I have started to review the history of some of the businesses I have led, been involved in, or advised over the last twenty years, and at key points in their history, I have looked at how they have scaled or, in some cases failed to scale.
It gave me an idea for this blog post about the differences between growing a business and scaling a business.
Here are a few of my thoughts about the key differences.
Magnitude of Growth:
Growing a business typically means increasing its output and subsequent revenues. It says nothing about improving its profitability. Growth can come through gaining new customers, selling more products, or acquisitions. Scaling a business, on the other hand, involves expanding its capacity and capabilities so that revenue increases significantly while costs rise only marginally.
Systems and Processes:
Growing businesses, especially new ones, often function with ad-hoc systems and processes, which may need constant attention and intervention. When scaling, however, there’s an emphasis on creating robust, repeatable, and automated systems to handle increased demand without corresponding increases in resources or complications.
Hiring Strategy:
In a growing business, hiring often happens as and when needed, based on immediate requirements. Scaling businesses, though, require strategic hiring focusing on roles that directly contribute to the scalability of operations, such as specialists in automation or process optimisation.
Culture and Vision:
A business that is merely growing might not place a strong emphasis on cultivating a company culture or communicating a clear vision. But when scaling, these become central, providing something that guides decision-making and attracts like-minded employees and partners.
Profitability:
Simply growing a business can be achieved even while operating at a loss by reinvesting to acquire new customers, for instance. In contrast, scaling is typically associated with improved profitability, where the unit economics improve as the business expands.
Infrastructure:
A growing business might linearly add infrastructure to meet demand. A scaling business would invest in scalable infrastructure, such as cloud-based systems, which can handle large increases in demand without the need for a proportional resource increase.
Market Reach:
Growth could mean focusing on a local or regional market, whereas scaling often implies expanding to new geographical areas or even global markets, taking advantage of larger audiences and economies of scale.
Innovation and Agility:
A growing business might stick with what’s working in the short term, with less emphasis on innovation. A scaling business, however, recognises the need to continually innovate and pivot as necessary to maintain and accelerate its growth trajectory.
Investment:
When growing a business, you might rely on profits and some smaller outside investments. Scaling a business, on the other hand, often requires substantial investment to fund the infrastructural, operational, and human capital changes necessary to support rapid, efficient growth. This may involve seeking external capital or other large-scale investment sources via equity sales, convertible loans or simply larger bank loans.
