Growth and scaling are two favourite words of most people in the business world, and you would not be wrong. These words are so commonly used that some people even think of them as cliché. But the truth is they are not. However, despite how often these words are used, a lot of people still have some misunderstandings about them. You may even find that some seasoned business owners can’t give an accurate answer to the question, “what is scale in business?”.
Here, you will learn everything you need to know about scale in business, from its meaning to how you can practice it.
Additionally, because most people mistake scaling for growth, this article will also shed light on these two concepts.
At the end of this article, you will understand the differences between these two concepts.
With all that being said, let’s get right into the day’s topic.
Meaning of Scaling in Business – What is Scale in Business
Business scale refers to the process of increasing a company’s revenue faster than its operating costs.
This means that when you scale a business, the operating costs will remain the same or increase slightly while the revenue becomes significantly more.
Some businesses are even able to reduce costs while increasing revenue.
Scaling is about bringing more money into the company while keeping expenses low.
For example, let’s say a business wants to scale and decides to do this by increasing its marketing reach.
They can hire an online marketing agency to help them achieve this goal.
Let’s assume that hiring the marketing agency costs the company 5,000 dollars.
But they were able to reach more audiences, bringing in 30,000 dollars in revenue.
This is scaling the business because the company’s gains are much more than what it spent.
They were able to generate more revenue faster than they incurred new costs.
Business Growth Vs Business Scale – What is Scale in Business
Business growth and scaling are very similar concepts.
However, there are quite different.
It does not help much that many business people even use these words synonymously.
Yes, both words refer to taking a business to greater heights.
They both focus on making a business more successful.
But this does not make them synonymous.
Scaling a business is about increasing revenue and reducing the rate of taking on new expenses.
But growth, on the flip side, is about increasing revenue at a greater expense.
So, a company trying to achieve growth would not mind spending much money to earn the desired revenue.
Most times, the money spent to increase revenue ends up being the same as the revenue realized.
This means a company that wants to achieve growth can spend 5,000 dollars to gain new revenue of 5,000 dollars.
The gains and costs are usually evened out for growth.
So, in this case, even though the business is growing, it won’t gain that much value.
Growth often comes due to new business acquisitions and the secondary effects that follow them.
For instance, if a company gets a bigger contract than what it has to get a bigger warehouse or office space, hire new workers, and so on.
All these are additional expenses that the new revenue will have to cover.
Yes, the company will become bigger, but they are not making more profit.
Scaling and Growth Examples
Let us give a brief illustration to help you understand the difference between growth and scaling better.
Assuming a company wins a 50,000 dollars contract but does not currently possess the full capacity to execute the contract.
As such, they would need to hire two new employees.
These employees’ salaries will sum up to 50,000 dollars.
The company has made more money, which would be used for the new expenses.
In business, this is growth.
But assuming the company hires just one employee and invests 2,000 dollars in planning software.
This way, the software will fill in for the second personnel that they had to hire.
Now, the company would end up spending just 25,000 dollars for the new employee’s salary and 2,000 dollars for the latest software.
A total of 27,000 dollars.
This means that the company has reduced its expenses and would have a profit of 23,000 dollars.
This would be scaling the business.
In sum, scaling a business is the same as growing a business but growing the company more intelligently and efficiently.
Advantages and Disadvantages of Scaling a Business – What is Scale in Business
Scaling a business is one of the best things a business owner can do for their business.
This is because there are several advantages this practice can offer any business.
However, just like anything in life and business, scaling a business also comes with disadvantages.
Therefore, before you scale your business, you should know the advantages and disadvantages of doing so.
Knowing about the disadvantages is not to dissuade you from scaling your business.
Instead, it would help prepare for the potential setbacks you may encounter.
With that said, below are some common advantages and disadvantages of scaling a business.
Advantages of Scaling a Business
The following are the major benefits you stand to enjoy from scaling your business:
When scaling a business, you need to put the right processes and tools in place to facilitate the scale.
This would enable your workforce to become more productive than before.
They would have what they need to finish more work in less time.
Subsequently, this increase in productivity will ensure your employees generate better results and add more value to your company.
Better Growth Opportunities
Since your employees can get more things done in less time, they will have more time.
They can then use this extra time to do other things.
The company can explore new opportunities and grow in those areas because they have the time and resources to do so.
When this happens, the company won’t be the only one experiencing this propensity for growth.
Employees will also grow professionally because they will be exposed to new opportunities.
When a company is scalable, it has an increased chance of staying in business for a long time.
This is because it would adopt strategies that will help it stay relevant.
Adaptability – What is Scale in Business
Companies that take their scalability as a priority would make provisions to maintain adaptability.
They would know how to adapt to market and economic changes and internal pressures.
They’d know when to up-scale and when to down-scale.
This adaptability characteristic makes it possible for scalable companies to maintain longevity.
Competitive Edge – What is Scale in Business
If your business is scalable, you can rise above your competitors.
This would give you a strong competitive edge in your niche and industry.
Disadvantages of Scaling a Business
Below are some common drawbacks of scaling your business:
Extra Expenses – What is Scale in Business
When scaling a business, you will likely have to make some extra expenses.
Even though you won’t be spending as much as you would if you were aiming for business growth, you’d still experience some changes in your expenditure.
However, scaling means you can make back double, if not more, what you spend.
Extra Training Hours – What is Scale in Business
This disadvantage is often short-lived.
When you scale your business, you will likely get new technologies or/and processes.
And you would need to train your employees on how to use them.
This would reduce the hours they have to work on more important tasks.
However, once they have the hang of whatever change was introduced in the company, everything can return to normal.
As you scale your business, the work needed to run the business will also intensify.
Your customer base will grow, and you will have to ensure everything is in place to meet the demand increase.
Now, this is an excellent thing for any business, but a business can cave under all this pressure.
Your failure risks increase at the same rate your company grows because you would be taking more risks.
You are not guaranteed which would play out fine and which wouldn’t.
But this should not stop you from dreaming big for your company.
Keep in mind that the risks may be more, but if everything works out fine, the rewards will be worth it.
When scaling a business, you may bring in new and sometimes challenging processes.
This in itself can cause some serious workflow issues.
For starters, some employees can be resistant to changes within a company.
This is because they are so used to the old way of doing things that they fight against anything disturbing that flow.
Sometimes, the workflow issues may not even be because your workforce resists change.
Sometimes, they may just be trying their best to adapt to the change, and while they do this, there may be some mistakes here and there.
However, with time and enough training, they would become more in tune with the new ways of doing things.
In the end, the problem will all disappear.
Tips on How to Scale a Business – What is Scale in Business
Scaling a business requires a lot of determination and proper planning.
It is one of the most advantageous yet difficult things any business owner can do for their business.
So, if you want to be successful at it, you have to do things the right way.
You have to follow certain tips and steps to scale your business successfully.
Let’s look at some of these tips.
Make Sure You Scale at the Right Time
The last thing you want to do is start scaling your business when it isn’t ready for growth.
A business doesn’t have to be flawless before you scale it.
But at the same time, it needs to get to a certain stage before you start scaling.
It needs a firm foundation that would carry the scaling process.
So, before you scale your business, ensure it is the right time to do so.
Put processes and systems in place to encourage scalability.
Establish core company values and culture that will help you implement the processes to help your company reach its objectives.
Determine the Scalability of your Company
Before you scale your business, you need to be sure of its scalability potential.
Scalability is a company’s ability to profit and perform optimally as its demands grow.
Simply put, it is a company’s capacity to scale.
You should know that certain companies in specific industries are more scalable than others.
A business with low operating overhead and less physical inventory will typically be more scalable.
This is because they do not have to invest too much or build too much infrastructure to scale.
For example, you may have noticed that tech companies grow quite fast.
However, your company can still be scalable regardless of what kind of business it is.
Some indicators that can help you determine your company’s scalability are customer loyalty, employee loyalty, and your employee’s innovation and passion in the workplace.
It is difficult to measure the last indicator of scalability because of how abstract it is.
But then, you can always gauge your employee’s innovation and passion by how they behave in the workplace.
You can measure employee loyalty by the turnover rate you experience.
You can also measure customer loyalty by the rate of repeat customers you get.
Lastly, if your employee and customer loyalty are high, you can rest assured that organic growth will increase once you scale your business.
Learn the Business Scaling Metrics – What is Scaling in Business
Business is mostly about numbers.
This is why almost everything in business, including scaling, is measurable.
When scaling your business, you want to be sure that you are doing things well.
So, you should be able to measure your progress.
Thankfully, you can do this with some metrics.
You need to learn these metrics and use them when scaling your business.
The following are some important scaling metrics that you should know.
This would help you measure your customer and revenue growth rate.
During your scaling phase, you should set high growth rate goals.
Lifetime Customer Value
This is the projected value of a customer during their lifetime.
When scaling, you need to find the best way to increase lifetime customer value.
Customer Acquisition Cost
This is how much it costs (both in material and labour) to acquire a new customer.
When scaling, you need to have a lower customer acquisition cost.
This is the rate at which those interested in your product/service patronise your business.
Work on getting this rate up when scaling your business.
Use the Right Processes and Tools
Scaling a business is about efficiency.
It is all about using less to get more.
One of the best ways to achieve this is to use the best processes and tools.
There are so many tasks that you can automate in the workplace to make scaling easier.
For example, chatbots can take care of your requests and queries.
You can manage customer databases with great CRM software, streamline your operations with ERP software, and so on.
You also need to ensure that the company’s processes are running as seamlessly as possible.
Additionally, know that you may have to change specific processes when scaling.
This is because some of the processes that may have worked for your business while it was still in its rising stage may not work once it starts growing.
So, you need to develop new processes to ensure your business keeps operating optimally despite the growth it is experiencing.
Focus on Your Customers – What is Scale in Business
Every business owner knows retaining an old customer is much cheaper than getting a new one.
So, this is what you want to do when scaling your business.
Sure, you need to acquire new customers, but you also want to ensure your old customers stay.
This is why your scaling plan and process also need to be customer-centric.
You want to pay close attention to your new and old customers.
You want to be sure that you are not only giving them the best quality but that they are also satisfied with what you are offering them.
One way to do this is to listen to your customers.
Conduct market research from time to time.
Study your customers’ demographics and psychographics, and conduct customer satisfaction surveys.
These are the best ways for you to know their needs.
Studying your customers will also make it easier for you to create great buyer personas that will help you streamline your marketing target audience.
You also want to ensure that every aspect of your business is centred on the client.
Foster collaboration within your workforce.
Once you have a collaborative work environment, you can rest assured that the culture will affect how your employees relate with each other.
Also, it will influence their interactions with your customers.
Conclusion on What is Scale in Business
Scaling a business is not an easy task.
Although it offers a lot of benefits, you would need to put in the work to get these benefits.
There are also some downsides to scaling a business.
Although these are mostly not long-term issues, they should not stop you from scaling your business.
All you have to do is follow the best practices and tips, some of which have been discussed in this article.