Tune Up Your Engines – Growth vs Scale

In the world of SaaS today, very few ideas are more important than growth. Even long-time ASX fixtures like CBA and Coles Group are judged by their quarterly growth rates. A failure, or even a perceived failure to grow against expectations, can be a catastrophe.

Companies that are not quite as far along on their journeys – particularly start-ups have an equally strong fixation on scale. We have seen some fantastic examples in Australia recently – Atlassian, Canva, SafetyCulture, and Afterpay are just a few that have done this well. So, how can a business not just grow but grow exponentially?

The key difference with growth is that scale is achieved by increasing revenue without incurring significant costs.

In many cases, young start-ups need to build a product and establish a market, then, and only then, can they think about hypergrowth. But we’ll talk more about this shortly.

In this article, I’ll go through some of the differences between growth and scaling. I’ll also get into some key challenges for scaling companies and what companies need to do to achieve that insane growth that we have seen so much of over the past five years here in Australia.

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 should increase as a result. On the other side, scaling happens when revenue increases without a substantial increase in resources.

Processes (more on this later) “that scale” are those that can be done en masse without much extra effort – if I send an email to 10 people or 1 million, my effort is essentially the same. This is why large businesses use email outreach so heavily. It scales so effectively. Or, for another example – businesses that scaled their operations by simply switching to cloud services to achieve larger reach with lower costs.

But this is just the technical distinction between the two words. Let’s look a little closer…

Growing your business:

Growth. You may expect this to be seen as the definition of a successful company; growth refers to increasing revenue as a result of being in business. That’s a good thing, right?! But it often can also refer to other aspects of the business that are growing, like its number of employees, the number of offices, and how many clients it serves — these things are almost always linked to the growth of revenue. The challenge, however, is that many of these things take a lot of resources to sustain constant growth.

For example, an architect agency currently has ten clients but is about to take on ten more clients. Increasing the number of clients it works with will bring in more money, but chances are it won’t get the work done in good time without hiring more people.

Because of this, growth in financial performance can only be achieved while making larger expenditures, too.

Companies that offer professional services, like the architecture 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 simultaneously.

Scaling a business:

Because of these costs, many modern founder CEO’s 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.

The difference between growth and scaling becomes most evident when a company isn’t a start-up anymore but is not a large corporation yet, either. At this critical stage, you will have to decide between growing at a regular rate or switching over to the faster, more efficient company scaling phase.

90% of Tech-Startups FAIL. 82% of these fail due to Cash-flow problems. – Forbes

If you want a shot at making a lasting impact in your market and perhaps even society as a whole, you have to do it without accumulating a high amount of overhead and manage your cash flow properly and responsibly.

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. Here are a couple of things to keep in mind, however.

Scale-ups vs Start-ups:

I have worked across many SaaS organisations that believe they are in the scale-up phase of their journeys, trying to break through the exponential growth ceiling, when in fact, they are still very much in the growth phase. Hiring multiples of roles in multiple locations. This is perfectly fine IF they have achieved strength of the market and long-term demand or customer stickiness.

Once your start-up has proven that it has a product that people want, it’s time to take that product out further to new markets. This usually requires massive investment in new people, offices in different markets, and lots of advertising – hosting educational webinars, attending tradeshows, prospecting and closing leads, and other tactics.

I know what you’re thinking – that this sounds in complete opposition or counter to my earlier definition of “scaling”increasing revenue without increasing investment. But if successful, a scale-up will add exponential growth with only linear or marginal investment. Essentially, if they can unlock new markets and reach new audiences, a scale-up will grow faster than previously possible.

Key challenges for scale-ups:

Let’s imagine for a minute that a business is moving from start-up to scale-up overnight. What was previously a local Australian business, with around 50 people in one cosy office, is likely now moving internationally.

If it were simple, every company would do it. So, what are the difficulties most scale-ups face?

They need investment. This is the most obvious need: today, most young businesses need significant investment (usually from venture capitalists) to scale up. This often comes in the form of series B or C funding.

Earlier funding rounds are used to build a minimum viable product (MVP) and establish market fit, and if they’re able to secure further funding, it’s to expand quickly.

Fuel and perfect your growth engine:

Many founders I have worked with have been seen just focusing on piling in on their sales and marketing activities, but these are only short-term, tactical initiatives. Creating a stronger buyer lead market and building long-term demand is just as important to your overall success – if not more so! Believe it or not, there is such a thing as over-hiring for sales in your business! From there, successful scaling is part planning, part effort, and plenty of good luck!

With this in mind, creating the strength of market and long-term demand or customer stickiness, scale-up businesses need to think about the alignment of Sales and CS, as well as with Marketing and Product. Whilst there are legitimate reasons for a shift in focus, from Sales to CS and vice-versa to the other, it can create a false dichotomy.

Customer Success discussions are often presented in contrast to Sales and vice-versa when in reality, to make it all work and work with a lasting impact on revenue and retention, the answer isn’t simple. Instead of one OR the other, we should be thinking about them together and aligning their strategies and plans, not having them sit individually from each other.

They need scalable processes:

Typical scale-ups have a product that scales well – it appeals to buyers far greater than the current market served. But, because they’ve moved quickly as a start-up, founders or less experienced leaders in the business haven’t thought about designing their processes or talent strategies in the same way. They weren’t designed to scale later.

Processes that will be core to your future success are things like: Talent. Onboarding. Sales Methodology, inclusive of Customer Success. Support. Top of funnel strategies that feed Marketing and sales funnels.

You have to embed a company culture:

Start-up company culture tends to come naturally. Again, everyone sits in the same room, you hire carefully, and most of your team has the same goals and passions.

But now, in a more remote world, or once you move international, this is much harder to control. You don’t have the same intimacy with new team members, and they can’t feed off the energy and values of the current team as easily.

For this reason, scale-ups need to think extra carefully about their employee onboarding strategy. This is the best opportunity to share the company vision, embed the core values, and make sure that new hires are a perfect fit. Couple that with weaving these into OKR’s, annual planning and strategy, you’ll have everyone aligned.

Employees need autonomy; managers need control:

This should be the golden rule for all businesses, but it’s especially true in the awkward teenage scale-up phase. Managers and HR teams suddenly have far less visibility over their team members, and they need to be able to trust that they’re conducting business appropriately.

And team members find it harder than ever to get help from management and HR, with so many new hires to worry about. And again, they may not even be on the same continent!

This dynamic is tricky without good scale-up software. A great HRIS system, productivity systems such as a Sales Enablement product to enable your frontline teams to go to market as one voice and feed the growth engine can all help to decentralise information while centralising control.

4 ways to scale – instead of just growing:

It’s impossible to provide that one magic ingredient or ingredients that make your company scale exponentially rather than grow. But for those looking for clues and tips, here’s some good guidance.

1. Invest in company culture

With scale comes an influx of new talent, which is great! But most start-up leaders spend years carefully building a cohesive company culture, and you need to be sure not to let it slip away.

When you are scaling, core values can get lost or muddled. Renewing your dedication to those values will attract the best talent, help you obtain the best technology for analysing and managing your financial data, and clearly define how to continue to scale.

2. Fire yourself from the little things

If the plan is to scale, you’ll have to let go of most of the little things that eat up your time. Founders, CFOs, and other leaders, THIS IS FOR YOU. You will also need to stop thinking about saving every little penny and focus on the bigger picture and the things that really matter – your talent and processes that can scale to get you there.

Don’t just “get someone – anyone!” – to fill that leadership or manager role or promote someone just to get it done. Get the right person that can make the difficult calls, challenge your thinking, inspire a following and carry out your vision. Focus on hiring people who can help take the business to the next level, not for where you are today… otherwise, you will be replacing them quickly as they hit their ceiling.

Guess what? Now you can spend your time on the portion of the business that requires your appropriate skill set – the stuff that you are truly good at!

3. Focus on core strengths

It’s tempting to believe that diversification will be the catalyst for you to scale. Introduce a new product range or add extra services, and this will unlock a flood of new revenue.

But if a business grows through an ad hoc series of actions and decisions, those start to fall apart as you become larger. Small gaps will become chasms. Confusion and inconsistency will become chaos. And if employees are operating from their own playbook, there’s no way to deliver a consistent product or experience.‍

Achieving scale requires a level of repeatable and predictable systems. Refining and developing these systems is how you will be able to go from thousands of customers to millions.

4. Invest in process management

Similar to outsourcing, process management requires you to leave the small things to others. The crucial factors here are to make sure that processes are documented and that others can pick them up without being shown step-by-step.

As a small business owner, you probably have direct lines of communication with all of your employees. But as your business develops, you must turn your attention to strategic questions and leave the day-to-day operations of your business to others.

Grow, scale, WIN.

I’m positive this article has helped to demystify the nuances around growth and scaling. In truth, both are important, and the difference for companies is often a matter of timing.

But as you’ve seen, there are clear steps businesses can take to prepare themselves for the scale-up phase. Establish clear scalable processes, make information readily available from anywhere, and try not to rely on one-to-one communication for anything important.

From there, successful scaling is part planning, part effort, and plenty of good luck!

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