneurs

Maintaining work life balance will be challenging for beginner entrepreneurs. No matter which source of external funding is chosen, there will be procedures to go through and paperwork to complete. Beginner entrepreneurs may struggle with the amount of workload and pressure of responsibility to sort out all the finances. As a beginner, they may not have prior experience with working with others on a large scale and will have to learn as they go.

Obtaining Finances

Obtaining funding can be a difficult process. To get financial support, a great idea that is sure to generate a lot of profit is needed. Venture capitalists want to invest in businesses with high expected success rates and high returns on the investment. It is important that the business can show that not only will they survive, but they will thrive.

Example

Uber is a prime example of how fast scaling can help a start up quickly grow into a world renowned company. Launched in 2009, the company obtained $1.25 million in funding just a year later. This led to 2011 being a year of rapid growth as another $11 million in funding was raised. With the money, Uber was able to open new locations around America and overseas in Paris. Later that same year, they were able to raise even more funding, $37 million. This enabled the company to develop and offer the option of UberX. Without the aid of venture capital, Uber might not have been able to expand so much and so fast. This example shows what a big difference external funding can make.

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