Grow versus scale your business: Is there any difference?
Business experts and companies often use the buzzy terms “grow” and “scale”. Both are associated with making some headway and money, making them seem synonymous.
However, growing your business and scaling it up doesn’t mean the same thing. Many people interchangeably use these terms, but they’re entirely distinct concepts. Let’s differentiate them here.
Growing a business
Business growth is generally seen as what makes a company successful. It mainly refers to a company’s expansion in revenue improvement, customer base, employees, products or services, technology, and market share.
Companies must aim for growth for the long-term survival of their business. Business growth generally helps monetize an expanding brand, meet consumer demand, draw in more clients, broaden offerings and opportunities, and gain market share.
However, it takes a lot of resources, including time, effort, money, and workforce, to sustain constant business growth. For example, a company that’s about to take on five more clients may bring in more money, but it won’t successfully happen without hiring more people.
In other words, achieving business growth can also mean making considerable losses. The company may also only grow in size but not necessarily in revenue. From a financial perspective, this isn’t sustainable.
Take a company suffering from a dip in clientele as an example. It may only be left with resources and a workforce to spend on but no work or revenue to recover costs, sustain them, and gain profits (i.e., revenue minus expenses).
Scaling a business
Due to the costs associated with business growth, the idea of scaling has become crucial. It helps a company increase resources exponentially, often at a manageable rate that’s slower than the growth of its client list.
By slowly increasing margins over time, revenue can increase without incurring significant costs. If there are any, they will only increase incrementally. As such, using the example earlier, even if they experience a dip in clientele, a company still has enough revenue to sustain resources and workforce costs.
Start-ups versus scale-ups
Many confuse start-ups with scale-ups as well. In simple terms, a start-up is a new company. Once it achieves product-market fit and takes it to the masses, it’s called a scale-up.
In business, the second valley of death means a company’s growth is slow, profit isn’t scaling with revenue, and cash flow is negative. It’s because its products, marketing, and employees aren’t working as they’re supposed to, resulting in losing customers.
Another potential reason is that scaling up requires massive investments in resources, including more staff, new offices, and lots of advertising. It often calls for financing. Fortunately, the lending world isn’t that cruel to start-ups anymore.
Many alternative lenders are now willing to fund start-ups, regardless of their track record and credit rating. Most of them are online lenders, such as CreditNinja. For bigger investors, there are also angel investors and venture capitalists (VC), to name a few.
While it may be counterintuitive to scaling (i.e., increasing revenue without increasing investment), scale-ups still add exponential growth with only marginal investment. If start-ups successfully scale up, they can unlock new markets, reach more audiences, and grow faster than possible.
Summary: Growing vs. scaling a business
To sum up, business growth is the increase in resources, resulting in a possible increase in revenue. On the other hand, scaling a business or its process happens when its revenue increases without substantially increasing resources or costs.
The difference becomes clearer when the scale of a business becomes sizable—neither a start-up nor as big as a corporation. At this critical stage, a company must decide between growing regularly or shifting over to faster company scaling.
When choosing, note that business growth is crucial for profitability and market reach expansion. Many consider it as “hockey stick growth.” Rapid growth after a business hits an inflection point has always been alluring, but it’s one of the reasons why many companies lose their focus.
This tunnel vision decreases the initial period of linear growth’s significance before the rising handle of the hockey stick. It’s usually within three to four years when the most critical work is done. Let’s call this period “the blade.”
The blade period is when a company establishes brand identity, core values, and company culture, develops the client experience, and creates an initial business model. In short, it’s the make-or-break period of any business.
What scaling up a business means is employing this blade period to put business processes in place and generate “lasting,” profitable improvement. Remember, scaling doesn’t replace growth but focuses on it exclusively through the utilization of strategic action plans.
Which is right for you?
Between growing and scaling, the better course of action depends on a company’s long-term goals. If you’re just running a start-up to make a decent income, growth without scale is fine. However, if you wish to become big and make a lasting impact on the industry and society, scaling is recommended to help your business grow in a sustainable, cost-effective manner.