Two of entrepreneurs’ favourite topics 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 £500,000 in new revenue, but in order to do so they had to hire a whole new sales team at a cost of £500,000. The company’s gains and losses are evened out, so even though the company is growing — by new employees and a corresponding uptick in revenue — it really hasn’t gained much value.
What is scaling in business & why is it critical?
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 £500,000 in new revenue through a licensing agreement or the setting up of 3rd party sales channel agreements with key players in other geographical markets. ‘Instant’ access to new markets and customers can generate exponential revenue increases, whilst costs are minimised.
Some margin has to be sacrificed, which is why this route is generally more attractive to high margin digital tech businesses.
Clever negotiation can sometimes result in guaranteed/up front income helping the company to continue funding its R&D programme and keep its product at the leading edge of technical development.
Scaling can add real value to a business – delivering the optimum return to all stakeholders.
How to plan for scaling in business
As you launch your business, you should already be thinking about a strategy for scaling your start-up — not for growing. If you simply continue trying to increase your revenue by adding more resources with a corresponding increase in costs, your growth is likely to stagnate. You’ll get to a point where you realize the effort to grow simply isn’t worth the financial gain.
What you need instead is a strategy for scaling in business that focuses on increasing revenue by step changes in the most efficient manner. In the scaling scenario, it will be worth the effort to reach more customers since you’ll be expending a comparatively low amount and therefore making increasingly large amounts of profit. You’re increasing your company’s value by increasing the efficiency with which you can bring in new revenue.
Why using a partner like Infintec is worth considering
One of the reasons why companies fail to implement a successful scaling strategy is that it requires time and expertise to put it in place.
Instead, companies too often fall into the trap of investing a huge amount of resource into developing a new idea, without considering how this idea might be fast tracked into the market and achieve the returns it merits.
They then focus their efforts on achieving steady growth through traditional, and often resource intensive, sales channels, adding more and more incremental cost.
In addition, many companies fail to recognise the benefits of collaborating with partners to provide complementary technical skills and potentially valuable R&D funding support.
Developing a clear, innovative scaling strategy that can deliver exponential growth is what separates the leaders from the followers.
Using a specialist like Infintec can help you achieve this. Our broad industry experience and market intelligence enables us to rapidly assess the opportunity, identify ‘partners’, negotiate agreements and basically put in place your scaling strategy.
Our Fast-track, Paid-on-Results method of working minimises your risk and time commitment.
What’s not to like?
Interested – call us on 01184 032994