It’s important for businesses to think about not only growth but also scale. Contrary to received wisdom, growth is not a reliable indicator that a business is thriving. That’s because growth only tells half the story.
For example, top-line revenue might increase, but its possible overheads will rise at the same rate. The business can technically claim to have achieved growth but is no more profitable than it was before.
Growth is, to some extent, a superficial metric; instead, businesses should focus on scaling. This can be achieved via various avenues, including effective digital transformation and implementing agile product development processes and accounting practices.
However, scaling a business is not without its challenges. So, how can business leaders navigate the pitfalls associated with achieving not just growth, but scale?
Growth Versus Scale
Business growth and scale are undeniably interconnected but differ in a few fundamental ways. The latter can’t be realized without the former, but they are also wholly different measures of a business’s development.
Growth can be defined as adding resources, such as staff, at the same rate as revenue increases. Although a business’ size and breadth of offering might increase, its margins will not. Scale is about adding revenue at a rapid rate while adding resources incrementally.
If a business is to have a lasting impact on its industry and safeguard its longevity, it cannot afford to accumulate considerable overhead. It must find a way of accruing customers rapidly, without incurring significant costs.
Many professionals think in incremental rather than exponential terms when it comes to their businesses, but this is a mistake. Leadership shouldn’t be thinking about 10% improvement, but rather about 10 times the improvement. This is the difference between growth and scale.
The CEO Duality Dilemma
There is no proven formula for achieving scale, but many businesses turn to technology in an effort to streamline operations and improve the quality of their offering.
Indeed, implementing new technologies can unlock a wealth of opportunity and dormant value, allowing businesses to scale in areas in which they had previously only been capable of growth. However, technological innovation also comes with its own set of problems, such as the CEO duality dilemma: the need to lay the foundations for the future and technological change, while also delivering next-quarter results.
Building an ambidextrous organization that’s capable of delivering in the short-term and paving the way to an affluent future simultaneously is an inherently complex task. Innovation is a necessity if an organization is to gain competitive advantage, increase its market share and achieve scale. But at the same time, newness is inherently risky because it runs against the promise a business makes to customers, investors and other stakeholders.
So, how can leadership hope to fly the plane while they’re still building it? The most important commodity for a CEO attempting to juggle this impossible equation is the freedom to change direction.
Financial Agility Is A Necessity
One significant barrier to achieving scale is inefficient and inflexible accounting practices, which can stand in the way of innovation or shackle a business to a failing project.
The normal approach to investment strategy starts with a belief that an idea is good, followed by a combination of planning for certainty and financial forecasting practices that struggle to take into account the need to pivot. This is a recipe for continued delays and lost opportunity to increase company value.
When it comes to digital transformation, the entire effort shouldn’t be capitalized upfront. Instead, investments should be broken into smaller chunks that suit iterative development and continuous customer feedback. It’s critical that your business is able to change direction while keeping the proper ratio of expenses and capitalization of intangible assets.
Most digital transformation programs are still considered large-scale, one-off software development programs. Ensure you allocate budgets to focus on value and to create an environment of quick feedback if you want to get a higher return on your information technology investments.
An unwavering commitment to financial agility will see businesses reap the greatest rewards from digital transformation and prepare them to scale.
It’s time businesses moved beyond growth as a measure of success and set their sights on scale. Although the path to scale can be unclear — and even perilous — prioritizing agility when it comes to investment in digital transformation will give businesses the greatest chance of success.