Scaling … a defining point in time?

Have you ever noticed that some words seem to shift from occasional use to being omnipresent almost overnight? It’s as if they’ve suddenly become fashionable to drop into conversation. That’s fine, vocabulary has and will always evolve over time, however, words will eventually become extinct if they get over-used to the point where their meaning becomes meaningless.

Take the word “scaling”, as in “I want to ensure my business is scaling” or “This firm is not fundable as it does not have a scalable strategy”. “Scaling” is a cool word at present, it has a certain mysterious kudos, but are we all still clear on what it actually means?

I stopped a workshop last week in mid-flow to ask that very question … “in the context of growing a business, what do we all mean when we use the word scaling?”. The responses called back to me included:

  • “Your business grows at pace”
  • “Taking your business to the next level”
  • “Rapid expansion”

All of these are basically saying scaling equals accelerated growth. However, to me this misses a few key defining points.

Firstly, scaling can’t just mean the same as “fast growth”. The only reason every business doesn’t grow to infinity is because something runs out. Time, cash, capacity, skilled employees, new customers, suppliers… something grows scarce and constrains further expansion. So for me, a scalable strategy is not just one that is focused on rapid growth, it must also clearly demonstrate that it has deliberately designed-out the obvious items that typically grow scarce in that industry. So make this real for you…if you were able to put a turbo charger on your business’s strategy that meant it would grow 10x as fast, what would you quickly run out of?

Operational leverage
Secondly, in its purest definition, Scaling is as much about operational leverage as it is about expansion. Take a traditional growth model, it is actually a cycle of inefficiency. A company wins some new clients, so they recruit more people and maybe machines to service the new contracts. It is quite possibly adding costs at nearly the same rate as they’re adding value.

By contrast scalable growth is all about pairing exponential revenue growth with incrementally increasing costs. So the classic example is a software company where once the development stage is complete, they can infinitely replicate their end product and sell to the customer at little or no additional cost to the business. Alternatively, it’s the management consultant who instead of just selling time for cash, also successfully creates an online portfolio of offerings like templates, webinars etc that are downloaded by paying clients across the globe.

Put simply if you constantly add operating costs (sales, marketing, admin, R&D etc) at the same rate you grow revenue, then your business does not scale. Alternatively, if additional revenue requires relatively smaller and smaller additions to operating costs then it scales.

In summary
Scaling is “growing without limits”, but it’s also about increasing output while keeping costs low. Creating this type of business model will boost your profits over the long term and exponentially increase the value of your business.

The author:-

Steve Young, Director ,Winning Pitch.

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