Operations

The Importance of Considering Scaling in Addition to Growth

September 29, 2021 By Jeff Chludzinski

This is an excellent article on Growth vs. Scaling and brings to light some important points. A small business owner often focuses on growing their business rapidly so that he or she will have more time to enjoy it without continuing to wear every hat in the company. Often the growth comes with adding more people as more tasks come up and the business becomes more complex. “More” isn’t necessarily better though. As much effort needs to be spent by the entrepreneur on evaluating tools, people and processes as he/she puts into adding more revenue. If the owner can’t afford the time to do the proper planning or can’t look objectively at the organization’s shortcomings they need to bring someone in to do that. Either way, “Scaling” vs. “Growth” is something every business owner needs to keep on the top of their mind. They need to make decisions with the thought of “Is this the most efficient way to handle this additional business?”.

Growth vs scaling: What’s the difference and why does it matter?

By Patrick WhatmanPublished June 8, 2021

In the modern business world, few ideas are more important than growth. Even long-time stock market fixtures like McDonald’s and General Motors are judged by their quarterly growth rates. And a failure to grow can be a catastrophe.

But for younger companies – and particularly startups – there’s an equally strong fixation on scale. How can a business not just grow, but grow exponentially?

In many cases, this is putting the cart before the horse. Young startups need to build a product, create a strong brand identity, and establish a market, and then they can think about hypergrowth.

But we’ll talk more about this shortly.

In this article, we’ll explore the differences between growth and scaling. We’ll also dive into some key challenges for scaling companies, and what companies need to do to achieve that insane growth.

Growth vs scaling up

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.

But this is just the technical distinction between the two words. Let’s look a little closer at what each looks like in practice.

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, too. 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 (either paying business clients or ad-supported free users), 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. There are a couple of things to keep in mind, however.

Startups vs scaleups

Here we have two more terms that are often confused. You probably already have a firm grasp on what a startup is, but how does that compare with a scaleup?

According to Scaleup Nation, a scaleup is “an entrepreneurial venture that has achieved product-market fit and now faces either the ‘second valley of death’ or exponential growth.”

To put that another way, once a startup has proven that it has a product people want, it’s time to take that product to the masses. This usually requires massive investment in new people, offices in different markets, and lots of advertising in the form of hosting educational webinars, attending tradeshows, prospecting and closing leads, and other tactics.

Which actually sounds sort of counter to our earlier definition of “scaling” – increasing revenue without increasing investment. But if successful, a scaleup will add exponential growth with only linear or marginal investment. Essentially, if they can unlock new markets and reach new audiences, a scaleup will grow faster than previously possible.

Key challenges for scaleups

Recent studies have shown a few trends that should perhaps worry CEOs. First, two-thirds of the fastest-growing companies fail. You might think that reaching hypergrowth status puts you on the inevitable path to success. It appears not.

Other macro studies have shown that slow-growing companies tend to do better in the long run than their fast-growing counterparts.

This is not to suggest that you shouldn’t want to grow quickly. But you need to do it smartly. You need to be one of the good ones.

Let’s imagine a business moving from startup to scaleup overnight. What was previously a local company with around 50 people in one cosy office is now moving international.

The plan is to double in size every twelve months. So in three years, you’re going from 50 to 400 full time employees. And some grow a lot faster than that.

So what are the key difficulties that come from this kind of scale up?

You need investment

This is the most obvious prerequisite: today, most young companies 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.

You need scalable processes

Typical scaleups 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 startup, a lot of internal processes aren’t designed to scale.

The most obvious of these are company expense policies. As a small company, you don’t really need an expense policy. If someone needs to travel or buy something, they can sort it out with the founders directly. But once you have multiple offices and handfuls of people traveling at once, this is simply no longer an option.

You have to embed a company culture

Startup 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 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, scaleups 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.

Employees need autonomy; managers need control

This should be a guiding theme for all businesses, but it’s especially true in the awkward teenage scaleup 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 scaleup software. Online payroll tools, spend management, and productivity systems can all help to decentralize information, while centralizing control.

How to scale instead of grow

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

Aberdeen – Invest in company culture

With scale comes an influx of new talent. Which is great! But most startup 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 analyzing and managing your financial data, and clearly define how to continue to scale.”

YokelLocal – 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 need to stop thinking about saving every little penny, and focus on the bigger picture.

“Just get someone! You’ll most likely find that they are better and more efficient than you at these tasks anyway.

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!”

HelloSign – 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 is growing through an ad hoc series of actions and decisions, those start to fall apart as you grow 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 companies are able to go from thousands of customers to millions.”

Startups.co.uk – Invest in process management

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

“As a small business owner you probably have direct lines of communication to 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, succeed

Hopefully 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 we’ve seen, there are clear steps businesses can take to prepare themselves for the scaleup phase. Establish clear (digitized) 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!

Patrick Whatman

Patrick Whatman is a content marketer and writer. He lives in Paris, loves music, and writes his own brand of cultural criticism for fun. Tweet him @mrwhatman where he mainly talks digital marketing, American sports and New Zealand trivia.

A New & Improved Leadership Style is the Key to Employee Retention Post-Pandemic

September 10, 2021 By Jeff Chludzinski

The pandemic taught us all that working remotely “is” possible. Now many workers are questioning their commute, work environment and work / life balance. As many companies begin to transition back to more traditional office attendance and roles, many employees are put in the difficult position of deciding if it is worth it. The “Great Resignation” is real. It has been for months and will accelerate as companies transition back between Labor Day and the end of the year. Recruiting is many business’ #1 challenge right now. Retention MUST be their #1 focus.

This article from Ivy Exec does a great job of opening our eyes to what leadership going forward must entail.

8 Tactics for Company Leaders to Survive the Great Resignation (ivyexec.com)

8 Tactics for Company Leaders to Survive the Great Resignation

It started in April 2021, and it hasn’t slowed since.

That month, a record 4 million Americans quit their jobs. In the months following, droves more workers have continued to voluntarily resign, including another 3.9 million in June. And there’s reason to think this trend will continue; research from Microsoft indicates that as many as 40% of workers are considering leaving their employer by year’s end.

This historic turnover has a name: the Great Resignation. And it has company leaders panicked, as they field growing mounds of two-week notices, scramble to hire replacements amid a talent drought and attempt not to lose additional workers. Between burnout and new, pandemic-born understandings of career possibilities — amid the usual host of reasons for why workers quit jobs — preventing turnover altogether is unlikely.

There are, however, some steps leaders can take to mitigate just how severe their rate of turnover is. We heard from senior executives about the strategies leaders can employ to ensure their companies aren’t capsized by this wave of resignations.

1. Understand what’s worked for workers this far into the pandemic — and what hasn’t.

We’re approaching another major shift in people’s work lives, with companies moving tentatively, in these Delta-dependent times, toward office returns. Within that, it’s crucial leaders take a moment to truly understand what has (and hasn’t) worked for employees over the course of the pandemic.

“Aside from obvious email and Zoom sessions, workers and executives have also been spending time with family, homeschooling their children, building online businesses, investing in real estate, growing gardens, restoring furniture and in general not being treated like a 9-to-5 robot in a cubicle,” Baron Christopher Hanson, a growth strategy and turnaround expert with RedBaronUSA, said. “Leaders must interview each employee to gauge the degree of life freedoms they enjoyed during the entire lockdown and be very careful not to shock them with over-supervision and micro-management.”

Making an effort to tailor employees’ experiences at this stage in the pandemic to include the things that have felt “flexible and freeing and liberating,” Hanson added, is key. And so is understanding that not everyone will have a similar outlook on their WFH time.

“Some employees may have been utterly miserable during lockdown,” Hanson said. “They may be filled with tears of joy to commute back and forth in traffic and return to a cubicle… the point being, there is no blanket answer. Each employee is individual, and each WFH experience was different. How can your company listen to each employee, one by one?”

Understanding how people’s needs and priorities have changed — and making it clear you care about having that understanding — can go a long way toward dampening the Great Resignation’s effects.

2. Provide organizational clarity.

The period after an employee exits — particularly if that employee was high level or sat at a senior level — can have negative spillover effects on those who remain. To keep a single resignation from rippling into a wave of them, ensure your remaining employees have a clear understanding of how their work has, or hasn’t, changed, in addition to creating ongoing clarity around company goals and objectives, said Brian Dean, Founder of Exploding Topics.

“Organizational clarity means knowing what is expected of me, knowing where I fit in the organization, and knowing what my job and responsibilities are,” Dean said. “Here’s the problem: if you’re the boss, everything seems obvious. Because clarity isn’t a recognized need of ours, we undervalue it and underestimate its influence.”

As a senior leader, it’s your responsibility to ensure everyone feels adequately looped in and prepared for how their role or the company itself may be changing.

3. Take honest stock of your leadership style.

As Sai Blackbyrn, founder and CEO of Coach Foundation, puts it: “Employees usually do not quit jobs. They quit bad management and toxic work environments.”

At this critical moment, open yourself up to an honest “reevaluation of your leadership style,” Blackbyrn added, and see whether “you could be causing your employees to seek alternative employment — then change course.” You’ll want to be sure you’re reducing bureaucracy in the organization, publicly recognizing people for their efforts, providing clarity around responsibilities and company goals, and prioritizing employees’ psychological safety.

To take stock of these key areas, utilize regular systems of two-way feedback, Mika Kujapelto, CEO and Founder of LaptopUnboxed, said.

“Gaining regular feedback from your employees on enhancing company culture can help you prevent employees from quitting,” Kujapelto said. “You can also help employees feel more comfortable sharing their opinions by providing multiple feedback channels. Let them choose which ones they prefer that will enable them to be more honest with their feedback, such as using online surveys.”

4. Recognize burnout as an ongoing threat, and protect your team from it.

Many organizations made statements about the importance of mental health toward the start of the pandemic — then fell right back into old ways, submitting employees to overly taxing workloads and unrealistic expectations. If your company is going to make it out of the Great Resignation intact, though, a culture of burnout can’t be present, said Antti Alatalo, CEO and founder of SmartWatches4U.

“To curb burnout-related resignations in your company, ensure that you are placing high importance on employee mental health and wellbeing,” Alatalo said. “This could be in the form of allowing more respite days or more flexibility in schedules and workload. You could also provide well-being resources, such as free subscriptions and apps.”

5. Tap into the gig economy when possible.

One practical way to protect workers from burnout? Utilize the growing market of freelancers for the extra work departed colleagues have left behind, rather than expecting existing team members to absorb it.

“My advice to business owners is to embrace the rising gig economy,” Jacob Villa, Co-founder and Marketing Director of School Authority, said. “This means outsourcing some of your work processes to freelancers while keeping a small core of full-time employees for essential positions. At the moment, this is a more tenable solution than growing talent from scratch, only to have them join the Great Resignation when they have accumulated enough experience.”

6. Resist the urge to fall back into formality.

Being vulnerable and transparent with employees takes time and intention, especially when traditional leadership models haven’t prioritized those things. While the start of the pandemic saw a rush of authenticity and vulnerability at work, this many months later, some executives may feel a pull to fall back into older (read: easier) ways of transactionally relating to employees. Don’t, advised Darcy Eikenberg, a leadership and career coach.

“During the pandemic, a lot of leaders abandoned old-school, formal communication processes and instead shared more authentic, personal messages with their people,” Eikenberg said. “Resist the urge to return to more structure and formality, and keep experimenting with ways to connect with your teams in ways that work for them. Successful leaders found it’s okay to not be fully prepared, or for video to not be polished. Real life, real-time communication will continue to be the expectation, so keep it up even when it feels awkward or hard.”

7. Give people a reason to stay (besides the money).

Why does your organization matter today? If you can’t articulate that, neither can your people, Eikenberg continued.

“There’s a reason your company exists that’s bigger than what most may see on the outside, but are you talking about that reason?” she asked. “It doesn’t have to be a ‘save the world’ message, but maybe it’s about the lives of the customers you serve, or the connection between what you do and something else.”

Making a fresh effort to connect employees to the company mission and vision may be even more important now after so many months working remotely, Cecilia Hunt, CEO of JourneyPure, said.

“Working remotely and having less interaction with coworkers may have caused some employees to lose sight of what the organization is working towards,” Hunt said. “By reinforcing the company’s mission and vision, telling stories about how the company is making a difference, and showing employees how they’re contributing, employees may feel that their work at the company has a purpose and want to stay to continue contributing.”

8. Accept some turnover is unavoidable — then, double-down on not letting it dent morale.

One of the biggest threats of the Great Resignation is the impact it can have on remaining employees’ morale. Once abandoning ship starts to feel like a widespread pattern, hanging onto those who haven’t yet left becomes harder and harder.

Take this opportunity to pour resources into encouraging those who remain, Jonathan Broder, Co-founder Of Digital Vaults, said. And do it sooner rather than later.

“When teams often change and lose members, remaining employees can feel like they’re lost,” Broder said. “Friendships can be broken. Professional networks are disrupted. People feel isolated. Manage this situation by encouraging everyone and keeping their spirits up. One way to do this is by holding a team-building event that can introduce employees to each other and keep that sense of belonging.”

Approaching your team from a place of empathy can go a long way, too.

“Always be available to listen to your employees,” Broder added. “The Great Resignation is affecting them as much as it is affecting you. Your empathy with what they’re going through can go a long way to help them cope.”

But while empathy and team bonding are integral to morale, remember they’re not a complete substitute for the practical rewards a company can offer. When one employee quits, see the possibilities for opportunity that brings for other workers, Stan Kimer, President of Total Engagement Consulting, said.

“This is a great opportunity to promote those who do stick around and give them interesting assignments where they can prove themselves,” Kimer said. “Help employees to see that when some leave, there is opportunity for them. Do not overlook your diverse talent; consider giving a junior employee a stretch assignment, and don’t assume an older employee doesn’t still want to grow and advance. Look at ways to promote and engage a wide variety of talent.”