WHAT DOES TO SCALE UP MEAN IN BUSINESS?

What is the technical definition of a scale-up business? What does scaling up mean? What is the difference between scaling up and just business growth? There are some complex models to measure growth and thereby define a scaling-up organisation. I think having an absolute growth rate for organisations above a particular size over time is a more useful insight into a scaleup company model.

What is a Scale Up?

The Organisation for Economic Cooperation and Development (OECD) suggests that the absolute growth number is 20% year over year for three years and can come from growth in revenue, team member headcount or both. They also indicate a lower level of 10 employees for the scaleup phase at the beginning of the period. At £118,000 per head (the average for UK SMBs), this puts the lower limit of a definition of scaleup company top-ups at £1.2m in annual revenues in the UK. Beauhurst (a data provider) is tracking 30,000 scaling-up organisations in the UK. The ScaleUp Institute, with the ONS (The UK Office for National Statistics), will continue to analyse this data and provide further updates.

Before the OECD created its definition of scale-up, David Birch had developed the idea of the Gazelle Company during his work on employment growth in the USA in his 1987 book “Job Creation in America: How Our Smallest Companies Put the Most People to Work”.
Birch argued that small businesses (SMBs) were major economic job creators, particularly gazelles. Despite making up only 4% of the market for all U.S. companies, they were responsible for 70% of new job creation. These gazelles outpaced large corporations, known as “elephants,” and small, family-owned “mice” businesses regarding job creation. However, maintaining this rapid growth often proves challenging for gazelles with internal business model constraints appearing beyond five years.

The term ‘gazelle’ has recently broadened to include any fast-growing company, diverging slightly from Birch’s original definition. Nevertheless, it remains true that gazelles are significant job creators, especially in open, entrepreneurial economies like the United States and the United Kingdom (UK). While many are tech companies, there’s a diverse spread across other market sectors like food and beverage, retail, and apparel, contributing to growth in various industries.

At Monkhouse & Company, our purpose is to unlock entrepreneurship’s transformative potential. If we can help 200 UK firms to scale up their proven business models, from 50 to 250+ employees, those firms will create 300,000 jobs and £52 billion in turnover – 2014 Scale Up Report by Sherry Coutu.

What’s the difference between growth and scaling up?

Growth vs. Scaling Up: A Tale of Two Journeys

Imagine two ambitious companies, both B2B tech firms with grand ambitions. One, “Growth Ltd.,” takes a steady, linear approach. They diligently hire more employees, open new offices, get professional services, get new customers, and invest in additional marketing campaigns. Their revenue climbs steadily, but so do their expenses. It’s a predictable path, like climbing a mountain step by step.

Across the valley, “Scaling Stars” takes a different route. They focus on building efficient systems and processes. They streamline operations by automating tasks, utilizing technology effectively, minimizing customer acquisition cost, and developing consistent sales funnels. Their revenue skyrockets, but their headcount remains flat. It’s a thrilling, exponential ascent, like soaring in a hot air balloon.

So, what’s the difference? It’s all about the relationship between resources and results.

Growth:

• Linear progression: Revenue and expenses increase proportionally.
• Resource-intensive: More resources like people, equipment, and space are needed to fuel growth.
• Sustainable but slow: Growth is predictable but may not be explosive.
• Example: Hiring a new salesperson for each new client acquired.

Scaling Up:

• Exponential growth: Revenue outpaces expenses, creating a virtuous cycle.
• Resource efficiency: Focuses on leveraging existing resources and technology for maximum impact.
• Disruptive and fast: Growth can be sudden and transformative.
• Example: Automating customer onboarding process, eliminating the need for additional staff.

Here is an example to illustrate the difference:

• Growth: A bakery opens a second location, doubling its staff and production capacity. This increases revenue, but expenses also rise due to rent, equipment, and payroll.
• Scaling Up: A SaaS company develops a self-service customer portal to handle inquiries without additional customer service agents. Revenue increases from new subscriptions while expenses remain relatively constant.

Ultimately, the goal for most businesses is to transition from growth to scaling up. It’s not about scaling companies avoiding growth but about finding ways to grow without adding significant overhead costs. This allows companies to become more profitable, efficient, and resilient in the face of increased demand and competition.

Remember, the path to scaling up scalable business model isn’t always linear. It may involve experimentation, innovation, and even some bumps along the road. But the rewards can be immense for companies willing to embrace the challenge.

So, which profitable growth journey will your company take? Choose your business growth path and start scaling up towards success!

There are three areas of focus for an organisation looking to scale up.

These three characteristics can be simply stated as vision, strategy and execution, in that order. A clearly differentiated business strategy is not just aiming to be bigger or better than a competitor. Developing a system for getting the strategy implemented at scale. Hiring and retaining the right people, building a people system that attracts and retains A-players. Growth sucks cash, so make sure you have enough. Pulling this strategic plan together and sharing it with all employees on a one-page strategic plan (OPSP) is a great start and creates alignment.

Written by business coach and CEO mentor Dominic Monkhouse, read more of his work here. Read his new book, Mind Your F**king Business here.