Many people use these words to mean the same thing: A company getting bigger, gobbling up more market share, and making more money. But there’s a crucial difference between growth and scaling in business terms, and it’s an important distinction to understand what really happens when businesses grow and what kind of growth you should be looking for.
Growth vs scaling
Let's begin with the most common distinction between these two terms. In general, we think of growth in linear terms: a company adds new resources (capital, people, or technology), and its revenue increases as a result.
By contrast, scaling is when revenue increases without a substantial increase in resources. Processes that scale are those that can be done en masse without extra effort if I send an email to 10 people or 1 million, my effort is essentially the same. Which is why enterprises use email marketing so heavily. It scales so effectively. Or for another example -an insurance company that scaled business operations by simply switching to a cloud business phone system.
Growing a business
Generally seen as the definition of a successful company, growth refers to increasing revenue as a result of being in business. It can also refer to other aspects of the enterprise that are growing, like its number of employees, the amount of offices and how many clients it serves these things are almost always linked to growth of revenue. The biggest problem, however, is that it takes a lot of resources to sustain constant growth.
Take for example an advertising agency that currently has five clients, but which is about to take on five more clients. Increasing the number of companies it sells to will bring in more money, but chances are it won’t be able to get the work done without hiring more people. Because of this, financial growth can only be achieved while making larger losses, to
Companies that offer professional services, like the advertising agency above, will always have to deal with this problem. Taking on more clients leads to hiring more people to support them while it increases revenue by adding clients, it has to increase costs at the same time.
Scaling a business
Because of the costs associated with growth, modern founders have become obsessed with the idea of scaling. The key difference with growth is that scale is achieved by increasing revenue without incurring significant costs. While adding customers and revenue exponentially, costs should only increase incrementally, if at all.
A great example of a company that’s successfully figured out how to scale is Google, which in recent years has been adding customers, while being able to keep costs at a minimum. As of 2017 it had seven products with over a billion active users each, while only employing about 88,000 people.
The difference between growth and scaling becomes most clear when a company isn’t a startup anymore, but is not a large corporation yet, either. At this critical stage the business will have to decide between growing at a regular rate or switching over to faster company scaling.
If it wants a shot at making a lasting impact on the industry and perhaps even society as a whole, it has to be done without accumulating a high amount of overhead. Unfortunately there’s no clear-cut path to successful scaling if there was, it would be much less impressive to build a million-dollar company.
