What is the difference between ‘Business Growth’ and ‘Scale-Up’
CEO’s want to grow their companies, because they desire the approval of their success from their peers, their family, and their community. They focus on various popular and academically sound growth strategies in pursuit of their goal.
In recent times their has arisen an alternative or parallel goal of “Scale-Up” which is both similar and different.
Growth is focused on growing the sales line in the financial statements at the same time as adding resources to keep up with the growth in sales. This model is based upon adding the resources needed to deliver additional sales based on historic relationships between sales and costs.
Scaling means adding sales but with the additional resources needed to meet these increased sales, being at a lower rate than the historic business model. This may seem counter intuitive, but it is not. It presumes that it is possible to add sales at a lower marginal cost of sales by intensifying the use of resources as the sales rise.
Typically, the growth of the business does not follow a neat curve as business model charts would have us believe. The graphs flatten out what are a series of steps through which a business progresses as it grows it revenue and then scales its resources to achieve the next level of revenue growth.
The key elements here are an understanding of the capacity of the business to generate revenue factored against its current productivity in generating revenue. This ratio, combined with an understanding of cycles, described above provides the best indicator of when a business should scale up and when scale up may place too great a strain upon its infrastructure, its people, and its financial resources.
The benefit is that the profitability and cash generation of the business increases.
The essential question for business leaders who aim to scale up their business is whether they are managing their business in some or all of these areas, and if not all, what they can do to develop or acquire the abilities to manage the missing areas effectively.
To conclude, too many leaders attempt to scale their business by doing what they have always done, without examining what may be their blind spots and the limitations that they impose themselves on the scaling of their business.
If you want to scale your business book an appointment below.