How to effectively grow your small firm into a medium business

As a business owner, there comes a time when you realise your firm is changing from a small to a medium business. This realisation can come as quite a shock (as well as a time of excitement), so you’ll need to be prepared.

This article will highlight the complexities you need to be aware of and how the right business management software can help you stay on top of things.

Moving away from being a small business

Rob Moore and Mark Homer set up property investment firm Progressive Property in 2007 with the help of family members, two salespeople, one marketing person and a personal assistant. Since then, their business has grown considerably.

Moore says: “As a medium-sized business, we grew from 35 staff. We then hired a head of human resources to manage the managers, staff and culture. That HR department expanded; we then employed 50 staff. Now, we currently have 86 staff in-house and up to 100 outsourced employees.

He points out how things can feel different between a small business and a medium-sized one: “In a small business, you can have a family culture and feel; everyone can muck in with a feeling of spirit and togetherness. When you grow, sometimes you can lose this.

“It’s far easier to track all costs and metrics in a small business as there are fewer moving parts.

“As you scale, there can be simply too many customers and staff to keep a close eye on everything, and your business can become very wasteful. You can lose touch with your customers and your service, which build your business in the first place.

“Founders especially can find it hard to let go. Micro-management can occur as the founder and high-level managers have to delegate responsibility down.

“Some founders are very good at starting businesses and have entrepreneurial spirit and flare. But they don’t have the different skills required, or passions, to take the business through to medium and large scale.”

Dealing with complexity as you turn into a medium business

There are many complex issues to consider in the move from small to medium-sized business, from delegation and cash flow management to organisation.

Moore highlights the complexities: “As you scale up, staff can get overworked and overwhelmed. Your costs go up, sometimes disproportionate to the extra revenue you’re making, and, as such, your margins can reduce.

“Your culture and organisation can become very chaotic and reactive, where nothing seems to be ordered. Staff can leave under the pressure, and you could be left with not enough people and the inability to hire a good-quality replacement quickly enough.

“Your costs go up again for the recruitment of the right staff, and it becomes harder to track and measure your finances and key performance indicators. It is wise to manage growth progressively as opposed to aggressively and to track all increased costs.”

Mike Smith, director of alternative business finance solutions firm Business Expert, shares five tips to help you grow your business:

1. Delegation is what you need

When done well, delegation creates real accountability and good people will always step up to the mark.

2. Plan for mistakes

Identify worst-case scenarios to prepare for potential damage. Moving from a small to a medium business can come with risks and mistakes, so plan for these in advance.

Mistakes can relate to disorganised accounting, taking on too much debt or even focusing too much on sales and marketing of your business.

Disorganised accounting

One of the biggest scaling mistakes growing companies make is losing track of accounting and drowning in disorganisation. Not only is this frustrating, it can also have serious tax and legal consequences.

To avoid this, hire a professional who is responsible for staying on top of the company’s finances, and make sure to adopt small business accounting software as early as you can afford to.

And simplify your invoicing process. Failure to collect payments on time can have a knock-on effect for cash flow.

Too much debt

Debt is a strategic tool for growth but it’s not something to become reliant on. Whenever possible, try negotiating instead of taking on more debt. If you’re in the B2B world, this is especially useful.

You can offer your services to a company in return for theirs. By building out this network, you lower your overhead expenses and prevent the need for excessive debt. Obviously, this can’t be done with everything but it is a valuable strategy in many situations.

Too much focus on sales and marketing

When growth is the primary focus of everything you do, you’re inclined to spend all of your time and resources on sales and marketing. After all, that’s how you get new customers. But this may be a mistake.

When all of your attention goes to these areas, you neglect creating value for your customers. Innovation goes by the wayside and customer service takes a back seat. The result could be a poor customer experience that negates any progress you make on the sales and marketing front.

3. Find and retain the right people

Finding and keeping the right people in a business is crucial to its future growth. As your company grows, key roles need to be filled, and the right experience and skills are vital. Aim to know the next two people you hire and make sure it’s well thought through rather than a ‘distress purchase’.

David Kelly, general manager for EMEA at Deputy, a workforce management app, says: “To grow sustainably and retain talent, you need to bring people on the journey with you.

“Pay them properly and on time, and prove work will fit into their life. Investing in tools that allow you to do this will build trust among a dedicated workforce who will be your engine for growth.

“Startups and small businesses need the ability to scale up quickly and resource new contracts. Winning new business won’t be the challenge resourcing to deliver it will.

“It’s a huge investment to employ someone else, so flexible workers are ideal for startups. As you grow, you also need to empower your managers to be successful. You need to know who’s working where, when to deploy people, how to deal with absence and so on.”

4. Measure performance and progress

Make a clear distinction between short-term performance and long-term strategic progress. Long-term insights need to be assessed in order to plan for a successful future.

5. Put systems and processes in place

To scale up any business, you need the right systems and processes in place to ensure activities are efficient and compliant, and continue to deliver for your customers.

If your business is growing and you still have the same systems and processes in place that you were using three years ago, chances are you have already outgrown them.

Growth strategies to consider

Once you have objectives, part of developing a strategy for growth involves thinking about possible barriers to scaling up.

There are several factors that could thwart your ambitions to grow, such as a lack of leadership skills, lack of funding and weak cash flow.

For Shermeena Rabbi, consultant speech and language therapist, and founder of Unlocking Language, one of the biggest complexities of scaling up has been retaining and maintaining staff.

She says: “As we’ve grown and built up our reputation in the industry, we have received more attention from prospective job candidates.

“However, ensuring that new hires can maintain the quality of service and business values we are known for now is difficult.

“This factor is particularly important among senior staff.

“Not only are they responsible for promoting these values among junior staff but as my role becomes less personal and more management focused, they are the people responsible for ensuring these values are felt with our clients.”

Adam Hadley, CEO and founder of data science consultancy QuantSpark, says his growth strategy involves “a balance of opportunity, capability and capacity”.

He adds: “Our biggest challenge is in growing the team quickly enough in a highly competitive market like London.

“As a data science consultancy, we’re focused on pioneering the strategic application of data science and analytics to develop complex decision-support tools.

“About half our revenue is from consulting and half from software development. Our aim is to start generating more revenue from software licensing fees. In the meantime, we reinvest all of our revenue in software development.”

Overall, a credible scaling strategy is fundamental and you should be able to address the following:

• Skills
• Governance
• Management information systems
• Routes to market

Also consider whether it is best to grow your business organically, via partnerships or via acquisition.

If reaching overseas markets will benefit your business, internationalising the board before doing the same with your company can be a shrewd move. And as well as board members, choose your target markets carefully.

For example, travel search business Skyscanner built a strong presence in Europe and Asia ahead of the US. This strategy put it firmly in the sights of Chinese travel agency Ctrip, who bought the company for more than £1bn in 2016.

There are many different strategies to consider. In Progressive Property’s case, the founders focused on increasing marketing and advertising spend. But all businesses are different.

Progressive Property’s Rob Moore says: “Many companies paradoxically do not spend enough money on marketing. In the modern business world, you can leverage free and low-cost social media platforms to reach vast numbers of customers across the globe.

“It’s vital to continually test new marketing avenues and strategies. Starting with test spends and incrementally increasing your marketing spend as new media converts well.

“You could form strategic partnerships with other brands or bigger companies, much like the Virgin brand does.

“You could create new products and services and sell more to your existing customers as opposed to just focusing on new customer acquisition. You could employ more national or global strategy for increased reach and impact.”

Employing the right people to scale your business

As you scale your business, you’re likely to need more staff. Aim to build a great team of employees.

Your relationship with them might not be as close as with previous team members, when your company was smaller, but everyone must realise the importance of your business values.

Shermeena Rabbi, from Unlocking Languages, says: “As we grow and secure more clients, increase staff and open more locations, the main difference I have noticed is the personal time I get to spend with the team has gone down, particularly the time with the junior team.

“I have also noticed the rapid startup growth has become more stable. Increasingly, more of my time and capital has to be spent on operations and processes activities. This largely includes time spent on quality assurance and HR.”

Consistency and quality are paramount. Create the right culture and an environment where people want to be and want to excel then get out of the way and let them get on with it. All team members must be properly engaged, motivated, recognised and rewarded.

If you need to outsource to recruit experts for your business, do this in moderation.

You don’t really want to blow your budget on recruitment agency fees if you can avoid it, or rush to hire a star player who subsequently doesn’t fit into your company culture.

How business management software can make things easier

There are many different types of software that can be used to help manage your business whether it is small or scaling up to a medium-sized business.

Administrative tasks

Deputy’s David Kelly says: “When you’re small you need to see value immediately. Cloud-based tools are a great answer: they’re affordable, they can grow with you, they’re inexpensive at the outset and therefore low risk.

“We’re seeing lots of successful new businesses take a new, fresh approach to managing and engaging teams from the outset.

Time management

Adam Hadley from QuantSpark says their primary focus “is outsourcing and automating everything that doesn’t provide us competitive advantage”.

He adds: “This means using the latest accounting, HR, time management, remuneration and EMI [Enterprise Management Incentive] vesting platforms on the market.”

CRM, payment and accounting systems

On the topic of business management software, Progressive Property’s Rob Moore says: “A CRM [customer relationship management] system, email marketing software, accounting software, design and editing software, payment merchants, intranets and internal communication systems are all part of growing a more systems-based business.”

Business Expert’s Mike Smith says: “There are apps for time management, accounting, administration tasks and performance analytics to name a few.

“Very few of us are strong in all areas; they can add support to the bits we find challenging.

“One old-fashioned bit of advice I would add to this is to get a business mentor. There’s nothing like a more experienced pair of eyes to watch your back and many older business people are happy to lend their assistance.”

Back up data

Some business management software can help you minimise “human error” and back up important data.

Christopher Burke, chief executive of tech transformational agency Brickendon, says: “Companies should look to the latest technological tools including advances in artificial intelligence (AI) and cloud computing as a means of double-checking, securing and locking down the most important data.”

HR software

David Vine, the chief executive of bookkeeping provider Ozlop, recommends small businesses use HR software based on how it has helped him with the businesses he has started.

Vine says: “It is not unusual for me to meet small business owners who need to hire staff to keep up with customer demands but don’t have the time to find the right people and get them started.

“But there is a lot of easy and cost-effective help available.

“Just because you run a small business, it doesn’t mean that you shouldn’t use the latest technology to manage it efficiently.

“Without the luxury of an HR or finance department, essential business admin will be your responsibility, so you need to look for ways to get the best resources, using the wide variety of cheap yet really effective HR software now online will bring huge gains.

“Such systems also help ensure you have the right manpower to grow and also help you adopt a professional approach that follows best practice.

“When you combine them with the sort of support that may well be available to you from memberships such as your trade association, local chamber or organisations like the Federation of Small Businesses [FSB], not to mention from discussing it with other business owners you know, that’s a lot of help.”

Conclusion on becoming a medium business

It is important to remember that there’s no one-size-fits all strategy to scale up a small business to a medium-sized one. And it takes commitment and resilience from all involved to successfully do this.

Scaling does not always mean multinational expansion says Stuart Paterson, a partner and co-founder at Scottish Equity Partners (SEP); it may involve capturing a bigger domestic market share, acquisition or joint ventures.

What’s important is to set measurable targets and milestones that will add maximum value to your business.

And consider the bigger picture: scaling up creates wealth, drives innovation and investment and supports employment.

A Deloitte study predicted that if the number of scale-ups in the UK grew by 1%, it would result in the creation of 150,000 new jobs and add £225bn to UK GDP by 2034.