Two favorite topics of entrepreneurs are growth and scaling in business. These words are said often, but the enthusiasm with which they are used often outweighs the reality.
Many people think that the two terms mean the same thing – a company grows, has an increasing market share and makes more money. However, there is a fundamental difference between growth and scaling in business terms, and in this article we will try to explain it.
When companies grow, they increase their revenues just as quickly as they increase the resources to enable growth and generate the associated costs. A company may gain 50,000 zlotys in new revenue, but in order to do so it had to hire new employees. Gains and losses are thus equalized – although the business grows, it does not gain much.
When scaling, a company increases revenue at a faster rate than it incurs new costs. A company that scales can gain an additional 50,000 with an expenditure of 5,000 on tools to automate certain processes. Thus, the company’s profits have outweighed its losses, allowing it not only to grow, but also to operate on a larger scale.
Skillful scaling of the company ensures:
Consider this scenario. You’re giving foreign language lessons and over time you reach a wall – your schedule is filled with students and you’re unable to teach any more lessons. Of course, you could raise the price per hour of lessons, but here, too, your options are limited. At a certain price level your students won’t want to pay more and will leave for the competition. So what can you do?
In the development option, you hire an employee, maybe even rent some premises to open a stationary school. However, this involves additional costs, so while you will earn more, at the same time you will spend more.
In the scaling option, on the other hand, instead of hiring an employee and opening a school, you develop a course that you sell online. By the way, you automate most of the sales process and some marketing activities, which carries some costs, but relatively small. More customers buy the course, and you make money without additional expenses. You also increase the reach of your business – students can take the course at any time, so they are not limited by your schedule or time zone (even someone in the other hemisphere can buy the course).
Scaling your business is mainly about increasing efficiency, i.e. the ability to make more profit with less money. To that end, use the latest technology to automate certain tasks and make scaling easier:
When you start a business, you should think about a strategy for scaling your business right away. If you only try to increase your revenue by adding more resources with a corresponding increase in costs, sooner or later your business will reach the stagnation stage.
main photo: unsplash.com/krakenimages