Growth versus scaling, the five ingredients for success.

Growth versus scaling, the five ingredients for success.

Plenty of businesses we work with have ambition to grow, and look to the likes of Deliveroo and Uber for inspiration. It’s not a bad place to start. They have managed to grow at exponential rates. However, they have become so successful because they didn’t set out to grow, they set out to scale.

So what is the difference between growing and scaling? Growth focuses on increasing revenue with the current business model. Scaling focuses on increasing revenue whilst adapting the business model to maximise profit.

Crucially a business that is scaling is successful because the model can be sustained AND profit can be maximised. If you don’t take on this mindset you will never scale and achieve your ambition.

To help explain this more, let's look at a simplified example of a three-year plan based on the impact of scaling versus growth on profit.

We will assume a small business that has revenue of £500,000, costs of £400,000 and profit of £100,000. After 3 years of growth with both revenue and cost rising at +20% year on year and profit will have increased by 73%.

Start% annual increaseYear 1Year 2 Year 3Profit
Revenue500,00020%600,000720,000864,000
Costs 400,00020%480,000576,000691,000
Profit100,000120,000144,000172,80073%
Margin %20%20%20%20%

Take the same business, but instead of costs increasing at 20% assume that we adapt the business model to embrace scaling and costs rise at 5% year on year. After 3 years the profit has increased by 300%.

Start% annual increaseYear 1Year 2 Year 3Profit
Revenue500,00020%600,000720,000864,000
Costs 400,0005%420,000441,000463,050
Profit100,000180,000279,000400,950301%
Margin %20%30%39%46%

More importantly, costs will have gone up by 33% less whilst scaling, resulting in a much more manageable impact on cash flow. It is a simplified example but illustrates why scaling provides profitable and sustainable growth.

So knowing this, what are the five ingredients to success?

If you want to scale up then there are five core elements for success: strategy, cash, adding value, leadership, execution.

Strategy – It’s fundamental to identify what’s going on in the market, your place in it and how you need to differentiate to stand out and therefore grow share. It will inform what you can achieve and how long it should take you to achieve it, and provides your team with clarity about their role in the future of the company and how great it will be.

Cash – With the right strategy in place you are perfectly placed to scrutinise your cash flow and allocate funds to the items that will grow the business. Most of all you can set aside cash reserves you can fall back on if you have set backs.

Add capacity – How can you acquire more clients and grow your team in a cost effective and efficient manner as you scale? Scaling up your business requires you to consider how you will acquire new customers and grow your team to serve them. As part of this you will need to look at the roles they perform, for instance how you scale up your marketing and sales strategies and deliver to a much higher standard. Do you do it, or do you get a marketing agency involved?

Execution –To be able to scale up your business you must deliver a consistent, high quality experience to every customer you work with. Flawless execution is the culmination of your scale up strategy and developing your people. If you fail to deliver on this then you will fail to grow

Leadership – None of these things can happen without leadership. Scaling depends on people and you need to be able to get the best from your current leadership team to succeed. You also need to look ahead and find the future stars. It can be a tough job to get this right but if you get this wrong the plan will fall apart.

If you need help to set out your five point plan then contact us today for a free consultation. 

A more detailed version of this blog appeared on Sage Advice https://www.sage.com/en-gb/blog/scale-your-business/

 

Jon Kandiah
Jon Kandiah
jon@scaleupstrategist.co.uk

Having spent 25 years in senior executive leadership roles, transforming large-scale businesses such as EE, T Mobile, Orange and Virgin Mobile (which achieved £500m revenue in 5 years and a £850m flotation); I have developed a range of tried-and-tested strategies, coaching and mentoring techniques that will equip your business and team with the skills necessary to scale up.