What Does it Mean to Scale
Hi everyone, this is Anthem Salgado, business coach, and marketing strategist from Art of Hustle. Today we’re going to be talking about your company’s growth whether you are an individual or a representative of an organization.
Very specifically, we will be talking about this terminology that word “scaling”. It’s a word that is often misunderstood because we use a very, well, not very similar, but the exact same word in geometry. In geometry, it means to keep things proportional. Meaning you could have a little square, you could blow it up to be a big square, you can have a triangle. And as long as you keep the proportions the same, you can scale it up to become a bigger triangle, and you could just as easily scale it back down.
Defining Scaling According to Business NOT Geometry
However, in business, scaling means something very different. It actually means not keeping things proportional. So for example, if you spent $5.00 to make $10.00, to scale that proportionally means eventually when you get really big you’ll be spending five million to make ten million. However, that of course is problematic because to make $10.00 back on $5.00 is bad profit margin. And so when you get up to spending five million to make ten million, you’ll be making more money, however; you’ll also have inherited the bad profit margin that you had when you were really small. So while it looks like you’re making a lot of money, you’re actually operating bigger, and faster most likely towards disaster. That rhymed by accident, I swear.
So what could we do to fully understand what it means to scale? Well let’s look at a basic x, y graft if we shall. Down here is where your start up began, that’s the birth of your company. And up here is where you want to end up, right? It’s a basic flow. You have these two parallel lines. The bottom line basically represents your operating expenses. The top line represents your outcomes. So for a for profit business, your outcomes, that’s pretty easy to define. That’s basically essentially your money, how much you’re able to generate revenue and profit-wise. Now, for nonprofit organizations with a slightly different business model, that top line I would argue, everyone’s got their own opinion, but this is mine. That tope line, your outcomes are basically your impact, and also your brand recognition. Because ultimately, it is your impact, and your brand recognition which will enable you to grow your individual donor contributions, and also your capability to qualify for bigger and better grants.
So here we go. Your company has just started, your operating expenses, and your outcomes. Now if you were to go proportionally, what would happen is these lines would basically stay somewhat parallel. So as you grew, you would end up spending as much in operating as you would get back in outcomes. So that’s not true scalability, it looks like it to the person who doesn’t know any better. And for a long while, I didn’t understand this concept either. So don’t feel bad. But now that I do, I will do everything I can not to make this mistake.
What does it mean, “scalability” if not to just grow as such? It basically means to have your operating expenses eventually even out, go nice and steady. And for your outcomes, it means opposite of steadying, it would skyrocket. Eventually you want these two lines to break away from one another so that you are getting maximum, maximum return for the amount of time, energy, and money that you put back in. How do you do this? If you start out spending five, and getting back ten, how do you go about getting more back? Well, the answer of course comes back down to leveraging your opportunities, which would be a whole other talk if we went that route right now. But ultimately, that’s what it comes down to.
So yes, in geometry, scalability means staying proportional, but in business it means having your outcomes break away in a dramatic fashion from your operating expenses. And this is pretty much the model that you’ll see happening with a lot of technology companies, which are expensive to start. Right. So in their case, if you can see my hands here, they’re operating as actually more than their outcomes in the beginning. But eventually as their technology gets more refined and they find their audience for it, the lines sort of begin to converge, and then they get to a point where the market really blows open for them, and an ideal situation would be their outcomes again breaks away dramatically from their operating expenses because essentially if you think about it, overhead for digital is pretty low compared to brick and mortar. But it does take a lot to start. Which is why for technology companies to operate, you might be operating in the red for a long while before you start seeing your money come back. But eventually the goal for most technology companies, and any company really is to have these two lines break away from one another.
So that is something to think about. Too often, people think about growth, and they misuse this word scale or scaling. They think being scalable means to just throw more money into it, and consequently get more money back. But if those things are staying parallel to one another. That’s not true growth, that’s probably not sustainable, and that’s essentially going back to whether you’re for profit or nonprofit, that’s probably where burn out starts to happen. It’s not good for financial resources, it’s also not good for human resources. This is something to meditate upon pretty deeply especially if you have been defining scaling according to geometry, and not according to business.
Food for thought. Enjoy that, and I wish you well in all of your endeavors. Again, this is Anthem Salgado, business coach and marketing strategist here at your service representing Art of Hustle. Thank you very much.