In business terminology, growth and scaling are often confused with each other. When we talk of growth vs scaling there is a distinct line that differentiates the two. Before we go any further it is imperative that we understand the difference between growth and scaling.
Growth is that point in the business where it is ready for expansion and looks for added options to generate additional profit. Scaling, on the other hand, is doing the necessary background work and setting the stage for your company’s growth. This involves planning, funding, setting in place the right systems, staff, ensuring you have the right technology and partners to ensure the growth of the business.
Growth Vs Scaling: Growth generally happens in linear terms; a company adds new resources (people or technology) and as a result its revenue increases. In contrast, scaling is when revenue increases without a substantial increase in resources. ‘Processes’ that scale are those that do not require much-added effort. For example, companies rely heavily on email marketing because the cost and effort to send an email to ten people or a hundred thousand is not much different and costs about the same.
Growing a business: This refers to increasing revenue as a result of being in business. Growth also refers to other aspects of the enterprise that are growing such as the number of employees, the number of offices it has, and how many clients it caters to. These things are always linked to growth. However, in order to achieve and sustain this visible growth, it takes a lot of resources and planning.
Let’s take the example of an advertising agency that has ten clients and wishes to take on five additional clients, in order to increase the number of companies it sells to. The firm will undoubtedly increase its revenue in doing so but will also incur the cost of hiring additional employees to deal with the added work. As a result, financial growth can only be achieved with larger losses too. Companies that offer services such as advertising agencies will always have to take on more employees in order to deal with an additional client base and will have to accept that with increased revenue comes increased cost.
Scaling a business: Modern-day business founders have become obsessed with the idea of scaling due to the high costs associated with growth. The main difference with growth is that scale is realized by increasing revenue yet keeping costs down with no significant increase. Costs should increase only incrementally while adding customers and revenue exponentially.
Google is an excellent example of a company that has managed to scale while keeping costs low. Over the last few years, they have been adding clients in the form of either paying business clients or ad-supported free users, all the while keeping costs to a minimum. Since 2017, the company has had seven products with over a billion active users and yet managed to keep the number of employees to a minimum of 88,000.
The difference between growth and scaling is most evident when a company isn’t a startup any longer but is not a large corporation either. This is a critical stage in the business and it will have to decide between growing at an expected rate or switching over to accelerated company scaling. In order to survive and make a lasting impact on the industry and maybe even society as a whole, a company has to ensure that scaling is done without accumulating a high overhead cost.
Unfortunately for entrepreneurs, there is no clear path or guidebook to scaling. It is touch and go and success rates vary from company to company. However, in understanding the difference between growth and scaling up, let us take it up a notch and consider a few things to be kept in mind when deciding on whether or not it is the right time to consider scaling.
Startups Vs Scaleups: According to Scaleup Nation, a scaleup is “an entrepreneurial venture that has achieved product-market fit and now faces either the ‘second valley of death’ or exponential growth.” That simply means that once a startup has proven that it has a product that is in demand, it is time to take the product and make it available to people. This involves a huge investment in terms of people, offices, advertising, attending tradeshows, hosting webinars and closing leads, etc. This scaleup must succeed in order to add exponential growth with only marginal investment. If a company is able to unlock new markets and expand its customer base, it will scale up at an accelerated pace.
Key challenges of scaleups: Some of the key challenges of scale-ups are as follows:
- Investment: Most scaleups need investment from venture capitalists. Often this is in the form of series B or C funding.
- Scalable processes: Generally scaleups have a product that scales well and appeals to buyers. However, if they have moved quickly as a startup, a lot of internal processes such as company expense policies are not designed to scale.
Companies need to carefully outline their growth and scaling processes. CoffeeMug.ai is an AI-power-driven networking platform that seamlessly connects individuals, investors, and corporate leaders in the business landscape. In addition to assisting members on board in exploring innovative business opportunities, this global network provides 1:1 mentoring for entrepreneurs and aids them in generating funding for startup businesses.
FAQs
Q. What does scaling mean in business?
A. Scaling a business includes rapidly growing your customer base while adding fewer resources, resulting in consistent growth and increasing margins over time.
Q. What is the difference between scaling and growing?
A. Growth refers to increasing revenue at the same rate as you increase resources; scaling refers to increasing income at a much faster rate than cost.
Q. What is a scale-up strategy?
A. The scaling-up strategy refers to the techniques and actions that must be taken in order to fully implement innovation in policies, operations, and customer service.
Q. When should you scale a business?
A. A business needs scaling when there is a lack of inventory, shortage of staff, generating steady profits, and you wish to expand customer reach.
