Scaling is the new growth. But what is the difference? Are they just different words for the same ambition – potato/potato? – or are they just distant relatives and it’s really about a totally different ballgame? And why are startups so obsessed with scaling?
Standing still is going backwards. Every company wants to grow. But for founders of start-ups that is not enough. You want to grow exponentially. Faster than the rest. Harder than the rest. You want to transform your start-up into a scale-up.
Let’s zoom in on the important difference between growing and scaling.
Growth: more turnover, more costs
Your growth as a start-up can be based on many different factors: bringing in more customers, recruiting additional people, opening an extra office, launching in a new market, etc. This growth will usually also lead to a higher turnover, otherwise your start-up will not last long.
To keep growing, you need a lot of resources. A simple example is a marketing agency. That’s where the main resource is creativity. A secret ingredient that computers still cannot successfully produce even in the AI era. So that agency needs people. Brains. If it goes from 5 clients to 10 clients and has to devise and execute marketing campaigns for twice as many companies, it is also going to have to hire additional people. Turnover is increasing, but so are the costs. The growth is linear.
Scaling: much more turnover, the same (or slightly more) costs
Linear growth is not what start-ups are looking for in droves today. They’re looking for hypergrowth. They want to scale. That is, you grow without your costs growing with you. Your turnover will increase, but your costs will not increase as they would with ‘normal’, linear growth.
In fact, the startups that scale the fastest and the hardest manage to barely increase their costs from a certain point. They flatten the curve. Flatten the curve, like we’re trying to do today with the coronavirus by staying in our bunks.
In fact, the startups that scale the fastest and the hardest manage to barely increase their costs from a certain point.
Super growth companies like Google or Facebook are of course the best known illustrations of extreme scalability. Developing a search engine like Google’s is no picnic. You need an army of very strong developers and data scientists for that. But once their work is done, it doesn’t make much difference whether their technology has to process 100,000 searches a month or – as it does today – 100 billion. You need a battery of servers and data centers, but that’s about the only cost that goes up with the number of users.
Compare it to an email you send to 10 people or to 10,000 people. Your mail might take a few seconds longer, but it didn’t take you more effort. That’s scalability.
Beyond the Valley of Death
To scale successfully, you need a few things. You need to work on your company culture from day one to begin with. All noses are in the same direction (steeply upwards), scalability should really be ingrained in the DNA of your start-up. A strong company culture also allows you to closely monitor that each new hire contributes to that scalability rather than slowing it down.
Scalability really needs to be ingrained in the DNA of your startup.
Your processes also need to be scalable to turbocharge your growth. Whether it’s production, distribution, marketing, sales, …: everywhere you can develop smart processes to use your resources as efficiently as possible.
After all, it’s hard to scale without the necessary capital. It takes time to develop a product or service that consumers or businesses are willing to pay for. Capital takes you past the first so-called valley of death, to the point where the cost you have to incur for each additional customer or product becomes smaller and smaller. The smaller that marginal cost, the higher your gross margin, the more solidly your start-up scales.