For many business owners, linear growth reflects successful business. But entrepreneurs whose goal is to take their business to the next level will sooner or later need scaling and exponential growth.
Knowing the difference between growth and scaling is a key factor in understanding how to achieve future business goals for your company. Also, if you are planning to expand your business, it is very important to understand the key differences so that you can initiate changes and enable your team to respond to them properly.
What is the growth of the company?
Growth refers to an increase in revenue as a result of business and good business decisions. It can also relate to other aspects that are growing, such as the number of employees, the opening of new offices and the increase in the number of clients. These factors are almost always associated with revenue growth.
The biggest challenge, however, is that it takes a lot of resources to sustain continued growth.
Companies that offer professional services, such as marketing agencies or IT companies, will always have to deal with this challenge. More clients lead to more employment, so that although new clients increase the income, at the same time it inevitably increases the costs.
For example, a company can generate significant revenue, but in order to do so they have to hire a new employee. The company’s profits and losses are equalized, so even though the company is growing – the number of employees and the company’s revenues have increased – it has not essentially gained much value.
If you do not have a way to increase the amount of money you earn without reducing expenditures, chances are that you will become prone to growth stagnation.
What is scaling?
The goal of the companies is to focus on the company’s growth, without being burdened with additional costs.
A great example of a company that has successfully grasped the scaling principle is Google, which in recent years has increased its user base (focusing on customers who pay for their services or users that Google can use as a channel to place promotional content) rather than proportionately increasing costs.
The key difference between growth and scaling is that scaling is achieved by increasing revenue without generating significant costs. When companies scale, they increase revenue faster than their costs grow. For example, a marketing agency in the scaling process can make a significant profit compared to the money it has invested in automation tools. The company’s profit outweighed its losses, allowing it not only to grow but also to scale.
A challenge for any business owner is to achieve a sustainable growth rate in the first few years. At some point the company’s growth rate starts to slow down, reaching a point where an increase in revenue becomes balanced out with the amount of costs. If a company increases costs and revenues at the same rate, the company has limited growth potential.
The best example of a business model limited by the growth is the service activities model. When this type of company acquires customers, it usually takes more people and resources to service them. Although the company’s revenue is growing, costs are growing at the same rate. Although the business is technically growing, it is not changing.
When a company increases revenue with a minimal increase in production costs, it is a success for the company. The idea of scaling was first associated with manufacturers who found ways to standardize and optimize their processes to do business more economically. In doing so, they were able to distribute their fixed costs across multiple production units.
The concept of scaling is mainly related to IT companies. As mentioned, Google is one of the best examples of a company that has successfully scaled up by increasing the number of customers and revenue while minimizing costs.
Is your business scalable?
Not all types of businesses are scalable. If each subsequent sale requires as many resources as a previous sale, your business model is probably not scalable. Many companies can identify scalable aspects of their business that can be standardized to reduce costs. Scalable companies can find ways to automate processes, whether it is product or service delivery, and thus reduce costs per customer.
Business owners who focus on achieving growth often have to worry about the technical details of the business. While the technical aspects of the business are important, in order to find the trigger needed to move to the next level, you will also need to think at the strategic level.