Andrea Reynolds, CEO and Founder of Swoop took to the stage for the first day of Elite Business on 11 March in a breakout session, speaking about the differences between growing and scaling a business, and the various types of funding available to SMEs.
A growing business is primarily focused on expanding by obtaining new clients, attracting new talent and acquiring new assets. This requires an increase of resources – and that requires lots of capital at the start. “The biggest problem with growth is that it sucks cash. No matter where you look, you have to invest in certain things,” Andrea explained.” Whether that’s your systems, the people you hire or improving your products or service, it always feels like you are on the back foot trying to keep up with your working capital requirements. You may have supply chain issues; you may have late payers. While looking good, underneath it you’re feeling the stress and the strain. Everything I’m talking about is external factors. Internally, you know you’re going through a stage of continuous growth where you’re working super late hours, you’re not seeing your family on the weekends… That is where growth is really taking a halt.”
What is the difference between growing a business versus scaling up? Growing a business means adding new resources and having an increased revenue as a result. However, scaling is when revenue increases without a substantial increase in resources, and your expenditure is much lower. “It’s growth, the average is normally two times the industry average growth you’re experiencing while your expenses are pretty much staying stable,” Andrea said. “You might think that growth sounds pretty tough to deal with already, scaling must be even harder. And the actual truth is when you crack the scale-up model life becomes easier. If you’re growing your revenues at that rate while keeping your expenditure down, what you’re getting is more cash and resources into your business to reinvest into the tools and systems that you need to continue your scaling. So, it’s a funny thing, you actually become less stressed when you hit that point of knowing that you’re ready to scale.”
How do you get ready for scaling your business? Firstly, find the right hires for the right roles. “If you’re going to scale, you’re going to be delegating,” Andrea explained. “You’ll be moving away from being in charge of the product or service you do. Finding the right people for the right roles and building your organisational structure in a way that allows that scale to happen is absolutely fundamental. You don’t get it right the first time, it takes many iterations and a lot of pain to go through to get that team right.” Next, you need to establish the right processes and frameworks to execute your business plan. “To be able to scale you need frameworks and processes and that needs to be able to be exported to other markets. You need to build your playbook and find out what is going to work, and how you can handle the volumes coming through without having to hire more people to take on them. Getting that framework right and getting your systems done before internationalising.”
Thirdly, create the right products that you believe are going to take your business to greater heights. “Not all of your products, services or propositions are going to give you that big return,” Andrea said. “Focus on the ones that will, you can get back to the other ones once you achieve that scale. That’s a fundamental decision that needs to be made.” And lastly, you need to find the cash and the funding for scaling up your business. “In order to put the frameworks in place, get your products to where they need to be, to build the technology to create these efficiencies to be a scalable business, you need the cash and funding to be able to do that. That’s a fundamental question to answer.”
When it comes to scaling up your business, you will need the funding to enable you to push your start-up to the next level. Traditional bank loans are a simple and effective way to financing the growth of your business. However, there can be certain limitations – especially if you need bigger funding. “If you go to your bank today, they are not going to be able to give you the full level of funding you require for your ambitious plans,” Andrea said. “The key is how do you get your blend of capital right? How do you merge these finance products to get you to where you need to go to hit your milestones?” Andrea spoke about the different funding options available to businesses – and how SMEs can access them. These include equity investment, venture debt, senior debt, term loans, revenue finances, and lastly, business grants. Debunking the common myths about venture capital, Andrea said: “Venture capital funds have their own business to run, their own investors to take care of. They are backing founders who they believe can get on, execute and deliver. They are not looking to interfere in your business. A lot of them are also looking to bring in strategic advantage into the equation, so they will have a network of people they can call and also the knowledge from doing other scale-ups before where they can apply that to help you grow faster.”
There are several options for businesses that don’t have much capital to begin with or would prefer low-interest rate loans. These include senior debt, term loans and revenue finances. Senior debt refers to the loan that the company must repay first if it shuts down or goes bankrupt. Such debts have the lowest interest rates and risks due to their highest priority and are often secured by collateral. There are also various term loans out there to suit your business needs. Term loans are borrowed from a lender and paid back at fixed intervals over a set period, and have a fixed interest rate. Speaking about revenue finances, Andrea said: “If you are a business that is worried about taking on lending and not sure if you can reach those targets, then revenue-based finance looks if you have a card terminal payment, are you doing well online and they can look at your marketing metrics. It’s a bit like an overdraft, and they get repayments as a percentage of your top line revenues coming in. So, you don’t have to be worried about loan repayments, and whether you have the revenues to pay that back.”