Build a growth business – Part 2: Growth and scaling
29 Mar 2021 • Strategy & Business Design
The development of a company is perceived by an increase in turnover, by growth in profit, or by the number of employees, but actually, it is much more multileveled. In this blog post, I’ll go through with examples the difference between starting a business, growing it, and scaling it.
IDENTIFY THE STAGE OF YOUR BUSINESS AND DEFINE YOUR DREAM STATE
The previous part of this blog series took a look at where does growth basically sprout. Continuous growth requires a sufficiently precise and comprehensive understanding of the starting situation as well as the setting of a dream.
Growth is a state of mind and a way of thinking that materializes into continuous and company-wide growth-oriented activities.
The situation of each company is different, and thus the activities that bring growth are individual. Development can be approached in different ways depending on the phase of a company and by the hunger for growth. I will go through three different starting positions with examples and perhaps you can mirror them to the situation of your own company. The three starting positions are starting a new business, growing an existing one, and scaling.
BUILDING NEW GROWTH
I literally love a situation where there is an opportunity to create a new growth business story. The table is clean in terms of history – on the other hand, the risks are bigger. But everything is ready for actual doing.
The first stage involves a lot of important things. However, in this blog post, I will highlight just a few of the most important ones, that are not necessarily given enough attention at the first stage. First and foremost, you should define a shared dream, identify shared values, and formulate an emotional story. Based on a common understanding, it is easier to form a strategy as well as determine some competitive factors.
After creating a commonly agreed base can you move on to productization and other practical work. Everything you do and all the decisions you make should be guided by a common ground. It could be seen as a set of filters that guide you with the work you do. Keep in mind, that I am not encouraging you to write a hundred-page business plan, but to outline the critical core elements.
Another critical issue is building a healthy balance between work and free time. This may seem illogical because the common thought is that in an early-stage startup, nothing is created without raw work and long hours. In addition, elasticity and explosive speed are the most important (universal) competitiveness factors for a new company. The pressure for doing is hard.
Entrepreneurs drive to work > Instinct for self-defense
The model you see above leads to behavior where founders would rather add than remove working hours from their day. I challenge you to find a growth business, that has been operating for at least 5 years and where no one has ever felt stressed. It’s a bit like finding an old professional athlete who has never had physical injuries.
However, a broken work-life balance is poison to a company in a sensitive phase. A tired mind constructs scenarios and situation evaluations distortedly through negativity. A busy person is unable to concentrate, and the ability to advance big things is dramatically weakened.
A healthy corporate culture is a matter of life and death for an early-stage growth company. There will always be bigger problems waiting up ahead, and they’ll require the core team to push even harder. The pandemic struck, a key person resigned, sales didn’t succeed, cash ran out – an endless series of neverending obstacles.
The balance between work and free-time + shared values of understanding = resilient corporate culture
GROWING AN EXISTING BUSINESS
Let’s picture a company: the company has been operating for at least five years and the turnover is stable seven-digit number. Growth has frozen to a few percent per year. Staff and the customers are averagely satisfied and things roll more or less smoothly. On the other hand, one thought creeps into mind constantly: there is still much to gain in the market.
First of all, you should make sure that the basics listed in the previous chapter are in order. Refreshing the common values of understanding is usually more straightforward because resources are usually more available than for start-ups.
The actual pain points can often be traced to one of the followings:
- The hunger for growth has weakened. Growth requires the ability to throw oneself into an area of discomfort and often success weakens this ability. However, the risks are often better managed.
- Growth requires reform of operating models. Actions that got you this far might not take you to the next level. It may also seem, that the price for growth is too high.
- The growth path is lost. All means have been tried out, but for some reason, they won’t generate into numbers.
Paradoxically, the success of the company has turned into a golden cage
The best solution is really simple: find the best person/company outside your own company that you believe can help you move forward with the challenge you have identified. The keyword is “from the outside”. This way there is less risk to get stuck with the company’s internal thoughts as well as when it comes from outside, there is usually healthy pressure that drives things to move forward.
There is no shortage of small- and middle-sized companies in Finland which have a good basis for growth and only need a little push. Take a look for example at the activities of the Kasvuryhmä, Boardman Grown, or KasvuOpen and absorb the desire to grow from those who already do it.
Your business needs a personal trainer
The traditional model of growing is to add existing factors of production: recruit more, buy services, and so on. Another model is to digitize operations, for example, by opening an online store in addition to a brick-and-mortar shop or by launching digital marketing operations. Digitization is about activities of digital maturity levels 1–3.
Regardless of the starting situation, finding the right model for your own business is easier with external help. If you represent a small- and medium-sized business and would like some outside sparring about your situation, you should check out state-supported business development services.
SCALING IS AUTOMATION
Growth and business scaling describe slightly different things. When it comes to growth (in its typical) sense, turnover increases in direct proportion to costs. A service business can be viewed as an example: turnover increases as new consultants are recruited, which leads to rapid growth of revenue, but also to the growth of expenses.
When it comes to scaling, turnover increases rapidly, but costs do not increase in the same proportion. An extreme example is Dropbox, which achieved a turnover of 240 million bucks with just 70 employees. The story of Dropbox is an amazing lesson about scaling a business.
Scaling a business is an alternative way to the “linear” growth path presented in the previous paragraph. The core idea of scalable business design is to build a growth engine where revenue grows significantly faster than expenses. Scaling is inevitably about standardization, process design, and digitization.
When it comes to the scalability of business operations, then it’s almost always about pursuing the highest levels of digital maturity (levels 4–5). This could also be called the digitalization of operations. In digitization, a company’s culture, operating model, and strategy are built around a purpose-built digital core.
If digitizing and digitalization seem hard to differentiate, think about them this way: digitizing is like replacing a car’s tires and wipers to brand new ones. As a result, the operation of the car becomes more efficient, but the car is still the same familiar one. With digitalization, the entire base technology of a diesel car is replaced with the technology of an electric car, taking performance to a whole new level. The dear former diesel car is no longer left behind when other cars take off in the lights. These examples are to show you, that we need to find a whole new way of approaching things and start thinking about how digitizing operations or digitalization could boost the business.
Although both models of digital change are used parallelly for growth, the car example shows how fundamentally the required investments differ from each other. Any company can easily operate at the digital maturity levels 1–3 but moving to levels 4–5 usually requires a full redesign of all existing operations and culture, as well as the technology used.
In the core of modern scalability is a pulsating digital heart.
There is no single right way to grow your business. The company’s individual situation, goals, and cultural framework shape the growth path. For some, continuous steady growth is enough, while others are willing to risk everything to achieve leadership in the markets or disrupt the entire industry.
While benchmarking is often wise, you still shouldn’t copy everything your neighbor business is doing (“Let’s set up an online store too!”). The culture of experimenting is definitely good, but hasty copying can lead to expensive missteps. You should reflect your own growth ideas through the world around you: customers, partners, experts and so on.
Practically, every business is possible to guide for growth path, if the business itself is ready for it. Good luck for your growth path if you decide to take it!
The following blog post will add more perspectives on building a growth business.