Scaling vs Growing in Startups
by Sasha B. on Nov 22, 2022
When you start an Economics course, they tell you that any company’s main objective is to survive and develop. Mission, vision, social responsibility, founders’ lifelong goals come after that if come at all. Scaling and growing fall into the development category, thus, are critical to any company – a startup or enterprise.
Before we start: The best beast of Scaling vs Growing in Startups
There is a chance you just need to grasp the idea, and you will bookmark the read to return for details later. Here are some top bits on scale vs growth conundrum:
- Startup growth and scaling are two approaches with the same goal;
- Scaling a startup is about building sustainable systems;
- The growth of a startup is a linear process, while the startup scaling is a non-linear one;
- To scale your startup, you have to focus on automation and multipurpose metrics;
- Building scalable processes from the very beginning makes it a lot easier in the long run;
- In the ideal world, scaling and growth follow one another in cycles;
- There are two types of scaling: vertical and horizontal;
- Scaling is not pricey if done professionally — outsource to save time and money.
Scale vs Growth: How Are They Different?
Comparing scaling vs growing in startups equals playing 3D chess. Each processes’ characteristics exist in several dimensions and depend on the industry, the product or service, the stage of company’s development and other factors. To untangle this web, we give more examples, not all related to software development – such simplification helps to explain scale vs growth issue better.
Does it change how your business operates?
Growth can be defined as an increase in sales or revenue over time achieved by extensive development. In contrast, scaling implies exponential business development, achieved by making changes to its existing structure and operations.
Example. You have three employees in your business today, but realize you will need five tomorrow. You hire two more people. It is growth, because you are not changing anything about how your business operates except adding new staff members (i.e., maintaining the status quo).
If you take one person out of each department and create a separate development group, hire an outside consultant to streamline processes, outsource creating a mobile version of your desktop app — you are on the scaling path.
Does it imply a linear or non-linear growing process?
Startup growth is a linear process, meaning that your business will grow at a steady pace for a long time before you start experiencing exponential growth. Scaling startup is non-linear, meaning it doesn’t follow any set pattern or progression — it can happen overnight or take years, depending on how much time and effort you put into it. You measure growth in a single line of development, but scaling business model implies assessment based on multiple factors and parameters.
What is the source for an increased income?
When it comes to growth, you get more money by the linear increase in users. The growth strategy is critically tied to a share of new customers you can win over in your target market. Scaling is a multifaceted process that includes applying minimally managed repetitive process to get more revenue from returning clients. Process automation, if done properly, can also significantly prompt scaling.
Auto-send notifications and robotic call-centers help medical centers to decrease costs and at the same time minimize skipped and forgotten appointments, pushing revenue levels higher than ever. Gartner confirms the role of automation in scaling, stating that CFOs steer their business to digitally-enabled growth, with 94% planning to accelerate digital technologies in 2022.
What does it mean to scale a business
Scaling defines a company’s ability to grow or expand without losing its original integrity. It is an important aspect of startup culture, reflecting the need to compete with bigger players and lure more investments aspiring for wider markets. Scaling a startup refers to the company’s ability to increase sales and grow exponentially.
When comparing scaling vs growing in startups, you need to remember that a scalable business has a product or service that is easily reproducible and can be marketed to new customers. If a company’s revenue depends on customer acquisition, it needs the highest level of efficiency in order to scale up quickly.
Advantages of scaling a startup
While there are always trade-offs when taking on more responsibility, the truth is that there are many advantages of scaling in startups. These include:
More customers. Growing exponentially means attracting more customers, getting a wider net of clients, even those are just beta users in your software’s updated version.
Higher customer satisfaction. If everything goes according to plan, you are able to provide clients with a better experience, due to the continuous feedback from more customers you use to improve.
Increased revenue. Scaling, if done properly, allows you to sell more products and services. Some experts will bluntly name increased profitability as a scaling outcome, too. It is not always a case. Scaling comes with expenses, and you need to balance what you invest in it with what you get in return.
Potentially increased market share. You provide your customers with a better experience and/or lower prices than competitors — scaling production or services often comes with much better initial purchase costs and simplified bulk services.
Improved employee morale and lower turnover. You can give your employees more opportunities for growth, and secure their jobs due to the increased necessity of specialists you experience when scaling.
Increased available talent pool. When your scaling success goes public, more specialists with relevant experience will be interested in working for your company.
Disadvantages of scaling a startup
In the startup world, scaling is the holy grail of growth. It’s what every entrepreneur dreams of—to build a company that can grow rapidly and compete with industry giants. But as David DeWalt, CEO of security provider FireEye, said in an interview with Forbes: “I’ve never seen a company be able to scale up without making some mistakes along the way.” Here are some obstacles to scaling you should bear in mind:
It’s harder to steer the business. The more people you have, the more difficult it is for everyone to stay on the same page. It’s easy for small startups to make decisions quickly because there are just a few people running things and everyone knows what is going on and can respond quickly when something needs attention. As a company gets larger, this becomes increasingly difficult as there are more moving parts that need coordination and oversight.
You can’t avoid eventual increase in expenses. Scaling may not initially require many resources, but at some point, Harvard Business Review claims, you will need to invest in marketing, infrastructure, and, foremost, customer support. If your product is software-based or otherwise digitalized, then you need less or close to none of the additional inventory. However, if there are physical goods involved, then a significant increase in costs is inevitable.
Not every system is built scalable. Was your software built based on an earlier iteration of the product which has since been abandoned or requires substantial updates to handle the raising popularity? Expect more expenditures. That is why we strongly recommend to build software and soft/hardware products with inherent scalability — as the ability to grow exponentially can be in-built in the product on early stages, with most of the safety precautions and growth possibilities considered.
Increased complexity and streamlining. You should always be on the lookout for ways to streamline your business. When you’re first starting out, it can be easy to overlook any inefficiencies that arise — but as you grow, they will become more obvious and harder to ignore. Here are some examples of how scaling up can affect your business operations:
1. Managing more employees. Before hiring enough staff to manage your growing clientele or production volume, consider whether there are ways to eliminate the manual steps involved in these tasks, and whether you can delegate those tasks.
Example. If clients have been asking for a feature that could be implemented by software instead of requiring an employee’s time and expertise (such as creating videos), consider building technology that does this automatically. Outsource building this feature to offshore or nearshore companies, to let your team focus on the core tasks.
2. Managing overseas customers. Your business goes viral, and your new customers may be spread across multiple locations timezones now. You may need an entirely new system of data organization and customer support.
3. Managing reputation. You may also need to strengthen your QA efforts with focus on crashes and bugs. If it is one thing when 10 customers in one location see some bug, it is a very different picture when 1000 customers worldwide complain about the same problem with and flood Apple Store and Google Play with complaints.
Scaling is exciting and rewarding, but it’s also incredibly difficult. You need to be careful about what you’re scaling, how you’re scaling, and whom you hire to help you with it. It is another scale vs growth difference — the key to success in scaling is often to build a scalable startup from the first steps, instead of looking for potentially scalable pain points later.
How to Scale a Startup?
Scalable processes are repeatable and reliable — if you want to scale the startup, this is what you will have to focus on. Such processes have the ability to adapt as you scale up your business and can be scaled across multiple units. They’re built with people in mind, not machines or tools — and they don’t work just anywhere.
When scaling a startup, it is important to prioritize your goals in order to ensure that you are focusing on the most important aspects of your business. Without a clear focus, you will to lose sight of what is important and get bogged down in the details.
It is also crucial to focus on your core competencies when scaling. Trying to do too many things at once can lead to subpar results and a loss of focus. Stick to what you do best and outsource or delegate the rest.
As your business grows, you will need to build a strong team that can handle the increased workload. This team should be composed of individuals with complementary skill sets who are able to work together efficiently.
Invest in automation to help streamline processes and free up time for more important tasks. Automation can also help to improve quality control by reducing human error.
Finally, it is essential to manage your cash flow carefully when scaling a startup business. Sudden growth can put strain on finances, so it is important to have a solid plan in place for how to fund expansion.
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What business scaling strategy to choose?
If you’re facing a scaling challenge, there are two primary strategies to choose from: vertical scaling and horizontal scaling. Both strategies enable businesses to grow quickly while keeping costs low, but they also have their own pros and cons. If you’re not sure which one is right for your company, it’s important to understand how each strategy works.
Vertical scaling implies adding more power to your existing products and services.
This can be accomplished either by using the same assets as before but increasing their output, or by adding new assets that complement or augment the old assets. For example, if you sell a product, you could re-brand it with better branding and marketing materials in order to attract more customers, or create a whole new product line based on customer feedback. Scaling MVP is often the example of vertical scaling.
- Useful for businesses that are already selling a single product or service in a limited geographical/target area;
- Lets you keep the same systems in place while increasing their overall size by adding new locations and services.
- May not always be the right approach, especially if you’re close to market saturation already;
- A pricey option if you are not sure how your scaled business will attract considerably more customers.
Horizontal scaling implies releasing new versions of your products and services for specific markets with similar needs that may not overlap with initial markets’ needs.
Imagine creating a mobile app in addition to the desktop version of your service. Mobile app users and desktop app users may not overlap, as portraits of such customers are normally different. They follow different user paths and have different expectations. Horizontal scaling opens new markets for the product with the same or almost the features. For example, if you have an online grocery business. You could scale it horizontally, creating a version of your site that caters only to vegetarians, or another version that offers organic food at discounted prices.
- A good strategy for scaling when you’re close to market saturation and have limited resources;
- Suits well, if your product or service is complex, but doesn’t require much new infrastructure (and thus needs less capital);
- Allows you to expand into new markets while keeping your costs low.
- More processing power and network bandwidth requires a much stronger support system;
- Further transforming of horizontally scaled business into a vertically scaled one increases may significantly increase the costs.
When to scale your business
So, you choose to rely on the first when it comes to scaling vs growing in startups. The best time to scale is different for every business, but there are some common traits that signal the perfect moment.
- You have a clear vision for the future of your business;
- You have to refuse perspective offers and development plans die to the lack of automation and digitalization;
- You have surpassed your previous goals or will do it soon enough;
- You are ready to invest in automation and additional QA services;
- You have a reliable infrastructure, or you are ready to invest in improving it;
- Your team has been working together for some time, and they understand what it takes to reach their goals;
- You are ready to troubleshoot scaling-related problems right away.
How to grow a startup
Scaling seems beneficial as a low-cost, high-impact process. However, growth strategy has been in the business forever, and will continue to be a reasonable choice, especially, when the CEO is interested in achieving satisfactory results with easy to count, predictable means. Here is how growing startup works:
Resources are limited, share them strategically. Once you have an idea of where to put your energy and resources, prioritize how much time and effort each department will receive from its leadership team members (the CEO/COO).
Customize growth strategy according to the department’s needs and potential. Each department needs its own plan for growth if they want to reach their potential as quickly as possible while keeping costs low enough not only survive but also thrive during this period of growth!
Decide on the most suitable (for now!) growth strategy. The choice is between investing in sustaining growth or pushing your business to achieve hyper-growth. Hyper-growth is when your business reaches a point where you can’t just rely on what worked before to keep growing sustainably. The only way to keep growing is by changing the way you do things and taking risks. These risks may not pan out, but if they do, it can be the difference between moving your business from good to great or staying stagnant in mediocrity.
Don’t mix startup growth as a strategy with a startup growth stages concept. The latter reflects stages of startup development — from the idea behind your business, to seed stage and even selling the startup.
Choosing the most suitable business model that will allow you to win over new markets, increase the number of returning customers and streamline the processes along the way, think not only about your strengths, but also about expertise you may lack to achieve this goal. Outsourcing development that allows you to build scalable solutions or launch MVP to assess both scale and growth capacity of the startup.
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