Two of the favourite topics of start up companies, are growth and scaling in business. The words are thrown around a lot, but the enthusiasm with which they’re used often outpaces the accuracy.

Many people use these words to mean the same thing: A company getting bigger, gobbling up more market share, and making more money. But there’s a crucial difference between growth and scaling in business terms, and it’s an important distinction to understand what really happens when businesses grow and what kind of growth you should be looking for.

Business Growth vs. Business Scaling

What is Growth in Business?

When companies grow, they are increasing their revenue equally as fast as they are adding resources to enable that increase.

The company may gain £25,000 in new revenue, but in order to do so they had to hire a new employee, with a £25,000 salary. The company’s gains and losses are evened out, so even though the company is growing — by one new employee and a corresponding uptick in revenue — it really hasn’t gained much value.

What is Scaling in Business?

When companies scale, on the other hand, they add revenue at a faster rate than they take on new costs.

A company that is scaling may gain £25,000 in new revenue for which they spend only £5,000 on marketing automation tools, (eg chat bots funnels to website, Facebook, hub spot etc), to allow more efficient marketing to a wider audience. In this instance, the company’s gains outpaced its losses, allowing it not only to grow but also to scale.

What is Scaling in Business?

When companies scale, on the other hand, they add revenue at a faster rate than they take on new costs.

A company that is scaling may gain £25,000 in new revenue for which they spend only £5,000 on marketing automation tools, (eg chat bots funnels to website, Facebook, hub spot etc), to allow more efficient marketing to a wider audience. In this instance, the company’s gains outpaced its losses, allowing it not only to grow but also to scale.

SCALING

Scalability is about capacity and capability.

Is your company scale-ABLE? Is it ABLE to scale?

Does your business have the capacity to grow? Will your business systems, infrastructure, and team be able to accommodate growth?

Companies scale their business, when their revenue increases, while their operating costs remain low.

If a company increases its revenue, but increases their costs at the same rate, then, as mentioned above, that business is not scaling.

Point of note...

Scale up, should only be when the business is ready, and not just because opportunity knocks.

You shouldn’t create unnecessary risk in the business, and its progress, just because profits are up one quarter. It is important to note that it is not prudent business, to achieve a few initial goals and then set out to attain an impossible one.

Risk is inherent in business and there is no “sure thing,” but minimising risk, should be a priority before growing. The signs telling you to scale up, are not concrete, but if the business exhibits more than one of the signs, set out below, it might be a good time to evaluate options.

Customer base

Over time, success will start to show through the business’s capacity.

The business should be creating a larger client network as well as nurturing the ever-increasing baseline.

Eventually, the network will begin to overwhelm the current workforce.

Knowing that it is time to grow, is about knowing whether or not the business is profitable, stable and proven ready.

If more people have been showing steady interest in your offering and want your business, this is a good sign that you should prepare to reinforce the infrastructure, set new goals, plan the next steps and scale.

If we are regularly attaining or surpassing your goals, then re-evaluation is necessary and scaling up could be the solution.

Once you’ve realised you’ve made your original goals too attainable by the standard you’ve set, then you are ready to scale.

Instead of meeting expectations and comfortably reaching goals, we should challenge our business to be the most it can be.

Goals should be difficult but attainable so that they can assist your growth. You should set high goals, establish the proper growth to resources, and start expanding.

Strong cash flow

Simply being profitable isn’t enough to justify expansion.

While “profitable” is a qualitative measure, the exact quantitative data representing profit in numbers can be a deciding factor, (revenue forecasting & achievement)

The numbers are critical to predicting further revenue, which can be just as important as the revenue itself. They also help predict future profits, costs, and stability.

When you have a strong understanding of your business model and its performance record, a more accurate and trustworthy forecast can be created.

If the ratio between best results and worst results is narrow, the business probably has a healthy consumer base and evidence of strong sales. These signs are indicative of prosperity and suggest it’s time to scale.

Proven concept and reliable infrastructure

Concept

We should ask ourselves, ‘Do we have proof of concept? ie:

Can you confirm that your product & service match the interests and needs of your target audience.

Can you confirm that your concept is in demand, and backed up with strong scales

Infrastructure

Do we have the infrastructure in place to scale?

Proper staffing is critical to a small business, as everyone’s roles are vital and lacklustre performance can be detrimental If you have confidence in your team and its size, you may be ready to scale.

Re staffing,…. think creatively.

If you only have a low staff budget, in the early stages of scaling, as you look to to protect your profit margin, and cashflow position, you could maybe think of strategic outsourcing

This can provide greater flexibility, in terms of tasks, and marketing results, using experts, while avoiding additional employers costs, of National Insurance contributions(NIC) plus PAYE, plus Pension contributions.

Additional Employers costs are typically around 12% of the employee’s salary.

Therefore, Employers’ costs for an employee, on a salary of £25k, would be an additional £3k

Total cost of employment = £28k

Using this route, you now have to increase you profit level by an additional £3k, to £28k, just to stand still. Not good business.

Strategic Outsourcing

Sometimes the answer is to outsource or look to partners, rather than hire internally.

Scaling requires that you make tough choices. What functions can and should you perform -- or not perform -- internally?

Third parties eg specialist Recruitment Agencies, may have the staff and systems that enable them to be much more efficient in handling a function than your company.

Trying to replicate that function internally may take too much time or money. Instead, find a reliable partner to outsource, thus positioning your business to scale better, faster, and cheaper.

Using Digital Marketing Freelancers/Graduates for example, you can start and stop marketing expenditure at will, to suit you cashflow.

Instantly, your company could benefit from experts implementing whatever digital marketing needs you may require, eg