Growth vs. Scaling: Which is Best for Your Business?

Scaling a business and growing a business — you’d be forgiven for thinking they’re the same thing. However, there’s a big difference that can make one eminently more sustainable than the other.

And we’re not just being overly picky about semantics here. The confusion between growth and scaling can even cause SMEs to fail. In this article, we’ll clear up the confusion and discuss some key strategies that you can use to grow your business sustainably.

Growth vs. Scaling

The key difference between growing and scaling a business is that when you grow a business, you increase its revenue, market share and the size of the team at any cost. Scaling, on the other hand, occurs when you increase the revenue of your business at a faster rate than your costs.

Let’s look at a simplified example.

A business can make a pair of trainers for £30 and sell them for £50. If the business grows, it will sell more pairs of trainers but it will also spend a lot more (marketing, materials, labour, etc.) to drive those extra sales. So, while the business’s revenue will increase, its costs will also increase so its profit margin will remain the same.

However, if the business scales, the cost of making each pair of trainers will decrease as sales increase. That could be due to economies of scale, better processes or technological improvements. As a result, its revenue will increase, its costs per unit will fall and its profit margin will increase.

Now let’s look at what it means to grow and scale a business in a little more detail.

Growing a business

Growing a business is adding revenue at the same rate you add resources.

Every business owner wants to increase their revenue as that signifies growth. However, bigger does not necessarily mean better if the business has to continually invest in new resources to achieve that growth.

The problem is that as you add more resources, the extra costs eat into your profitability so, while you may have a bigger business, it will not necessarily be more profitable. There are also a finite amount of resources you can add until the point your growth ceases.

Professional services companies are a common example of this type of growth, as their revenue comes primarily from their people. So, to grow the business and take on more clients, they have to hire more staff which, in turn, increases their costs.

Scaling a business

Scaling a business is adding revenue at a greater rate than you add resources.

Scaling a business is also about growing a business in a smarter way, so you can deliver the same level of service to more customers without it costing you more. You can typically do this by investing in new processes, technology or machinery.

When you scale a business, your costs increase at a slower rate than your revenue, leading to a higher profit margin. You may need to invest in the business to help it scale, which can affect your profit margins temporarily. However, the long-term result is worth it.

Companies that offer Software-as-a-Service (SaaS) are a good example. Once they have made the initial investment to create a great piece of software, they can serve more and more customers without incurring the same level of additional costs.

How to Scale Business Growth

So far, we’ve pitched growth and scaling against each other, but it doesn’t have to be a case of business growth vs. scaling. The two can work hand-in-hand. You can find efficiencies not just in the production of your goods and services but in every aspect of your business, even down to your office space.

Earlier, we discussed how investing in better technology could help you reduce the cost of your products or services. However, there are also plenty of other things you can do to successfully scale your business. Here are a few areas that are worth looking at.

Invest in people and space

People are the biggest cost to most businesses, accounting for an average of 64% of their total expenditure. When you talk about cutting labour costs, people tend to think about redundancies, but there are much smarter ways to reduce your labour costs as a proportion of your revenue.

Hiring full-time employees is often the go-to recruitment approach for many businesses. However, outsourcing projects and even whole areas of the business to outsourced teams and freelancers can be far more cost-effective. It also gives you access to specialists in particular areas, which can improve the quality of your work.

Staff turnover is another big cost for many businesses. Here, investing in the company culture, and particularly things like your employee onboarding strategy, can help to reduce costs over time.

Something else to think about is how and where your employees work. Embracing remote and hybrid working models can help you reduce your office space requirements. Having more flexible workspaces, such as coworking and collaborative spaces, can also enable employees to work more efficiently while reducing your square footage requirements.

Read more: How flexible offices are helping London’s tech startups grow

Develop your internal processes

Businesses cannot grow efficiently unless they have internal processes that are designed to scale. ‘Process’ is not always a word that chimes well with entrepreneurs. To some, it implies a level of corporate bureaucracy, which they may feel can stunt creativity and innovation. However, standardising your processes can help to channel your team’s energy and avoid the wasted time you spend thinking about how to approach something every time it’s done.

Your company expense policy is a simple and obvious example. As a start-up, you may not need one. However, when you have multiple offices and people travelling every day, putting a scalable process in place can save you time and money.

Be financially savvy

Making good financial decisions is a priority when scaling your business. But you can only make smart financial decisions if you have accurate and timely data to base those decisions on. That makes financial reporting an important area to invest in.

You should also differentiate between your strategic and non-strategic costs. Your strategic costs are those expenses that directly help you sell more or produce better, while your non-strategic expenses are everything else. When scaling your business, your non-strategic costs are the costs you should look to cut.

Your office space is another example of a cost that you can reduce. Many businesses are tied into five or ten-year office leases for space they no longer need due to shifting post-pandemic working practices. Opting for a flexible office space with a much shorter lease allows you to adapt to meet your changing requirements and trim your costs where you can — ensuring you’re only paying for the space that you’re actually using.

Finding the Right Office Space With Knight Frank

At Knight Frank, our experts know the office market inside out and can help you find co-working, flexible and private office space on short-term leases so you can scale. As well as reducing your costs, the right office space in a great location can help you win the talent war. It can also boost company culture by attracting your teams back to the office.

Just tell us what you’re looking for, let us arrange your viewings and we’ll negotiate on your behalf to get you the best deal. And better still, our service is completely free. Get in touch to discuss your scale-up requirements with our team.