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.
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.
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.
Both types of growth are useful and most businesses try to balance the two.
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.
It’s essential to be prepared before attempting business scaling. A lack of preparation can cause significant problems.
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.
Scaling a business is a decision that should not be made lightly because of the pitfalls we mentioned.
Scaling a business is not without its risks. Here are some of the biggest potential pitfalls to consider before you start scaling.
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.
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.
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.
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.
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.
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.
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.
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.
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’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.
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.
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.
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.
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.