Scaling vs Growth – The Facts
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Scaling? Don’t You Mean Growth?
Scaling and growth are separate terms. Growth refers to increasing revenue or the number of users of a product or service. Take the example of Cafehaus, a local café. Cafehaus sole owner/operator, Kate has been operating at her full capacity, so Kate employed Roger, an experienced café operator. Roger implement a food delivery service to local businesses.
Roger’s initiative boosted Cafehaus’ revenue by 15% in the first month. If Kate would like to expand Roger’s initiative, Cafehaus will require another employee because Kate is operating at her full capacity fulfilling Cafehaus’ orders. This is an example of growth. Growth requires the business to have more staff to service the extra customers, which means Cafehaus’ costs grow as the business grows. In this scenario, the growth of profits requires significant extra costs such as wages, taxes, supplies and premises.
Startups’ business models aim to scale their operations. Scaling incorporates growth, insofar as the profit and customers increase, however, scaling refers to the increase in profits without a significant increase in operating costs.
In contrast to the example above, Michael’s startup named “Shoppacomm” is a shopping cart software built on a SaaS platform. Theoretically, Shoppacomm can add another 2,000 paying users with minimal additional cost. Any additional costs, such as support can be outsourced to the Philippines or India for a much lower cost. If Shoppacomm requires more hosting space, Amazon Web Services automatically scales with the user demand with a relatively minimal increase in cost.
If you are in the idea stage of your startup, try to make your business and revenue model as scalable as possible, so it will not take a lot of additional money or resources to grow quickly.
Some entrepreneurs are not exactly sure when is the right time to scale. It is therefore important to ensure that before scaling, perhaps to a worldwide audience, that you have rigorously tested your systems before you do so.
Please read this article: How to scale a startup.