May 17, 2021 News

Growing or Scaling a Business: Which One is Better?

growing or scaling

You had a brilliant business idea, launched your company, and gotten enough product traction. Now you want what every business wants: more—more customers, more sales, more markets to conquer. Should you grow or scale your business? What's the difference? Which one is better for you?

In today's business world, nothing seems more important than growth. Publicly traded companies are judged by their quarterly growth rates, and failure to meet growth expectations can be catastrophic to them. Startup companies, on the other hand, seem equally fixated on scaling, often rushing into it, hoping for bigger and faster growth.

Noted tech startups have demonstrated that the path to success isn't always about growing a business but about scaling it. Companies like Google, Salesforce, Slack and Groupon have created business models that can be scaled to generate huge revenue without adding massive costs. Entrepreneurs aiming for hypergrowth are striving to emulate these companies' business models and scaling strategies.

If you're an entrepreneur seeking to expand your business, you need to understand the difference between growing and scaling a business.

Growing vs. Scaling

Growth

In business, growth is a linear process. A company grows as it adds new resources. In other words, as a company adds capital, employees and technology, its market share, revenue and profit increase. The process is linear because you must invest before you grow.

Say you have a landscape design business that you want to grow. To grow, you’ll need more clients and projects. To handle these clients and projects, you’ll need more workers, equipment and technology. The more new clients you get, the more projects you complete, and the more revenue you generate.

Under the growth model you're adding resources at the same rate that you're adding revenue, so your expenses increase as well.

It takes a lot of resources to sustain growth. In the example above, to keep growing, the landscaping business must continue to get more clients and/or more projects, which means it will need to hire more people, buy more landscape equipment, trucks and trailers, and add office equipment as well as employees to handle customer service, billing and purchasing, among other functions.

The growth model is more predictable than scaling and more suitable for mature businesses that aim for gradual expansion.

Advantages of Growing

  • consistent revenue growth
  • low risk
  • long sales cycle

Disadvantages of Growing

  • requires significant investment
  • time-consuming
  • less profitable than scaling
growing-or-scaling

Scaling

Unlike growth, scaling is not a linear process. Scaling focuses on adding revenue at an exponential rate while adding resources at an incremental rate.

Using a scalable business model, Google has been able to add customers quickly while adding only a few resources to service those customers. That's how Google was able to increase its market share and profit so quickly.

Compared to growth, scaling doesn't require much of an investment. Scaling uses process automation to reach a wider audience and generate more sales and revenue. Therefore, scaling a business is cheaper and faster than growing a business.

Processes that scale well are those that can be grouped together without additional effort. For example, when sending an email to one person or 1,000 people, the effort is essentially the same as long as you have the recipients grouped in a list. This process is cheaper than sending 1,000 personalized letters through the mail.

Going back to the example above, scaling a landscape company may be more challenging than scaling a search engine, mobile app or software company. To scale this company, you would need to complete more projects with fewer resources—less time, less equipment, fewer people. You could do this by using design software and virtual or augmented reality technology (VR, AR) to design projects, and by optimizing your business workflows, systems and processes in order to handle more clients and projects without having to invest heavily on more resources.

The difference between growth and scaling becomes greater as the business moves beyond the startup phase but before it turns into a large corporation. This is when you decide whether grow or scale. Most startups choose to scale because it allows them to grow their revenue at a much faster rate than their expenses, which enables them to fund and support continuous growth.

Advantages of Scaling

  • requires less investment
  • takes less time
  • provides more revenue

Disadvantages of Scaling

  • more risky
  • unpredictable

Growth and scaling are different approaches to expanding a business. Each strategy has its strengths and weaknesses, so neither one is better than the other. Which one is better for you depends on your goals and how your business is organized.

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