Many business owners would consider their business a success if they managed to achieve a consistent level of growth. But for entrepreneurs with their sights set on taking their business to the next level, it almost certainly requires they be able to achieve scale. Knowing the difference between growth and scale is the key to understanding what is possible for your business.
Growing Your Business
The challenge for any business owner is to achieve a sustainable rate of growth in the first few years. The problem for many businesses is that eventually the rate of growth begins to slow, reaching a point where the costs of adding new revenue increase. If a business can only grow by increasing revenues at a rate commensurate with increasing costs, it has limited growth potential. It can still grow, but the potential for turning a $10 million company into a $50 or $100 million company is very limited. The clearest example of a business limited by its growth model is a professional services business. When it gains clients, it might need to add more people and resources to service them. Although it adds revenue with the new clients, it tends to add costs at the same rate. While the business is technically growing, it is not scaling.
Scaling Your Business
Once a business is able to increase its revenue with little or no increase in the cost to produce it, it has achieved scale. The idea of scale was first associated with manufacturers that found ways to standardize and replicate their processes to achieve economies of scale. In doing so, they were able to achieve operating leverage and spread their fixed costs across more units of output. The Ford Motor Company was an iconic example of this in the early 20th century, resulting in the production of a car that millions of people could afford to buy. In 2017, the concept of scaling is mostly associated with technology companies, particularly software and cloud-based companies. Google is one of the best examples of a company that has successfully scaled by adding customers and revenue exponentially while adding costs incrementally. Most technology companies started out with a core set of assets they were able to leverage at a low marginal cost once they found a market.
Is Your Business Scalable?
Not all types of businesses are scalable. If your business next sale requires as many resources as the sales before it, your business model is probably not scalable. Many businesses can look to find scalable aspects of their operations that can be standardized or easily replicated, which can bring down unit costs. Businesses that can find ways to automate aspects of their process, whether its delivering a product or a service, can lower their incremental cost per customer, which makes them scalable. The challenge for business owners is it requires being able to spend more time working on their business than working in their business. Business owners who focus on achieving incremental growth are often bogged down in the tactical minutiae of their operations. You can still be successful working like that, but to find the leverage you need to get to the next level, you need to work on a strategic level. If you dont do it, your competition just might, and that could leave you in the dust.