Business owners, including my clients, are known to start bandying about the term scale once they’ve been in business for a couple of years and they are bringing in a few customers. They are in search of a few more customers, so that they can make more money.

So the prospect is referred to me by way of a mutual colleague, makes contact and shares his/her agenda with me. “I want to grow and expand my business. I’m ready to scale. Can you help me?” “Yes, I’ll be happy to help you with that,” I reply. “Please tell me a little more about your company and we can set up a time to talk.”

To be honest, until recently I’d never given the terms much thought, other than they all mean growth—-more customers, more revenue and more profit (ideally) for the company. However I’ve come to realize that there are real differences between them and that they should not be considered interchangeable.

While basically all ventures can grow and growth is a perennial goal, not every enterprise can achieve growth through either expansion or scale. It all depends on the business and what the owner(s) would like to do.

Growing the business

When a business owner or management team decides to grow the company, the strategy is to add certain resources—money, technology, training and staffing, say—-to produce more sales and therefore, revenue. But essentially, not much changes in the way business is done.

If the business hires two new employees and also buys new computers plus a software program that speeds up order processing and keeps track of inventory, for a total investment of perhaps $125,000 (staff salaries are ongoing at $120,000 / year total), the expectation may be that in one year the investment would be covered by the additional revenue that the upgrades make possible and that by year two, sales revenue will increase by 15%/ year for the next 3 years and then continue to more modestly trend upward, producing growth in the high single digits until market conditions change.

If the business leaders want more growth, more money must be invested. The resources needed might be too costly relative to the desired results.

Expansion

Growing the business through expansion is, as noted, another strategy. The business owners or leaders may open more locations if demographic and other marketing research indicates that a significant number of current and potential customers live in certain zip codes and would spend more money if stores could be more convenient to visit.

Likewise, introducing new products or services to the marketplace is capable of expanding the customer base and revenue generated. Entering a niche market is another potentially successful expansion, i.e., growth, strategy.

Like traditional business growth, the costs associated with business expansion can be significant and in fact the costs can be much more significant if opening new locations is involved. As well, a new product launch is potentially a costly undertaking. Entering new markets is usually less costly, but a special marketing campaign may need to be developed and rolled out to reach the new demographic.

But not every business can expand. There may be no additional markets that can successfully be entered. Opening additional locations may be neither affordable nor beneficial. Developing and launching a new product or service that fits with the organization’s mission and current line may not be possible or practical.

Scaling the business

The idea of scaling a business to promote significant growth gets all the publicity these days. When business leaders create a strategy to scale a venture, sales revenue is meant to be generated at a much lower cost per unit sold relative to the scale- up investment made because the production process becomes much more efficient. Automation of one or more key functions is the usual method used to keep overhead costs low (few employees and little office space, for example). A successful scale enables the number of customers reached and served and corresponding revenue generated to grow exponentially. The more efficient the means of mass production and delivery of a company’s products or services, the more scalable the company will be.

Drop the price of producing the widgets from $2 each to 80 cents each and sell them at the original price, but sell 10 times as many as you used to. That’s scale. Hire a new employee or two and buy a new piece of equipment so that you can produce more and manage a moderate drop in production price along the way, so the widgets that once cost $2 each at wholesale now can be bought at $1.25 each because you’re buying more of them and a discount kicks in. That’s growth. Open up a new location, launch a new product or service, or enter a new market, bringing in new customers or give your usual customers new reasons to shop with you and that’s expansion.

Thanks for reading,

Kim

Photograph: Snow drops in the Fenway neighborhood of Boston scale their operation.