Scale your business or grow your company – what’s the best option?
If you’re running a business and have plenty of ambition for growth then I bet you’ve found yourself wondering how certain businesses became such global phenomenons so quickly.
In truth, there is no one thing that will have made it possible. There will have been a number of ingredients. But underlying it all with a drive to disrupt how things are done.
It’s clear their founders understood that technology opened up huge possibilities for their business idea and gave them a way to make it internationally. They have created apps that are easy to use and changed how we think about ordering a take away or hailing a taxi.
An entire gig economy has been born as a result.
While you might not want to take over the world in quite the same way as these disruptors, there’s no reason why you can’t learn from them and open up in new locations, or expand and diversify the products or services you sell.
Any business founder or leader who wants to maximise their potential can do it. But you can only reach your true potential when you set out to scale your business not just grow it.
You may think that’s easier said than done. I know, because I have faced the same conundrum. However it is possible if you focus on some specifics.
Firstly you need to make sure you understand the difference between growing and scaling as this can often trip people up.
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Scale your business vs growing it: What’s the difference?
While increasing your revenue is a sure sign of growth, it’s inevitable that your costs will go up too – you can’t grow without something changing be that the size of the team you employ, the premises you operate from or using more raw material.
This is where the difference between growing and scaling a business becomes clear.
Growth focuses on increasing revenue with the current business model.Scaling focuses on increasing revenue while adapting the business model to maximise profit.
Crucially a business that is scaling is successful because the model can be sustained AND profit can be maximised.
Sure you can grow a business successfully by increasing the inputs and the outputs. But if you don’t take on a mindset that says the model has to be both sustainable and profitable, you will never scale and achieve your ambition.
To help explain this more, let’s look at a simplified example of a three year plan based on the impact of scaling versus growth on profit.
We will assume that a small business has revenue of £500,000, costs of £400,000 and profit of £100,000. After three years of growth with both revenue and cost rising at +20% year on year. profit will have increased by 73%.
Take the same business with the same assumptions but instead of costs increasing at 20%, assume we adapt the business model to embrace scaling and costs rise at 5% year on year.
After three years, the profit has increased by 300%.
More importantly, costs will have gone up by 33% less while scaling, resulting in a much more manageable impact on cash flow.
It is a simplified example but provides a good illustration of why scaling provides profitable and sustainable growth.
So knowing this, what are the five ingredients to success?
If you want to scale your business, there are five core elements required to make the transition: strategy, cash, adding value, leadership, execution.
I always get people to start with their strategy. It’s fundamental to identifying what’s going on in the market, your place in it and how you need to differentiate to stand out and therefore grow share.
That’s vital because not only will it inform what you can achieve and how long it should take you to achieve it, but it provides your team with clarity about their role in the future of the company and most of all enthuse them about how great the future will be.
There’s a simple fact that you can’t grow without plenty of cash – how else can you fund expansion? But as so many business owners know, growing a business can be one of the largest risks to cash flow.
However, with the right strategy in place you are perfectly placed to scrutinise your cash flow and allocate funds to the items that will grow the business.
Most of all, you can set aside cash reserves you can fall back on if you hit some bumps in the road.
3. Add capacity
This looks at how you acquire more clients and grow your team in a cost effective and efficient manner as you scale.
Scaling up your business requires you to consider how you will acquire new customers and grow your team to serve them.
As part of this, you will need to look at the roles they perform, for instance how you scale up your marketing and sales strategies, and deliver to a much higher standard.
As part of this, you might think the added value you can gain is best achieved by outsourcing the marketing to marketing agencies and switching skills to sales internally.
This is probably the one ingredient I repeat over and over again when I know the cash flow and the strategy are in place.
To be able to scale your business you must deliver a consistent, high-quality experience to every customer you work with. Flawless execution is the culmination of your scale-up strategy and developing your people.
If you fail to deliver on this then you fail your customers, which will fail your reputation and ability to grow.
None of these things can happen without leadership. Scaling depends on people and you need to be able to get the best from your current leadership team to succeed. You also need to look ahead and find the future stars.
This is sometimes the greatest hurdle to overcome, because it can involve some tough decisions and/or a long search for the right people.
But as many scaling businesses will testify, it’s crucial to focus on skill. Scaling up relies on transforming and up-skilling the people within your business as they are the ones to execute on the strategy and move the business forward.
Get this wrong and the plan will fall apart.
But it also rests on having the right skills yourself and acknowledging that the skills you possess might not be the ones you need in the future.