Entrepreneurs with online businesses are often confused by two terms used in literature and seminars about setting business goals. The two terms are business scaling vs. business growth. They are especially relevant when an online business starts to expand.
These terms are used a lot, but unfortunately, sometimes incorrectly. Many people use the words to mean the same thing, namely, the online business is getting bigger, obtaining a greater market share, and making more money.
But there is a significant difference between growth and scaling in online business terms. It is a distinction to understand before you work on your business goals when your business is expanding.
It may seem as if there are even different ‘correct’ definitions for online business growth and scaling, but you’ll find that they all are variations of the same basic definitions. The wording may differ depending on the angle of the discussion.
If you look at the meaning that dictionaries give to the two terms, you begin to understand the difference between the two terms.
According to the Oxford Dictionary, business growth is an increase in business income, mainly due to the value of goods and services the business produces or provides. The Merriam-Webster Dictionary adds ‘and usually directs a relatively high proportion of income back into the business.’
Business scaling is, according to Meriam-Webster, ‘to grow or expand in a proportional and usually profitable way.’
The main difference between the two terms is found in the concept that online business growth is an increase in income. Still, a large proportion of the extra income is going back into the business to make the increase possible. In contrast, online business scaling is a more proportional expansion with larger profit margins.
Growth in Online Business Explained
According to the above definitions, your online business grows when you increase your revenue only as fast as you add resources to your business. The added resources (and spending money) is directly proportional to your income increase rate.
For example, look at an online money lending business where the staff members have to personally contact every potential lender by phone to verify certain information. For this example, assume that the staff members are already using all the work hours available to phone the daily applicants.
The business and income will grow if they enhance their marketing campaigns, explore new markets, and then accommodate more applicants per day. But to phone more clients per day, they will have to expand their staff. A significant proportion of the extra income has to go back into the business for additional salaries and higher phone bills.
This is, by definition, the essence of online business growth – you have to spend a lot of money on staff and infrastructure to make money. As a result, your business and income will show growth, but your profit could even still be the same as before the apparent growth.
Scaling in Online Business Explained
When your online business scales, you add revenue at a faster rate than you incur new costs. To understand the concept, have another look at the example used for business growth.
If that online business did not stick to their obsolete way of contacting every applicant by phone, they could have scaled their business. They could, for instance, have changed to systems where the staff members send concept SMS and email messages to new applicants for the first screening stage.
Then they only have to phone legitimate applicants. The staff members would have time available to accommodate more qualified applications. It would not be necessary to appoint new staff members to begin the expanding process.
The online business’ gains would have outpaced its losses, allowing it to grow and scale. As a result, the online business would have experienced ‘guaranteed’ profitable growth.
Growth of Your Online Business vs. Scaling Your Online Business
An online business can grow with or without scaling.
Growth Without Scaling in Your Online Business
As explained, when you think of growth without scaling, you think of change in linear terms. You add resources like capital, people, and infrastructure to your online business, and your revenue increases as a result.
Thus, with this linear thinking, the growth of your online business not only refers to a revenue increase. It also refers to aspects like growth in the number of employees and the number of clients you serve.
It is important to remember that with linear thinking, growth in resources and clients is linked to revenue growth, but not necessarily proportionally to profit.
The problem with this concept is that it takes many resources and funds to keep sustainable growth. In other words, financial growth can only be achieved by spending a lot of the revenue on internal development as well.
It is not wrong to grow your online business like this. In some online business categories, this is a very successful way to generate significant profits over time. However, to do it successfully, you have to put a growth strategy in place.
The strategy must take both potential income and spending on resources into consideration. If, for instance, your research shows that the income from 4 new clients per day pay will pay for the expenses incurred for a new staff member and the accompanying infrastructure, your marketing strategy must ‘guarantee’ more than 4 new clients per day. A linear approach always increases the risk factor, as you have to incur expenses before there is any income. You have to be ready for more clients and therefore have to employ new staff members beforehand.
Growth With Scaling in Your Online Business
For an online business, especially when it is a relatively new business, it is better to look at ways to increase revenue without incurring significant extra costs. This scalable growth has less financial risk.
How to Plan Your Business Scaling as Vehicle to Grow
Possibly, you don’t want your online business to expand. You’ve set a particular profit margin as a goal, and you’ve reached it, and you’re satisfied that you will be able to sustain it. A small online business is all you’ve ever wanted.
But if you’ve reached your original revenue and profit goals and want to expand, the best route recommended is to follow the scaling route. To do that, you have to plan.
Define Your Goal
As the first step, look at your original goals for your online business. Ask yourself whether the expansion will fit into your goals, and if so, what type of expansion. According to Jeremy Miles, the marketing manager of UPS, the growth goal for businesses could be ‘revenue growth, geographic expansion, a community of loyal customers or a better quality of life for yourself and your employees.’ This is also true for online businesses.
If you haven’t reached your original goal(s) and are convinced you can only reach the goal(s) by expanding, start planning the expansion. Begin with introspection and internal evaluation.
Scale the Internal Culture of Your Online Business
Be prepared to shift to new thinking. Your temptation will be to look for opportunities and new customer relationships externally. However, for business scaling, you need to look at your current employees and infrastructure.
Remember, according to the definition, you want to grow, but keep to your existing internal expenses as much as possible. Then, you’ll have to think about how you can use what you have differently to achieve your growth goals.
You’ll have to break away from the conventional idea that bigger is better. According to this conventional idea, the larger you get, the more likely you will achieve market dominance and profitable growth. With scaling, you still want to get bigger, but proportionally and with big profits.
Does Business Success Always Scale?
No, there are successful online businesses that have not followed the scaling route. Some online businesses find other growth opportunities and don’t have to follow the business scaling concept. However, whether you’ve followed the scaling concept or not, certain aspects of scaling will always be part of business growth and success.
When Should You Scale Up an Online Business?
The best time to grow your online business according to the scaling concept (scaling-up) is:
- When you’ve established your brand
- Are servicing your old and new customers successfully
- You’ve reached the maximum monthly revenue you can get with your current infrastructure and working methods.
What is Essential for Business Growth?
The most important thing you need for business growth is that you’ve developed one of the best products/services in your field so that you can claim a sizable market share. In addition, your business goals must be in place to accommodate more customers.
Although an online business can be successful and grow without following the business scaling concept as such, the more risk-free option for a small online business to expand is via business scaling. Following this route will ask for good planning and introspection.