Scaling vs. Growing Your Business – A small difference that can leave you net zero
I have heard this phrase so many times… scale your business. But I wonder if business owners and executives really understand what it means.
The game of hockey has been a great teacher for me of things that I can apply in my business. One specific item was scaling. Each season I would get older and grow. And the competition would get tougher and improve. So in order to stay in the game I needed to improve, but not just one thing, multiple things and simultaneously. Things like my skating skills and hand eye coordination, my mindset and speed to make decisions all became more inter-dependent. I needed to improve my inner circle of people who included friends and mentors and guides. I needed to change my daily habits. In a nutshell I needed to become more efficient with the same body.
The dynamic of these items showed me that I could not just work on my skill without my mindset expanding. I needed a new group of people around me to raise the level of play and that would provide a new level of challenge. I had to adapt different habits for myself to strengthen me physically, mentally and emotionally.
In business, I quickly found that the same philosophy applies. As a leader of my business, my role is to look at where I want to go, improve my skills, mindset, individuals (employees, suppliers, partners, community, media) and take action (daily habits) to impact the output of the company.
Scaling the business is exponential increase with efficiency improvements – widening the gap between revenues and profits. What is the point of being double the size in revenue but your expenses increase and the profit is the same or less?
Before I go any further, I want to make sure I define the difference between growth and scaling.
Growth means you are adding resources at the same rate that you’re adding revenue.
For example in a professional services business – if it gains a customer and hires more people to service the customer, revenue may grow but so will costs at the exact same rate – so they’ve technically “grown,” but they have not scaled the business.
However, scaling a business is: the capability of coping and performing under an increase in workload, like bringing on a new customer. In the example of the professional service business – if it scales well, it will be able to maintain or even increase its level of performance or efficiency by the larger demand without having the same increase in costs.
With the internet levelling the playing field for businesses around the world, meaning the small one man operation can position itself to the marketplace just as big box stores do, we are in a time where scaling is doable by most businesses.
However there are fundamental principles to follow that still hold true no matter the industry or offering (i.e. product or service) by a company wanting to ensure success when scaling up.
One of Canada’s newest companies that have successfully scaled their business at a rapid pace is Triton Canada (tritoncanada.ca), a pre-employment screening company that conducts background checks. In an industry that has leveraged technology to better serve the client, Triton has also incorporated efficiencies with standard customer service practices since 2009.
Todd Anstey, President of Triton Canada and I sat down to discuss what is the secret sauce for a company to scale successfully.
Triton is recognized for having the fastest turnaround times in the industry. However they are also committed to the old school way of doing business fostering healthy relationships, offering advanced technology expertise and seeking product innovation to meet the demands by companies in the marketplace.
The obvious question was, “Why would you scale if all is going well?” His answers revealed a strategy that sounded pretty familiar to me in my hockey days. There was an offensive and defensive consideration.
“Today’s marketplace is in constant flux,” he said. “Even the most well thought out plans may have to change quickly, either a little or maybe even a lot. When the market does this if you have scaled your business, you will be able to better sustain a downturn in the market.”
His rationale revealed the big difference from growth strategy, which would not be able circumvent the obvious downturn decisions of employee cuts and sale of assets to survive.
When I addressed the issue of maintaining current service levels whilst scaling, in order to avoid the slide as fast as you grow syndrome, Todd said, “This is a difficult one, you need to be constantly collecting feedback and you have to focus on finding themes throughout that feedback as opposed to getting to caught up in one bad instance and basing your next decision on it.”
He continued with, “To ensure success have a couple of good people, that are good with numbers, once you trust them, include them in the decision making process, so they will help you make better financial decisions. Spending money in a business is every bit as much fun as spending it on you. Only you can get yourself into more trouble in a business. Warren Buffet tells all of his new managers that there are two rules you have to follow: Rule #1 – Don’t lose the money. Rule #2 – Don’t forget rule number 1.”
For most business owners there is a time when you know you need to change and do something different. I wanted to know, is there such as thing as, ‘now is the time to scale?’
“There actually is a perfect time to scale “NOW.” You may not yet have the resources, networks or products/services to scale but you can start to plan and lay the ground work.” He explained.
Heed This Warning
Although scaling seems like the obvious choice for a business, Todd had a few words of warning. “There is a myth out there that people believe they will become more profitable or somehow scaling will bring riches. If done properly, yes that will definitely happen. But there are a number of things that can make it unprofitable and perhaps even end in the dissolution of the company.
When scaling, you are investing constantly and it is easy to get ahead of yourself if it is self-funded. If that happens you have to turn to others for capital, which usually means you have to give up ownership.”
This got me to thinking, is there a way to scale in increments. How much do you scale? “Unfortunately, that number is elusive, and only the marketplace can respond and tell you how far you can go. For instance, what resources need to be in place? Do you have your network in place? Do you have the right people able to work with that network? You don’t want a cart before the horse situation.”
Of course with scaling comes investment. Todd was adamant about being clear in what are the proper resources. “Be careful with the type of debt you go after. There is good debt and there is bad debt. The decision of debt goes hand in hand with who becomes a partner. There are compliance issues. You want to have agreements signed no matter who you work with.”
His final words are ones you want imprinted on your mind. “If you own three cabins in Northern Ontario, and you decide to scale, you’ve got to have enough water to swim in.” Make sure you are sailing into a large market not a small one otherwise you simply won’t have room to scale.
Just because you want to scale, you need to have a market that will support what it is you want. Because only wanting to grow your business could leave you net zero.
Kevin Huhn is the Founder and CEO of HOPES, WISHES and DREAMS and through its mission wants to help business owners reinvent their brand with proven systems, programs and products that engage, empower and enlighten in order to impact their rate of success. To learn more visit makemediamatter.ca