Creating effective systems is essential to building a startup that can scale. That means getting financial reporting in place, being productive and communicating clearly.
Learning relentlessly is part of entrepreneurs’ DNA. Building a business is about embedding what you learn into scalable systems.
This article explains the three types of systems you need to scale a startup and how to start building them.
Founders share the secret to building startup systems that scale
The three startup systems you need to scale
- Financial reporting is a cornerstone of growth
- Be relentless about productivity
- Build communication and planning into your culture
1. Financial reporting is a cornerstone of growth
Financial reporting is a crucial part of surviving and thriving – it’s something you need to get in place from day one.
Business accounting and bookkeeping allows you to track invoices and get paid on time, monitor expenses and keep up to date with taxes.
It’s also a great way to identify opportunities you might have missed otherwise:
- Cash flow forecasting: Ensure you have enough money to keep trading and plan investments that will help you grow
- Marketing and sales costs: Understand customer acquisition costs and customer lifetime value to see the potential to increase revenue
- Opportunity analysis: Dig into the profitability of different activities, so you can understand your options and focus your efforts
Richard Osborne’s seed investors pushed him to develop robust financial reporting early on.
“I’m a whiteboard creative type. I hate looking at spreadsheets. But I learnt a lot – before you can think about growing you need to know the KPIs and get those foundations in place,” Richard said.
That rigour allowed Richard to grow Business Data Group’s turnover from £100k to £2m over seven years.
So, how do you get financial reporting processes in place?
Having accounting software like Sage will save you a lot of time. It allows you to easily track expenses and sales, and automatically create reports like cash flow and profit and loss.
You need to build forecasts based on that information. The basics are profit and loss, which summarises revenues, costs and expenses, and cash flow, which shows how much money you have coming in and out of the business.
Setting targets for finance
Setting financial KPIs gives you a target to aim for. These are different for every business, so let’s take a look at what an ecommerce business might track:
- Cash runway: How long do they have before they run out of money?
- Customer Acquisition Cost: Marketing is a big expense, so it’s important to know how much it costs to get a new customer
- Customer Lifetime Value: Building a loyal customer base saves marketing costs
- Gross profit margin: The amount of money left over after the cost of goods sold, which shows whether products are profitable enough to cover cost and still make money
How startups can get support with their finances
The financial support you need evolves as the business grows. There are three phases to think about in your first few years of running a startup:
- Company formation: Get accounting software in place. It’s a good idea to get support from an accountant to make sure everything is set up correctly
- Business starts to grow: When you start hiring employees or turnover goes over the VAT threshold of £85,000, finances get more complicated and speaking to an accountant regularly really helps
- Preparing for scale: If you’re seeking investment or the business is ready to scale, work with a business coach that can offer advice alongside your accountant
Talk to your Local Enterprise Partnership and look at local incubators and startup support schemes to see if there are grants or free support available.
2. Be relentless about productivity
Cash and time are startup founders’ two main constraints. It’s common to feel anxious about the amount of time you have to work on your business – and important to work in a healthy way.
We’ve talked about finances already, so let’s look at productivity: what startup systems can help you get more done?
Establishing a system to prioritise tasks and manage your time is really powerful. There are a number of systems to consider:
- Kanban: An approach to project management that allows you to visualise what stage tasks are at. You can create and collaborate on boards using tools like Trello and Notion
- Time blocks: Manage your time through your diary by adding blocks for new tasks. This increases accountability and helps keep your to-do list unders control
- Pomodoro technique: Named after a tomato-shaped (“pomodoro” in Italian) kitchen timer, this approach calls for people to focus on a single task for 25 minutes then take a five-minute break
This is about building productive habits, which takes time and effort. Every entrepreneur is different, so experiment and find what works for you.
Learning to say “no” to opportunities and figuring out what tasks will have the biggest impact is also part of the process.
You’ll do a lot of experimenting early in your business journey. Keeping your vision and goals in mind is a great way to sense-check what you’re working on.
Delegation unlocks growth
Letting go of responsibilities can be a difficult evolution for entrepreneurs. You might want to be involved in every product decision, for example, but as a startup grows you need to be able to step back from day-to-day tasks.
It’s important to make sure you don’t become a bottleneck. Try to systemize tasks, so your team is empowered and you don’t have to be involved in everything.
3. Build communication and planning into your culture
Startups need to move quickly. They may have limited resources, but they’re agile. Creating startup systems for communication and planning will give you robust foundations when you’re scaling.
There are lots of collaboration tools designed to help you work together, especially if some team members are remote or working from home. Here are a few low-cost examples:
- Microsoft Teams
Having a small team means it’s easy to keep everyone in the loop. The trick is to develop cultural norms for how people use different communication channels. You want to be as effective as possible and make sure your team isn’t overwhelmed with alerts.
Finding and implementing the right systems for your startup
There’s a healthy tension between moving quickly and putting systems in place. It’s hard to find the time to get systems up and running but that process is an essential part of growing a business.
“When we first started out, we were using a lot of spreadsheets and emails, sometimes sending information across 90 emails at night,” said Terrible* founder and The Pitch 2020 winner Tersha Willis.
When Terrible*’s customer base grew, using different systems became untenable and they started to develop their own in-house product.
For Tersha, the problems they’re trying to solve for customers are like spiderwebs: one request gets solved and another immediately pops up. But working with customers has allowed them to get an in-depth understanding of the business and build better, more scalable systems.
It’s likely you’ll have to do things that don’t scale in the beginning, but don’t let those systems hold you back when your business is ready to grow.