With companies like Google, Amazon and Apple fighting it out to be the first trillion dollar company (yes – a trillion) the rest of the world has been left asking: how an earth did they do it?
Well, a great business idea helps. As does frugality: Amazon famously survived the crash of the dot com bubble in the early 00’s by being careful with money and investment. While other big companies rapidly grew their teams and threw lavish parties, Amazon CEO Jeff Bezos reportedly made the employees work from door desks – which, in case you’re wondering, are exactly what they sound like.
But their real success is actually rooted in something totally different. It’s based on an understanding of how and when to develop their companies without breaking the bank. In other words, it’s about scaling versus growing.
Wait – scale and growth are different?
The words “scale” and “growth” have probably been thrown around plenty of times at your weekly board meeting. They might even have been used interchangeably. But, to really understand what separates companies like Amazon or Google from, say, your local supermarket, we need to understand why scaling and growing mean two different things to business models.
Scaling versus growing: Growing
Let’s start with growing first. Contrary to popular belief, growth doesn’t necessarily mean an increase in revenue. Growth is about adding resources to the business at the same rate that you’re adding revenue. So imagine a company picks up a new client. They don’t have anyone on hand to service the client, so they hire a new employee. The company is adding revenue (through the client) at the same rate they’ve added costs (through the new employee). The company has grown, but it hasn’t scaled.
With most traditional businesses being growth-orientated, the scaling versus growing question won’t come up for contractors, retail stores etc. When these businesses want to increase more revenue, they add extra resources to do so.
For businesses who are focused on growth, they know that you have to spend money to make money. This makes growth an almost entirely a sales-driven process. More sales turn into more employees which – you guessed it! – turns into business growth.
Scaling versus growing: Scaling
Scaling is far more complex, but stay with us. Scaling a business is about adding revenue without really increasing resources. By scaling a business, you achieve business growth without having to spend money on extra employees, for example. Scaling is largely what’s made companies like Google, Facebook and Amazon a success – but it isn’t easy.
To scale a business, you need to have the right business processes and assets in place. If you have the right processes, you’ll be able to take on more business (and increase revenue) without having to increase your number of employees. To look at it as scaling versus growing, businesses focused on growth need to hire an extra employee for that new client: a business focused on scaling will be able to take on that new client with their current team.
To find out whether your business can scale, you need to look at your business model and find out what you can replicate quickly and cost-effectively. Can you outsource your call answering service or mass produce your product? What processes could be automated?
If the next client or sale needs just as much time as the one before it, then your business probably can’t scale. The reason why software and tech companies are great at scaling is because once the costly, time-consuming product development is out of the way, the company can mass produce it and sell it through automated sales processes – requiring no effort whatsoever!
Scaling versus growing: what’s best?
So, the bad news is: we can’t give you a straightforward answer. It’s totally dependent on your type of business.
Scaling your business cuts down the amount of time it takes for a small company to become a big company. You can grow your services, customer base and reach, without having to sink any of your extra revenue into the additional resources. But – and this is a big ‘but’ – scaling before your company’s ready is one of the fastest ways you can rinse through cash. It gives you less wriggle room if your product or processes don’t do as well as you’d hoped, and means you can’t easily make changes to the way your business works. Premature scaling is often deemed the “number one cause of startup death”, killing off around 74% of tech startups.
Growth, on the other hand, is a bit more stable. It might be a less glamorous option, but when it comes to scaling versus growing, for some businesses it just makes sense. And what’s wrong with slowly growing your revenue over a number of years?
Well – nothing. But, dependent on your industry, you run the danger of being a sitting duck. If your competitors find a way to scale their operations, they could end up dominating the market – just think of what eBay did for garage sales, or Uber did for taxi services.
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