What is Slow Scaling
Slow scaling is known as the most balanced scaling method that enables business owners to have the aid of venture capital whilst still prioritizing their customers’ interests. Similar to bootstrapping, slow scaling a business also starts by building up the company with personal finances. What makes it different is that once the business has found its place in the market and has stabilized, external funding will then be used to help further its growth.
Who Should Consider Slow Scaling
The slow scaling method is best for individuals who are experienced with handling capital, like former sales and marketing staff. This is because their prior knowledge and skills will be a great advantage when it comes to managing and generating capital. Experience in general will also be beneficial when it comes to networking with potential investors and partners.
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Stages of Slow Scaling
The first two stages of slow scaling are the same as that of bootstrapping, it further branches off once stage three is achieved.
1. Beginning
Slow scaling begins with the use of funds saved up by the business owner. With that money, they themselves will need to decide how much they want to budget and where they want to allocate those budgets. The owner will be handling all the business affairs alone for the time being.
2. Customer Funding
At this stage, the business is able to earn enough profit to use it to finance itself. This means that the business is no longer relying on the funds of the owner and can start to develop. The business owner will still be the one in charge of making all the decisions but will start hiring employees for additional support.
3. Stabilization
Balance is achieved within the company, the business will grow at a steady rate and can sustain itself. They have built a strong relationship with their customers, creating a loyal following. The company now also has a strong team assisting with its operations. The owner may be interested in investigating sources of external funding. Sustainability is an important factor before finding an investor as it shows them that the company can handle itself and that it has the capacity to grow more.
Pros of Slow Scaling
Sufficient Time
Scaling at a fast pace is usually seen as a positive thing yet it can cause issues with order within the company. Because slow scaling is not a fast process, it allows employees and managers ample time to adjust to the growth of the business. Company culture can be maintained and there will be no concerns about the workplace environment. Employee satisfaction is an important driver of motivation, meaning that higher satisfaction levels will result in higher productivity.
Better Decision Making
Extra funds will greatly improve flexibility when it comes to implementing business plans. The finances will aid the business in reaching towards its goals and giving it more opportunities for creative freedom. Combined with the benefit of having more time, the business will have a large enough budget and can properly flesh out potential propositions before making commitments. Those experienced with handling capital will best understand how to use the resources in a manner to harness company talent.
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Cons of Slow Scaling
Slow Process
Due to the lengthy procedures that come with finding external funding on top of having to stabilize the business beforehand, it will take some time before business growth can take off. This will be a disadvantage when it comes to competitive edge. The slow speed will hinder a company’s ability to adapt quickly enough to today’s fast moving markets, causing it to struggle against competition.
Funding Issues
Although slow scaling involves the contribution of loans/venture capital with finances, this help comes in the later stages and it may not be enough for certain goals. With bootstrapping coming first, the company will still have the experience of needing to use a tight budget resourcefully. Even with the external funds, some goals require set periods of time and quite a lot of capital to achieve.
Example
One example of a company that slow scaled is GitHub. GitHub is an online host for software development. It was first founded in 2008 by Tom Preston-Werner, Chris Wanstrath, and P.J. Hyett. They started up their business with combined savings and after a few years, the business made enough revenue to sustain itself. In 2012, the company acquired $100 million in venture funds from Andreessen Horowitz. Later it received $250 million in venture capital from both Sequoia and Horowitz. Most recently in 2018, Microsoft has acquired GitHub for $7.5 billion in stock. The owners successfully funded the business by themselves and then were able to go above and beyond with the help of external funding.
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