[Interesting Read] Difference between Business Growth and Business Scaling

Source: Business Growth vs Business Scaling

The business, investing, and news community extensively use the words ‘growth’ and ‘scaling’ giving the impression that they mean the same thing. However, there is a difference between business growth and business scaling.

Growth is growing the revenues of the business while scaling is growing the business *efficiently. *

Let me elaborate, business A grows revenues from $100 to $200 while the expenses increase from $80 to $180. Therefore, the incremental $100 revenue came from $100 of additional expense. The business grew but not efficiently.

Business B grows revenues from $100 to $200 while expenses increase from $80 to $100. Therefore, the incremental $100 revenue came from $20 of additional expense. The business is growing efficiently because the additional revenue generated per additional expense is greater than 1:1 ratio.

Some industries are naturally inclined towards scaling. For example, SaaS companies have lower marginal cost per incremental revenue and can scale faster. However, there are no free lunches. The cost related to customer acquisitions are the drivers of cost and not the servicing of customers. It becomes important to ensure that the customer acquisition costs (CAC) are lower than the Lifetime value of the customers (LTV).

Next time when you are analyzing a business, understand whether the business is *growing *or *scaling *and if it is scaling understand whether the CAC is lower than the LTV.