Merchant Advance Blog

Blog Article: Scaling Up: From Handmade to Household

Last week, the New York Times’ Amy Heimrl published a piece on what she called the “Whole Foods Effect” – namely, the effect of the pressures felt by small businesses on the boutique side of the food production industry who need to scale up quickly when big, highly desirable distributors (such as Whole Foods) come calling.

Small businesses, Heimrl noted, are the boots on the ground of the “local first” movement that has exploded in popularity in North America – and when they are called on to expand their production capacity in pursuit of lucrative partnerships with major retailers, their financial resource needs may change dramatically.

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Small, boutique or artisanal food producers are not the only market for which the effects of rapid scaling will require a significant financial and organizational rebalancing act. Businesses with an e-commerce component may find themselves having to adjust when they decide to open up their wares to an international marketplace. Supplier agreements may need to be renegotiated to meet demand. Furthermore, stepping into a bigger league will often expose a small business to a larger and more established field of competitors.

In light of this, how should a small business looking to make the leap to its next level of exposure do so without risking a faceplant? Risk, of course, is inherent to the small business workplace, but it can be managed with effective planning and consideration. Working at a bigger scale may mean investing more of your time, building up a bigger employee base, upgrading or improving equipment. In short, can you maintain the quality of product or service that you’re known for on a larger scale? No matter what form an expansion takes, one of the key elements in taking a small business to the next level is knowing the kind of capital you need to support its growth.

A recent report by the Ontario Chamber of Commerce noted that too few businesses in that province had the resources available to consider scaling up in a meaningful capacity. Chief among the report’s concerns is the availability of suitable talent and capital to facilitate growth. Whole Foods itself has recognized the challenges associated with scaling growth by creating a growth-focused loan fund for local producers with whom it seeks to associate.

Very few growing firms can self-fund effectively without significant alteration to their day-to-day operational procedures. Understanding the options available for obtaining financing, and being able to afford investments in the scaling process without disrupting your existing flow of business and customer service model, are key steps for any firm looking to make the jump to a wider scale of distribution.

 

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