There’s heightened awareness around Black-owned businesses that started with the coronavirus pandemic and has since shifted into equity conversations.
While some financiers have long been sounding the alarms about the undercapitalization for Black-owned businesses, it has taken our people marching in the streets (literally) against the epidemic of racism to get the rest of the population to ask, “What about Black businesses?”
The most recent call for support has some business owners quickly considering how to accommodate the influx of customers and sales. Black businesses need sustainable growth that leads to scaling. While the concept of growth versus scaling is most often associated with high-growth startups, the idea can apply to all businesses.
Understanding growth vs. scale
Business growth is when you add resources at the same rate you’re growing revenue. An influx of customers means you need to pay for more resources to service them, like hiring staff or increasing supplies. At this point, your business trajectory is moving up but in a straight line. Increasing revenue is the first step to building a thriving business.
To prepare for growth, consider how long it will take for inventory to arrive and the proper level of staffing needed. The last thing a business needs is to be out of products or for customers to have a bad experience.
Out-of-control growth can also close a business. Think about the early Groupon runs; some businesses experienced a lot of growth, but the cost of that growth left some owners in the red.
Owners of a growing business will learn that it takes a lot of resources to sustain consistent growth. At that point, your focus should shift toward scaling.
When businesses scale, their increase in revenue outpaces the increase in costs. Efficiency becomes the name of the game.
Scaling can take many forms. For example, if you’re able to increase order volumes from vendors, then the cost per product may fall. This is often referred to as economy of scale.
Automating your processes can also help scale your business. Let’s use a business that prints t-shirts as an example. Printing t-shirts per order is a great place to start when the orders are coming in slowly. However, if there’s a rush of new customers, then you’d have to hire more people to manually print the shirts (growth). If you invest in an automated t-shirt printing press, after setting up the design, the machine runs around the clock to fill the order. Thus, you have scaled the business without increasing your cost.
How to move from growth to scale
Transitioning from business growth to scaling a business requires reinvesting into the business. Despite the surge in customers, your business may not be able to get institutional funding right away.
Instead of increasing your take-home pay as the owner, putting the increased profits back into the business may help you scale. This reinvestment will go toward creating a better supply chain or lowering production costs. Adding technology, like an app or restructuring your website, can move customers toward online ordering and reduce the amount of time your employees spend speaking with individual customers.
Bottom line
Calls for justice include economic justice for Black people and Black businesses.
Scaling takes cash. For Black businesses to scale successfully, owners need access to capital, not mentoring programs or a business directory. The spotlight on Black businesses needs to lead to money flowing from banks, investors and the local government.
Scaling Black businesses is a step toward building wealth for Black communities. It can also help close a racial wealth gap that exists between Black and white families. A scaled business results in larger profit margins, which means larger capital reserves, and ultimately, economic freedom for that owner and their family.
In short, growth pays the bills but scaling can pay for generations.
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