West Elm - How To Scale Your Small Business

At some point, most small business owners ask themselves whether or not to scale. If the answer is yes, the very next question is how to do it. Every maker’s journey is their own; the key is to trust that the mistakes you make will lead you to the right place. And sometimes, you get lucky and have the chance to learn from others.

James and Eileen Ray went from hectic lives in New York City to starting Little Seed Farm in 2012. A herd of goats, a baby (with another on the way) and a thriving business followed. Now they’re busy moving forward on a work/life path they’ve designed for themselves. In 2014, they won a west elm LOCAL small business grant. Since, then they’ve learned a lot about how to manage the ups and downs of growth. Happily, they’re sharing their personal story with our community of makers and small business owners…

1. Earlier experiences taught us what we didn’t want.

Growing our business has never been an explicit goal for us. James came from a business background. In many respects, that myopic focus on growth, revenue goals and expansion hindered the ability of management and employees to focus on what really matters: creating great products, providing excellent customer service and telling a good story. If you can achieve those things, growth will follow.

2. We focused on our mission instead of growth for growth’s sake.

Our mission when we moved to Little Seed Farm was to create a business that we were passionate about and that made the world a better place. As we grow, that remains our focus. We’ve always appreciated that growing too fast can be a big problem… and that not growing can also be a problem. Finding a happy medium that fits your management style, your business expectations, and also meets customer demand is something to strive for.

Searching for growth for growth’s sake is not the answer. Farming reminds us of that fact every single day. We cannot grow faster than Mother Nature allows. In order to add a big new retailer, we may need to wait six-to-nine months until we can meet the production requirements. Our goats can only make so much milk!

3. We reached a point where we had to scale up or scale back.

The decision to add employees was essentially forced on us during the 2014 holiday season. The two of us were working the equivalent of four or five people. We knew that if we wanted to continue growing, we would need to hire employees. It was either that or scale back. We were having fun, and we believe that the more organic and sustainably produced products there are, the better the world will be. So, we decided to grow.

4. We hired our first employees.

We started by hiring two part-time employees to assist in packaging and shipping. As time went along, we hired one of them full-time, then added two more employees in the ensuing months. Hiring at the start of the holiday season (October) allowed us to absorb their costs at the same time our profits were increasing. The holidays are a huge part of our business, so that worked out well. Adding our first employee during a slower time of year would’ve put us in a bad place from a cash flow perspective. The West Elm Grant gave us the confidence in our financial situation to bring on those first employees. Plus, our biggest customer decided to continually expand our business, which made hiring additional employees a lot easier on us from a financial standpoint.

5. We narrowed our focus.

From that point on, scaling our business has been a combination of a few things. We decided to shut down the marginally profitable businesses (such as cheese and pork production) and focus solely on higher-margin products (soap and skincare). We also took into consideration which aspects of the business could be scaled without massive investments in infrastructure and labor. Cheese, in particular, is a highly regulated product that requires huge capital investments and a relatively large amount of labor. While it has higher margins than many food products, it’s still a somewhat low-margin product overall.

6. We invested in equipment.

Once we decided to focus on soap and skincare, we invested in new equipment that could help us expand faster without needing to hire additional labor. From a manufacturing standpoint, we determined that investing our capital in equipment would enable us to reach a scale where hiring made more sense.

For example, with the addition of a couple larger pieces of equipment, our soap production went from making 15 bars in a batch to over 300. We can effectively make 1,200 bars of soap in the same amount of time that it used to take us to make 100. If instead of purchasing equipment we had to hire 12 people to make 1,200 bars, then our business wouldn’t have been able to scale.

7. We grew our anchor accounts at a pace that felt right.

We’ve had a few anchor accounts that grew our business with them rapidly, but not too rapidly, and that allowed us to pace the growth at a rate that felt good to us. It was not an overnight explosion. We did not pick up a big distributor or hundreds of stores at one time. We added wholesale accounts and new store locations at a manageable pace without putting too much pressure on our production capabilities or ourselves.

8. We learned from our mistakes.

Most of our learning from growth takes place on the farming side of the business. Working with animals and managing them using only organic methods is difficult. We spend a lot of time thinking about how to better take care of our goats and provide them with the most natural and healthy life possible. As we grow, that’s always the first thing we think about.

9. We managed our cash flows.

Our ability to scale has largely been a function of managing our cash throughout the continued growth without running out. Growth is a blessing, but it’s not easy. In many ways it’s harder. When your revenues are growing three-to-six times year-over-year for multiple years in a row, one of the biggest challenges is making sure you manage your cash, receivables and payables so that you don’t face a cash crunch.

10. We continue to balance opportunities with capacities and costs.

From a business standpoint, we’ve struggled a bit with space and infrastructure needs. Our little 400-square-foot production and distribution building is at its capacity at the moment. Our dry storage space is also at its capacity. Since we own all of our buildings and produce everything on our farm, it’s going to be a continual issue from a growth perspective. We can’t just go lease a bigger facility in town, for instance.

In general, though, the growth has been great. Having employees reduced our workload, although we still work an absurd amount of hours. Investing in better equipment saved wear and tear on our bodies. There’s a bit more paperwork, taxes, accounting, and other administrative stuff involved, but it’s definitely been worth it.

Thanks, James and Eileen! To learn more, visit littleseedfarm.com or shop their soaps at west elm.

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Josh | The Kentucky Gent

February 17, 2016

Moving into the second year of owning a small business, and I’m facing a lot of these same hurdles. Good to know I’m not alone in feeling a little overwhelmed.

Josh | The Kentucky Gent
http://thekentuckygent.com

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