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 a catastrophe.
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. 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
Scaling a business
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 tradeshows, prospecting and closing 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 moving international.
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 to build a minimum viable product (MVP) and 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 instead of grow
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.
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.”
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!”
It’s tempting to believe that diversification will be the catalyst for you to scale. Introduce a new product range or add extra services and this will unlock a flood of new revenue.
But “if a business is growing through an ad hoc series of actions and decisions, those start to fall apart as you grow larger. Small gaps will become chasms. Confusion and inconsistency will become chaos. And if employees are operating from their own playbook, there’s no way to deliver a consistent product or experience.
Achieving scale requires a level of repeatable and predictable systems. Refining and developing these systems is how companies are able to go from thousands of customers to millions.”
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.”