Growth vs scaling: What's the difference and why does it matter?
Published on March 15, 2022
In the modern business world, few ideas are more important than growth. Even long-time stock market fixtures like McDonald's and General Motors are judged by their quarterly growth rates. And a failure to grow can be catastrophic.
But for younger companies - and particularly startups - there's an equally strong fixation on scale.
How can a business not just grow, but grow exponentially?
In many cases, this is putting the cart before the horse. Young startups need to build a product, create a strong brand identity, and establish a market, and then they can think about hypergrowth.
But we'll talk more about this shortly.
In this article, we'll explore the differences between growth and scaling. We'll also dive into some key challenges for scaling companies, and what companies need to do to achieve that insane growth.
Growth vs scaling up
Let's begin with the most common distinction between these two terms. In general, we think of growth in linear terms: a company adds new resources (capital, people, or technology), and its revenue increases as a result.
By contrast, scaling is when revenue increases without a substantial increase in resources. Processes "that scale" are those that can be done en masse without extra effort - if I send an email to 10 people or 1 million, my effort is essentially the same. Which is why enterprises use email marketing so heavily. It scales so effectively. (Check out these SaaS email marketing templates for examples.)
Or for another example - an insurance company that scaled business operations by simply switching to a cloud business phone system.
But this is just the technical distinction between the two words. Let's look a little closer at what each looks like in practice.
Growing a business
Generally seen as the definition of a successful company, growth refers to increasing revenue as a result of being in business. It can also refer to other aspects of the enterprise that are growing, like its number of employees, the amount of offices and how many clients it serves — these things are almost always linked to growth of revenue.
The biggest problem, however, is that it takes a lot of resources to sustain constant growth.
Take for example an advertising agency that currently has five clients, but which is about to take on five more clients. Increasing the number of companies it sells to will bring in more money, but chances are it won’t be able to get the work done without hiring more people.
Because of this, financial growth can only be achieved while making larger losses, too.
Companies that offer professional services, like the advertising agency above, will always have to deal with this problem. Taking on more clients leads to hiring more people to support them — while it increases revenue by adding clients, it has to increase costs at the same time.
Scaling a business
Because of the costs associated with growth, modern founders have become obsessed with the idea of scaling.
The key difference with growth is that s****cale is achieved by increasing revenue without incurring significant costs. While adding customers and revenue exponentially, costs should only increase incrementally, if at all.
The difference between growth and scaling becomes most clear when a company isn’t a startup anymore, but is not a large corporation yet, either. At this critical stage the business will have to decide between growing at a regular rate or switching over to faster company scaling.
If it wants a shot at making a lasting impact on the industry and perhaps even society as a whole, it has to be done without accumulating a high amount of overhead.
Unfortunately there’s no clear-cut path to successful scaling — if there was, it would be much less impressive to build a million-dollar company. There are a couple of things to keep in mind, however.
Further reading for startups!
Startups vs scaleups
Here we have two more terms that are often confused. You probably already have a firm grasp on what a startup is, but how does that compare with a scaleup?
According to Scaleup Nation, a scaleup is "an entrepreneurial venture that has achieved product-market fit and now faces either the 'second valley of death' or exponential growth."
To put that another way, once a startup has proven that it has a product people want, it's time to take that product to the masses. This usually requires massive investment in new people, offices in different markets, and lots of advertising in the form of hosting educational webinars, attending trade shows, prospecting leads, and other tactics.
Which actually sounds sort of counter to our earlier definition of "scaling" - increasing revenue without increasing investment. But if successful, a scaleup will add exponential growth with only linear or marginal investment. Essentially, if they can unlock new markets and reach new audiences, a scaleup will grow faster than previously possible.
Key challenges for scaleups
Recent studies have shown a few trends that should perhaps worry CEOs. First, two-thirds of the fastest-growing companies fail. You might think that reaching hypergrowth status puts you on the inevitable path to success. It appears not.
Other macro studies have shown that slow-growing companies tend to do better in the long run than their fast-growing counterparts.
This is not to suggest that you shouldn't want to grow quickly. But you need to do it smartly. You need to be one of the good ones.
Let's imagine a business moving from startup to scaleup overnight. What was previously a local company with around 50 people in one cosy office is now a business expanding internationally.
The plan is to double in size every twelve months. So in three years, you're going from 50 to 400 full time employees. And some grow a lot faster than that.
So what are the key difficulties that come from this kind of scale up?
You need investment
This is the most obvious prerequisite: today, most young companies need significant investment (usually from venture capitalists) to scale up. This often comes in the form of series B or C funding.
Earlier funding rounds are used for MVP development and to establish market fit, and if they're able to secure further funding, it's to expand quickly.
You need scalable processes
Typical scaleups have a product that scales well - it appeals to buyers far greater than the current market served. But, because they've moved quickly as a startup, a lot of internal processes aren't designed to scale.
The most obvious of these are company expense policies. As a small company, you don't really need an expense policy. If someone needs to travel or buy something, they can sort it out with the founders directly. But once you have multiple offices and handfuls of people traveling at once, this is simply no longer an option.
Find out whether your expense policy is scalable.
You have to embed a company culture
Startup company culture tends to come naturally. Again, everyone sits in the same room, you hire carefully, and most of your team has the same goals and passions.
But once you move international, this is much harder to control. You don't have the same intimacy with new team members, and they can't feed off the energy and values of the current team as easily.
For this reason, scaleups need to think extra carefully about their employee onboarding strategy. This is the best opportunity to share the company vision, embed the core values, and make sure that new hires are a perfect fit.
Employees need autonomy; managers need control
This should be a guiding theme for all businesses, but it's especially true in the awkward teenage scaleup phase. Managers and HR teams suddenly have far less visibility over their team members, and they need to be able to trust that they're conducting business appropriately.
And team members find it harder than ever to get help from management and HR, with so many new hires to worry about. And again, they may not even be on the same continent!
This dynamic is tricky without good scaleup software. Online payroll tools, spend management, and productivity systems can all help to decentralize information, while centralizing control.
How to scale a business
It's impossible to provide that one "secret" to make your company scale exponentially rather than grow. But for those looking for clues and tips, here's some good guidance.
Aberdeen - Invest in company culture
With scale comes an influx of new talent. Which is great! But most startup leaders spend years carefully building a cohesive company culture, and you need to be sure not to let it slip away.
"When you are scaling, core values can get lost or muddled. Renewing your dedication to those values will attract the best talent, help you obtain the best technology for analyzing and managing your financial data, and clearly define how to continue to scale."
YokelLocal - Fire yourself from the little things
If the plan is to scale, you'll have to let go of most of the little things that eat up your time. Founders, CFOs, and other leaders need to stop thinking about saving every little penny, and focus on the bigger picture.
"Just get someone! You’ll most likely find that they are better and more efficient than you at these tasks anyway.
Guess what? Now you can spend your time on the portion of the business that requires your appropriate skill set - the stuff that you are truly good at!"
Startups.co.uk - Invest in process management
Similar to outsourcing, process management requires you to leave the small things to others. The important factors here are to make sure that processes are documented, and that others can pick them up without having to be shown step-by-step.
"As a small business owner you probably have direct lines of communication to all of your employees. But as your business develops you must turn your attention to strategic questions and leave the day-to-day operations of your business to others."
Grow, scale, succeed
Hopefully this article has helped to demystify the nuances around growth and scaling. In truth, both are important and the difference for companies is often a matter of timing.
But as we've seen, there are clear steps businesses can take to prepare themselves for the scaleup phase. Establish clear (digitized) processes, make information readily available from anywhere, and try not to rely on one-to-one communication for anything important.
From there, successful scaling is part planning, part effort, and plenty of good luck!