Small Businesses and Scalability

The Wall Street Journal’s “Fast Fixes” feature had a great article today about Stella & Dot’s use of contractors to help manage rapid growth. For most small businesses, scalability (i.e. the ability to handle growth) is a problem because a spike in revenue can wreak havoc in ways that wouldn’t even phase a mid-to-large business.

Let’s say you own a $3M business and all of a sudden you land a large client (e.g. the US Government or a Fortune 500 company). The client places an order for $1M of goods or services, which is a spike equivalent to 33% of your revenue. For your larger competitors, this spike might not be anything more than a blip. For you, though, it could have disastrous consequences. Without adequate planning, your quality and delivery will suffer, affecting the relationships with both your new and existing clients.

Loading up capacity before you have the business is a sure recipe for bankruptcy, but at a minimum you should have a plan in place to handle sales spikes. Contractors are an excellent short-term solution. Long term, you’ll need W2 employees to provide sustainability, but identifying a number of contractors who can help you out in a pinch is great advice!

The Wall Street Journal calls this “outside the box” thinking; I disagree. This is Business 101. Jessica Herrin of Stella & Dot wisely applied a sound principle, and she was appropriately rewarded!

Ingar Grev