One of the most important decisions a business owner has to make is choosing whether the company will focus on growth, or on scaling. While it’s generally best to focus on one approach for a reasonable stretch of time before switching gears, there are many ways that companies go about this struggle. Brands typically either grow their customer base by marketing and attracting new clients, or they scale by focusing on optimizing their current offerings and generating profit from loyal consumers.
Which strategy you choose might depend on several factors, including the stage the company is in at the moment, the product or service it offers, and your goals for growth. How can you determine if your business should focus on scaling or growing?
A company’s customers are its lifeblood; if more customers sign up or stick around, more sales will be generated. One way to get there is by marketing to new potential customers through various means, including social media campaigns, radio ads, television commercials and digital ads. Businesses that grow primarily rely on acquiring new clients through sales and customer acquisition strategies. Businesses that primarily scale focus on gaining incremental profit from customers who are already loyal to their brand.
Which strategy is best for me?
A company might base its focus on one strategy over the other depending on the industry it operates in. For instance, an e-commerce business would be more likely to emphasize growth than a bricks-and-mortar retailer, since the former relies so heavily on generating new clients. Yet an e-commerce company might not target too many clients, since there is little risk involved in building up a small loyal clientele if it subsequently fails to scale significantly.
When aiming to scale, many entrepreneurs turn to certain tactics. These tactics usually involve increasing efficiency by engaging in continuous improvement programs that focus on improving the quality and efficiency of operations. The results of these programs can then be used to generate profit, or be saved for future use.
When a company is considering taking on growth initiatives, it should weigh its resources against the anticipated cost. In other words, a company may be able to simply add resources to produce more outputs by hiring additional employees or buying more equipment if it can find resources that are less expensive than developing new capabilities from scratch. If the resources are not available, a company may have to choose between scaling up its operations and running the cost-benefit analysis again.
One way to determine whether a business should focus on scaling or growth is through benchmarking your performance against other companies in your industry that have chosen one approach over the other. For instance, you can observe how many clients your competitors have acquired or how many sales they’ve made within the past year. Or you might notice that companies in your industry are working with certain vendors to provide their products/services and decide to do the same. Noticeable growth could be an indication of a company’s willingness to grow its customer base, while noticeable scaling efforts indicate a company’s focus on using incremental profit to increase revenue.
Elements of Growth
Grow the Base: Focus on growing the number of customers through improved relationships between company and customer while also making more effective use of current customers through higher retention rates. Growth this strategy also offers the opportunity to improve customer service and service levels, which can be used to influence retention rates.
Grow the Product: Focus on improving product quality and performance by increasing speed to market, increasing rate of production, changing manufacturing processes or investing in research and development (R&D). The development will be focused on improving products that are easy to use, deliver value or increase usage frequency.
Elements of Scaling
Scalable Growth: Focus on improving existing products and services so they are easier to use, deliver value or increase usage frequency, with the objective of generating more profit without focusing on acquiring new customers.
Scalable Optimization: Improve existing products and services by increasing production through greater efficiency or reducing cost. In turn, this allows for different products or services to be launched without lowering profitability. Some companies may make investments in new processes, equipment and software as a way of scaling. These investments can often be seen as a way of generating incremental profit from a previously profitable product that has been selling relatively well.
Loyalty: Focus on building loyalty among existing customers by increasing sales and customer retention through personalized offerings, product upgrades or special offers. Focusing on this strategy usually requires that the business target a niche or segment of customers for whom there is a high value-to-cost ratio.
How a company implements a growth strategy in a business will depend to an extent on the industry, region, economic climate and other factors. But what is clear is that the implementation of growth strategies by companies differs substantially among different industries.
The question for companies to consider is whether they should be focusing more on increasing customer acquisition or increasing customer retention. Companies should also consider their goals for growth. Many customers might decide to stick with an existing brand because it provides them with good value for money, even if the price becomes higher than that of competing brands. On the other hand, customers may also choose to switch brands that offer them better value for money even if the new brand accounts for only a small fraction of their overall spending. Generally, if you build a strong, loyal customer base you will find that they become a brand advocate. A brand advocate is a customer who champions the brand and ensures that others also become loyal clients.
Put simply scaling is more quality over quantity. It’s important to take a look at your product/service and identify which strategy is best suited to your company. For example, if you are a one-woman business that paints portraits of their client’s growth (ie hiring more individuals to paint) can be difficult as your clients are accustomed to your personal reputation and skill set. However, scaling, ie getting a bigger studio and moving online and posting the products can increase profits and potentially increase prices slightly. Scaling generally is a slower way of getting your business to the next level, however, is considered the safer and more effective option.
Author: Postage Supermarket Spokesman, Afonso Martins-Pereira