To Scale or To Grow – it’s not just a matter of language.

The U.K.’s national broadcaster, the BBC, recently ran a radio series called “Magic Consultants”, which examined the growth, influence and mystique of the management consultancy industry. The first episode explored the mystery of the management consulting terms that have found their way into everyday language. These include expressions like – in the ballpark; low hanging fruit; deliverable; deep dive; and acronyms like KPI, RACI, DACI and RATSI.

One of the latest business terms that has been popularised is “scaling” or “scaling up”. But do we really understand what it means and how it differs from what we have been doing in running our businesses all along, growing them?

In this, the first of three articles on the subject of scaling your business, I will explore the challenges with the term and its definition and describe the first three of these six strategies that will enable you to scale your business.

All too often we assume that because the term is used by our peers in business, we understand what it means. This may be fine in scientific or technical circles, or indeed between members of the legal, accounting and medical professions, for instance. But can we make the same assumptions in business where, let’s face it, most managers have their own bubble of expertise, but otherwise we are all generalists.

So let’s try to define what we mean by scaling or scale up.

Cambridge Dictionaries defines scale up as “to increase the size, amount, or importance of something, usually an organization or process”; whilst Dictionary.com defines scale up as “an increase in size, quantity, or activity according to a fixed scale or proportion: a scaleup of an engineering design; a scaleup program of energy conservation.”

Now, whilst these definitions are useful, they are not specific enough to be applied to business in general. This especially applies to the Dictionary.com definition which refers to “a fixed scale or proportion” which introduces the assumption that scaling the parts of a business should always be in proportion as it develops. Even we, as human beings, find that our bodies develop disproportionately as we age. So, for example, the only parts of the body that do not scale as we age our eyes, which always looks enormous in infants, which is part of what makes them so appealing, because the eyes are proportionately large as part of their faces.

So back to business…. If we associate the words scaling or scaleup, with the process of enhancing the capacity of your business to generate revenue and profit, we are defining a specific set of activities which create enhanced leverage for the business in its every day revenue generating activities.

Having recognised the nature of the distinction between scaleup activities and non-leveraged business activities, then it is useful to come up with a word or shorthand to define the process of making use of the enhanced capacity that scaling creates. For these we use the term “growth” which is about increasing revenue and profit with the scaled-up resources that scaling activities deliver.

What are the factors that specifically drive the creation of scalability in a business? They are probably not what you think.

Listing in order of escalating impact the first three scaling strategies are:

·??????market segmentation – the process of analysis and stratification of your client base to determine, using the Pareto principle (80/20 rule) to determine which are your most profitable clients and which are the least so. Typically, businesses spend 80% of their time servicing the least profitable clients on their roster who represent only 20% of their revenue and profits, rather than focusing on the most profitable.

·??????physically increasing the scale of the business by acquiring more plant, staff and/or services to increase the physical capacity of the business to trade to generate more revenue and profit.

·??????the ability to understand the pricing and packaging choices of your competition and applying the counter-intuitive strategy to either bundle or unbundle your products, to make price comparisons harder and enhance the scope to increase your margin and profit.

Typically, businesses are most effective when their leaders are clear about the distinctions between scaling and growing activities and manage these as different phases in the management of the company’s progress towards the achievement of its vision.

In the next article in this series, I will introduce the next three scaling strategies and explain how the right choices can drive your business through the most challenging parts of the business cycle and enhance the multiple of profit you can achieve on exit from your business.