Growth vs. Scaling: What’s The Difference and Why Is It Important?

Growth vs. Scaling

In WeCrashed, AppleTV’s portrayal of the rise and fall of WeWork, Adam Neumann is obsessed with growing his company. Every decision is fuelled by the need to grow regardless of cost. He instructs employees to take on longer leases, pay above-market prices for rent, and do whatever it takes to grow. It is pure growth fuelled by excited investors willing to overlook the balance sheet because they believe in the company’s charismatic leader. 

As WeCrashed moves toward its conclusion, it becomes clear that the challenge facing WeWork is one of scaling versus growth. As the company expands across the United States and into Europe and Asia, it’s obcious that the company knows how to grow; however, they are unable to scale its assets.

This blog will look at the differences between growth and scaling, and how to avoid the pitfalls of only focusing on growth.

What Is Growth vs. Scaling Up?

Scaling and growth are often used interchangeably. In a sense, each is about getting bigger, increasing profits, and generating revenue. Still, growth and scaling are two very different approaches to reaching those milestones. 

Growth is far easier to understand. It results from increased spending that leads to increased revenues. Scaling is more revolutionary. It stems from companies getting more out of the same resources. 

Understanding Business Growth

Let’s start with a simple example. Lisa is a successful graphic designer who earns $100,000 a year designing her client’s websites. She works 30 hours a week and earns about $65 an hour. In order to grow, Lisa has two options – hire an employee so she can increase her company’s revenue or increase her hours, so she is working 40 hours a week. Either way, her business will grow, and, in all likelihood, so will her income. 

A small grocery that earns $100 of revenue per square foot can grow by expanding into a larger space; a small business with 15 salespeople promoting its services can grow by building a larger sales team.

In the short term, adding resources typically increases costs until sales catch up. Over the long term, growth will always be somewhat limited by the resources a business is willing to invest. 

What Does It Mean to Scale a Business?

Scaling a business takes a different approach to increasing revenue. Rather than continually add more resources, it attempts to increase revenues at a greater pace than costs.

Looking back at our previous examples, one way Lisa could scale is to work the same hours and increase her rates by 25%. The small grocery can work with suppliers to reduce costs, thereby increasing profits, while the small business with the sales team can look for process improvements and automation tools to reduce the sales cycle and increase the number of sales with the same staff.

Technology has improved our ability to scale. A one-to-one phone call is time-consuming and monopolizes the time of a vital resource; sending out an email to 10 people or 1,000 people takes the same amount of time and can drive significant value. 

Online businesses typically have the infrastructure to scale. They aren’t limited by the physical dimensions of a store, enabling them to sell more items to a broader audience. Software companies invest a tremendous number of resources in development. Still, their product scales effectively as there aren’t additional costs associated with each unit sold. 

How to Scale Your Business

Most businesses prefer scaling to growth because they require less upfront investment. Here are a few tools being deployed by businesses to help scale their business.

Reduce Costs of Products and Services

Evaluate all the costs involved in provisioning a service or manufacturing a product. In addition to reducing your material costs, look for other cost-cutting measures. Look for cheaper labor, negotiate for better shipping rates, and look for ways to reduce office expenses like equipment and rent. Profits will scale upward while maintaining the same level of productivity.

Upgrade Your Products or Services

Another way to increase profits without significant investment is investing in making your offering better. Add new features, upgrade your level of service, and train employees to better handle the needs of your customers. Increasing the quality of the product or experience will allow you to increase prices, helping to scale your business.

Become More Efficient with Technology

In most businesses, there are plenty of opportunities for improvement. Savings in one area of your business, even if it isn’t directly related to sales or the product, has an overall effect on your bottom line. 

Look for ways to optimize your spend management and find efficiencies in HR. Ensure that your finance team isn’t overstaffed, and take a close look at your marketing ROI.

Invest in Customer Management Tools

Successful businesses don’t just sell to a customer once. They can scale their sales efforts with CRM tools that alert sales and customer success team members that it’s time to reach out to a customer.

Bring on Freelancers as Needed

When you need specialized help, consider onboarding a short-term freelancer who can add to your existing skill set. Rather than investing in an expensive full-time employee, onboarding a freelancer for short periods of time can get you the expertise you need to help scale at a lower cost. 

How Successful Businesses Scale

While every business is different, companies that successfully scale follow these steps.

Committed to Growth

It may seem obvious, but a company that is not committed to growth simply won’t scale. For example, a three-person law firm with a paralegal and secretary may be comfortable with their level of income. They lack the motivation to scale their business and, as a result, never will. 

For businesses to scale, ownership must be committed to this path of growth.

Leadership Skills

Scaling is a reflection of the company’s owner or CEO. They need to lead by example, demonstrating a drive to find new, better ways to grow their business. 

Onboard the Right People

Scaling won’t happen by itself. It takes a team focused on success to pull together and move the company forward. Look for employees that are multi-talented and necessary for your operations. They will ensure that the company stays flexible and can pivot in the face of change. Other tasks can be outsourced as needed.

Focus on Processes and Automation

Automated processes and tasks save time and allow team members to get more done. Review processes throughout the company, looking for ways to make tasks more efficient. This may require some initial IT investment but will pay off down the road when operations are streamlined, and the company is a scalable model. 

The Key Differences Between Growth and Scaling 

As mentioned earlier, in growth mode, revenue and expenses are tied together, while in a scale model, revenue is exponentially higher than expenses. A growth company may have $15M in revenue with $12M in expenses, leaving it with a $3M gross profit. Contrast that with a scaling company that has $15M in revenue with only $7M in expenses, for an $8m gross profit. 

Growth vs. Scaling: Which Is Better?

Scaling a business drives higher profits as it pushes a company to be more efficient. For most businesses, it is a superior model to the traditional “You gotta spend money to make money” approach. 

However, implementing a scalable model is not simple. It requires careful planning, executing the right system, care hiring practices, the right partners, and robust technology.

See how Mesh Payment’s automated platforms help businesses like yours scale effectively. Schedule a demo today!

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