In the startup space, there is a heavy emphasis on growth, which makes perfect sense. For any founder, growing their business is a mark of success. However, scaling their business is just as important. While these terms are sometimes used interchangeably, the difference between them is vital, and both play a role in the long-term success of a startup.
Here, we will examine the critical differences between what it means for a startup to grow versus what it means for a startup to scale and steps startups can take to achieve both.
Growth vs. scaling
Many confuse what it means to grow and what it means to scale because they both result in an increase in business profits or revenues. The difference is in how the company handles resources.
When a startup is growing, it adds resources at the same pace as its revenue is growing. For example, as a business adds new customers, it may hire additional employees to help serve that growing base.
When a startup is scaling, its revenues increase exponentially, while resources are only added incrementally. This allows businesses to increase their margins more quickly. Software companies like Salesforce, DocuSign, and Slack are great examples of companies that have scaled successfully. These companies were able to increase their revenues rapidly through new customers without incurring significant costs related to adding additional resources.
Growing a startup
Startup growth can refer to an increase in revenue, but it can refer to other areas of development within the business. New customers, office locations, and team members are all indicators that a company is growing. Typically, these growth factors are also related to increases in revenue. The difficulty with growing a startup is that growth takes resources.
For example, a B2C startup has a factory to produce its product, but demand is outpacing the current factory’s capabilities. Producing more product will bring in additional revenue, but to do that, the startup will need more factory space. To achieve revenue growth, the startup will have to take the financial hit of expanding to a bigger factory. Revenues will likely go up, but the financial loss is necessary for the short term to get there.
For a company to grow sustainably, there is no precise, foolproof method. What works for some may not work for others. However, there are a few growth “best practices” that are helpful:
Scaling a startup
The crux of scaling is growing without increasing overhead costs. Software companies are well-positioned to do this because their business model is scalable by nature. Once the costly software development process is complete, the company can sell an infinite number of copies with relatively few additional costs.
Software companies offer a simple example of how scaling works, but the same approach can be applied to other business models as well. The key is to identify the business areas that lack speed and efficiency and find cost-effective solutions.
Outsourcing and automation tools
The more efficiently a business can mass-produce its product, the more scalable it becomes. To do this quickly and in a cost-effective manner, outsourcing tasks and investing in automation tools can be game-changing.
Outsourcing can help save both money and time spent on essential tasks that are not everyday necessities requiring a full-time employee. Examples of this could be graphic design work, accounting, or public relations. Outsourcing these crucial tasks to experts on a one-off basis while scaling offers greater efficiency and less spending than bringing someone in-house.
Software-as-a-service (SaaS) tools can also bring greater efficiency to a business. From automated email marketing, customer support, payroll management, and more, investment in these tools can free up time while limiting additional hires needed.
Streamlining business processes
In addition to outsourcing tasks and deploying automation tools, it’s essential to have internal business structures that will enable the team to deliver high-quality products or services as the business grows. Whether it be how customer inquiries are handled or the approval processes for marketing materials, there should be a transparent process to complete the task. Not only does this help to maintain quality and continuity as the business grows, but it will make the onboarding process for new employees easier.
Both growing and scaling a startup is hard. There are no simple, universal hacks–just time, planning, and hard work. If you’re looking for additional resources to help grow or scale your startup, learn more about raising capital on MicroVentures or apply today.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.
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