The Business of Scaling
Scaling is often confused or conflated with growth, yet the differences between the two can have significant short and long-term implications for a company’s overall success. Growth can often involve increasing revenue at a rate similar to that of adding costs and resources. Scaling, on the other hand, means increasing revenue, while increasing costs and resources incrementally or at a much lower rate, so that profits grow exponentially.
To put it another way, companies that grow while adding variable costs at a similar rate will maintain the same gross profit margin. If additional resources or fixed costs are added, the percent net profit will decrease. Absolute net profit may grow, which is great, but at a lower percent of sales prior to the development and implementation of new initiatives that led to revenue gains.
Often the business model for an industry dictates whether a company can scale or not. For example, a company that provides a professional service like plumbing or lawn maintenance may add new clients, thus increasing revenue, but often must add new employees or equipment to serve these clients, adding to the company’s costs. While the company’s revenue will grow, its absolute profits under this scenario will grow at a lower percent net profit margin. So, the company is growing and profiting, but it is not scaling.
As a business with a scalable model increases its revenue, its profit margins will increasingly get better and better. As the company increases in size, it becomes more and more efficient (costs as a percentage of sales drop), and its profits grow exponentially. Tech companies are a classic example. A great deal of work and resources are needed early on to build the businesses’ foundations and create and market a solid product, but once it’s rolling, the product can be sold to many customers with relatively few additional resources or costs needed. The more customers added, the higher the margins and the bigger the profits.
While scaling sounds great, it can be risky. By some estimates, 74% of startups fail by attempting to scale prematurely. They run into cash flow challenges, lose their focus, or just can’t keep up. But for those who plan ahead and analyze every step of their business’ journey, and lead with wisdom and grit and stay focused on the task at hand, the rewards reaped can be incredible.
We spoke with six Chattanooga companies across a variety of industries that have successfully scaled their business. Here, we tell their stories and share the secrets of their success.
Since it was founded in 2011, Chattanooga-based moving company Bellhops has become the fastest-growing moving company and one of the fastest-growing tech companies in its industry. Now, Bellhops is nearing its 200,000th move, has expanded to more than 21 markets, and is still seeing rapid growth.
According to Bellhops CEO Luke Marklin, the company’s success is built on the basic foundation of a good product-market fit. First, the team focused on having the friendliest, most efficient moving service in the business. As a result, much of the growth was organic, built on word-of-mouth referrals from happy customers.
“If you don’t nail the service first, it’s really hard to grow,” says Marklin. “Where companies usually get burned is if they don’t focus on the product and the experience, and instead try to move too fast.”
Step two was harnessing the power of technology to build out the platform to scale. “We were initially doing a lot of high touch things that didn’t scale,” Marklin says. “We were spending a lot of time handling customer issues directly, picking up phones when sometimes computers can do the trick.”
Harnessing the power of technology, Bellhops automated time-consuming parts of its process that would have increased costs as it grew, and began using Machine Learning algorithms and data visualization to monitor and analyze supply, demand, and worker performance. It’s a constantly evolving model, but all the while the company’s core goal stays central: making moving day easier.
“As you rapidly scale, there’s never a moment where you get to stand still,” Marklin says. “The price of a really high-quality, high-growth business is eternal vigilance.”
(above) Reliance Partners
Reliance Partners, a commercial insurance agency specializing in the transportation and logistics industries, has come a long way since it was founded in 2009. The company now serves more than 4,000 clients across 46 states and averages 70-80% growth every year. Last year, Reliance Partners made the Inc. 500 list, where it was named the fastest-growing property and casualty insurance agency in the country.
What’s the secret?
“It’s all about getting the right people in place,” says Reliance Partners President and COO Chad Eichelberger. “Everyone has bought in.”
The Reliance workforce is driven and diverse. Thirty-five percent of employees are racial minorities, and 15 different nationalities and 12 different languages are represented in the office. That uncommon diversity has proven to be a huge strategic advantage, empowering the company to expand its markets across the country. Reliance also emphasizes transparency, lays out a clear roadmap for advancement, and provides a robust training program – all resulting in a dynamic, motivated crew.
Its people are its backbone, but streamlining processes has further stimulated that strength. As the company has grown, technological investments have given Reliance salespeople the tools they need to do their jobs better and faster, and a strong training program keeps employees sharp and up to speed.
“We’ve definitely become more efficient over the past few years,” says Eichelberger. “Our original goal was to be the largest transportation-focused insurance agency in the country, and I think we have the roadmap to get there.”
(above) Sandler Training
Sandler Training Chattanooga, the local franchise of the world’s largest training organization, trains local businesses and executives in sales, business development, leadership, and customer service. At first blush, Sandler’s business model of person-to-person coaching sounds like a case study for the kind of business that is not scalable. Yet in the 10 years since it first started in Chattanooga, Sandler Training has grown by 400%, earned its way into the top 10 Sandler offices around the globe, and now serves several layers of customers all the way from individual entrepreneurs with small businesses up to a Fortune 10 company.
So how did the team do it?
Over the years, Sandler has focused on three primary areas: launching new products (including an online training program, a quintessentially scalable product), expanding services to new markets and enterprise level businesses, and constantly honing internal processes. As the company grew, it applied the same assessments and business insights to itself that it taught to others – careful all the while to not overextend.
“Had we added an associate when we first started, it would have absolutely killed us,” says Lisa Nausley, owner and CEO of Sandler Training. “Particularly since Chattanooga is such a hotbed for startups, my advice is: Don’t try to scale too fast, but also make sure that when you start your business, you’re thinking of scaling.”
Often, Nausley says, new businesses will start without planning ahead about how their business model will be able to be easily replicated when they want to grow. “Entrepreneurs and young companies need to pause and think through what they ultimately see as success for their future. If there is even a small desire to scale in their minds, then they need to design a business plan that makes it easy to transition to that model when ready.”
“One of our mantras is ‘slow down to speed up,’” she adds. “You’ll get there faster if you slow down on the front end and really have a plan to follow.”
(above) Stray Dog Designs
Then-newlyweds Bill and Jane Pritchard started Stray Dog Designs back in 1994. Following a whirlwind romance, they found themselves in Mexico and ended up partnering with local tin workers to export and sell their wares in the States. Today, the Pritchards live on the side of Lookout Mountain, and Stray Dog sells handmade furniture, lighting, and home décor designed by Jane, made by artisans in their workshop in Central Mexico, and distributed all across the United States.
“We’re still a small company, but we have actually managed to reduce our costs quite a bit while growing our sales,” says Jane.
Adaptability has been the name of the game as Stray Dog Designs has fought not only to survive, but to scale. As the nature of the business changed over time, the Pritchards would pivot, again and again. When e-commerce transformed the market, forcing many similar businesses to fold, they built a website and began selling to individuals at retail pricing: less volume, bigger margins. When web sales soared, the pair stopped going to trade shows and saved a bundle in fees. When FedEx started to operate in Mexico, the company began to ship orders to customers directly from its workshop, cutting U.S. warehouse costs and unnecessary steps in its distribution chain.
“You’ve got to keep an open mind,” says Jane. “The world changes, and you need to be able to change with it … to pivot. You have to try to be ahead of the curve, not way behind it.
(above) Chattanooga Airport, photos by Maycreate
As Chattanooga grows, so does the airport. According to Chattanooga Airport President and CEO Terry Hart, the airport has experienced record enplanements for the past five years. In 2017, nearly 485,000 passengers boarded commercial flights in Chattanooga, a 15% increase from 2016, and more than twice the number of enplanements as in 2001.
“Chattanooga and Hamilton County have been experiencing huge economic growth,” says Hart. “A lot of great companies have been relocating here, opening businesses, and we benefit from all that.”
When the city grows, scaling at the airport becomes possible. “To keep up with demand, we are constantly meeting with the airlines to let them know about all the great things going on in the Chattanooga region,” says Hart. “Based on previous investments, we are able to add new flights by utilizing our current infrastructure.”
These added flights support the airport’s ability to grow with minimal cost. “Any area that is related to passenger growth – parking revenue, passenger facility charge (PFC) revenue, airline landing fees, aircraft fueling fees – brings additional revenue without requiring significant infrastructure change,” Hart explains.
The airport also got creative. “We got into the solar business,” says Hart. “When construction is completed, we will have the ability to go off the grid and power ourselves completely through solar.”
Already the Chattanooga Airport can sell power back to TVA, offsetting electrical costs and allowing Hart to keep costs down for customers and keep the airport competitive and convenient.
“The airport exists to serve the community,” Hart adds. “Right now we’re in the best situation we’ve ever been in.”
Founded in 2013, Chattanooga-based tech company Skuid has grown from five employees to more than 180, and from one customer to more than 450, including clients like Baker Hughes GE, Hewlett-Packard Enterprise, Workday, and Intuit. Its compound annual growth rate among enterprise and mid-market customers is 90% over the last five years, while operating costs as a percentage of revenue continue to shrink.
So how did Skuid do it?
The company created an intuitive, cloud-based platform that allows customers to quickly build apps tailored to their specific needs. The platform’s inherent adaptability means that Skuid works just as well for a tiny nonprofit as it does for a Fortune 10 behemoth – the company was able to scale in part by reaching into different markets with both varying sizes and different needs. These days, clients use Skuid for everything from customer support to business development, marketing, and HR.
“We built the Skuid platform with an architecture that enables us to continuously improve based on customer input, and enables our customers to also continuously improve the apps they build,” says Skuid founder and CEO Ken McElrath. “From start to finish, we created Skuid with product agility in mind so that we could scale the company quickly, and so that our customers could scale quickly.”
Skuid’s software-as-a-service (SaaS) business model allows customers to scale easily by choosing a package that aligns with their needs from a variety of options. Since Skuid is constantly honing its platform, the company doesn’t need to reinvent the wheel with every new customer, so revenue far outstrips costs.
A final piece to the puzzle is trust. By earning the trust of its customers, Skuid has gained better insight into the pain behind its problems, which in turn helps the team solve problems appropriately. “Solving any business problem doesn’t start with technology or processes,” says McElrath. “It starts with a human need. Then, you work backwards to fill that need with technology. Skuid makes this process possible and scalable.”
Planning and flexibility, automation and efficiencies, finding a product-market fit, and getting the right crew by your side – there are many different ingredients that go into successful scaling. But, as we’ve seen, whether you’re a home décor designer or an insurance broker, a tech firm or a business consultant, scaling a business can reap exceptional profits. These Chattanooga businesses have led the way.