If you own a small business, you know that achieving any kind of growth represents a challenge. Whatever growth strategy you choose, you’ll need the right business plan and internal processes to help you hit your goals. But you may be wondering, should you focus on growing your company or scaling it? What are the differences?
At Select Funding, we partner with business owners every day to help them guide their growing companies to success. It’s important to understand the differences between growth vs scaling and what needs to be done to achieve each. Here’s what you need to know.
Business Growth vs Scaling
Growth and scaling might seem like they’re interchangeable terms, but they’re not. While they both refer to a business getting bigger, they differ in how the growth occurs and what is required to achieve it.
What is Business Growth?
Business growth occurs when a company increases its revenue at the same pace that it adds resources. For example, if you pick up a new customer and use the additional revenue to acquire resources to sustain that customer, that represents growth.
Growth can take two basic forms, as follows.
- Organic growth occurs when a company gets bigger without the use of paid acquisition channels such as PPC ads. Some examples of organic growth would be acquiring a new customer through a call to action on a blog post, through a customer referral, or with unpaid social media marketing.
- Inorganic growth occurs when a company spends money to acquire new customers or increase sales. Examples include bidding on keywords to run Google ads or promoting social media content.
Both types of growth are useful and most businesses try to balance the two.
What is Business Scaling?
Business scaling occurs when your company acquires more revenue without needing to add additional resources to do so. When a company scales itself properly, the result can be exponential growth.
Scaling can occur in a variety of ways, including the following.
- Automating business processes to allow for more efficiency without hiring new employees.
- Franchising a business to add more locations.
It’s essential to be prepared before attempting business scaling. A lack of preparation can cause significant problems.
How is Scaling Different from Growth?
Growing a business is an expensive endeavor. Whether you’re trying to grow a start-up into a viable business or working to turn a small business into a large one, you’ll need access to enough capital to achieve your growth goals.
The same is not true of scaling a business, which can be done with minimal expenses and minimal work. It would be misleading at best, though, to say that scaling is easier than growth. If that were the case, we would have more large, successful businesses than we do.
Here are some of the key differences between scaling and growth.
- Business growth requires a lot of overhead compared to scaling.
- Growth is only achieved by adding resources, which may include hiring new employees, expanding office or warehouse space, buying more raw materials, increasing inventory, and spending money on marketing.
- Growth typically takes place at a slower rate than scaling because of the resources required.
- While scaling happens more quickly than growth, it has some significant pitfalls that you’ll need to consider.
- Scaling allows companies to make a significant impact without spending a lot of money.
Scaling a business is a decision that should not be made lightly because of the pitfalls we mentioned.
What Are the Pitfalls of Scaling Too Soon?
Scaling a business is not without its risks. Here are some of the biggest potential pitfalls to consider before you start scaling.
Scaling Too Soon
When people are excited about your product it might be tempting to leap into scaling without considering the consequences. If your product market fit isn’t right, or if you don’t have the staff to handle additional sales and customers, scaling early could backfire.
Cutting Prices Too Soon
When you’re expanding your business rapidly, you may be tempted to cut your prices to make your product as competitive as possible. However, cutting prices too soon can cause cash flow problems that shouldn’t be there when you’re scaling your business.
Choosing the Wrong People
A lot of businesses cut corners in the hiring process and in vetting vendors and suppliers when they’re scaling. If you’re scaling your business, it's time to apply more scrutiny– not less – to get the right team in place.
Focusing on Short-Term Gains over Long-Term Growth
Scaling is about improving your company’s profits and impact in the long term. It’s important to keep your eyes on the horizon as you scale and avoid getting bogged down in the minutia of short-term gains.
Not Adapting to Growth
Even when scaling is the best option and you’ve planned carefully, you can still run into issues. As a company scales, it changes. Departments that were necessary may become obsolete and new departments and employees may be needed. You may also need to review internal processes to evaluate their efficiency. Scaling requires a lot of agility.
Sticking with an Outdated Leadership Structure
A simple leadership structure may work well when your company is still small. However, scaling changes the size and structure of a company. You will need to reevaluate your leadership structure and rethink it to accommodate the changes brought on by scaling.
What Questions Should You Ask Yourself to Determine if You Should Scale or Grow?
Making the decision to scale is something that shouldn’t be done without proper consideration. Here are some crucial questions to ask yourself before you scale.
- Is my revenue increasing or decreasing? If it’s increasing, that may mean you’re ready to scale. If it’s not, you need to ask why and do what you can to reverse the trend before you think about scaling.
- Are my profits increasing? As you grow, your profits should be increasing. If they’re not, you should see what you can do to cut your expenses before you move forward with any plans to scale your business.
- Do I have the support systems needed to scale my business? Scaling can easily get out of control if you don’t have the human resources, equipment, processes, and systems in place to support it.
- Are my customers satisfied with my product? If the answer is yes, then scaling may be an option. If it’s no, you need to ask whether your product is ready for the big leagues – and fix it if it’s not.
- Is my sector growing? It’s not impossible to scale a business in a sector that’s stagnant or experiencing slow growth, but it’s a lot harder than it would be in a booming sector. If your sector isn’t in a growth phase, you may want to hold off on scaling until conditions change.
- Do I have a plan in place to support expansion? Scaling isn’t something that should be done without planning, so if you don’t have a plan in place, make one before starting to scale your business.
- Have I automated or streamlined key processes? Mapping business processes is a necessary step in scaling any business. We suggest mapping every repetitive process and doing what you can to streamline or automate it before scaling.
- Is my team prepared for scaling? Even if you have the best people working for you, it’s still essential to confirm that they’re prepared for the additional work and challenges that come with scaling.
- Do I have access to affordable financing to scale my company? While scaling should be less expensive than growth, you still need the money to pay for expansion. That may mean getting a loan or a business line of credit.
Answering these questions will help you determine if it’s time to scale your business or stay in the growth phase while you prepare to scale.
How to Know When You’re Ready for Scaling
While it’s important to ask the right questions before scaling your business, there are some signs that indicate that your company is ready for scaling.
You’re Regularly Surpassing Your Goals
You’ve set growth goals for your company and you have regularly surpassed them, whether the goals have been to increase sales, attract new customers, or boost your profits. These are all signs that your company has achieved sustainable growth and is ready to be scaled.
You Have Proof of Concept
Your product is selling well and people love it. You may be pushing hard to keep up with demand and you’re beating out your competitors. Your product is popular enough to support scaling.
You Have Reliable Cash Flow and Repeat Sales
Your cash flow is steady and you don’t have to worry about paying for your overhead expenses. Part of that is due to repeat sales from loyal customers who provide revenue you can count on. A steady stream of cash and customers is necessary if you want to scale.
You’re Turning Down Business Opportunities
Your business is humming but you find yourself turning down business opportunities because your organization isn’t operating on a scale that would allow you to capitalize on them. You need to expand to avoid losing out.
Scale Your Business with Affordable Financing
Scaling your business can help you increase your profits quickly–if you do it properly. The key is asking yourself the right questions and laying the groundwork to maximize your chances of success.
Do you need financing to achieve your dream of scaling your business? Select Funding is here to help! Click here to read about our small business financing options and begin the application process now.
