Getting bigger and adding new team members, new resources, and new opportunities is, in many minds, the most obvious indication of success. It means your business can sustain more than it originally set out to handle. Growth is an excellent goal for a small business, but by the time an organization reaches mid-market size, growth is far less important than scale. Knowing the difference between these two objectives can be the defining factor for the CFO of a midsize company who wants to make a lasting impact.
Growth is reflected by increases in revenue and resources at the same rate. Scale is the increase of revenue with no change in cost to the business. For a midsize enterprise, scale is a better goal than growth. Financially, scaling up allows a company to increase profit without expending any other departments beyond their means. There is less sacrifice involved with scale, and it can help a company making between $10 million and $1 billion each year stand out among competitors.
A company’s ability to scale is often correlated with their future growth. Mid-market enterprises have maintained stable growth in recent years, comprising one-third of employment and total GDP in the U.S. As a McKinsey report stated, “A company whose revenue increased more slowly than GDP was five times more likely to succumb in the next cycle, usually through acquisition, than a company that expanded more rapidly.” To sustain scale over growth, CFOs must consider a few important approaches to company strategy, finances, and culture.
Avoid Tunnel Vision
One of the most defining features of a mid-market enterprise is its intimate knowledge of its customer base. As they generally interact with customers directly, midsize businesses have a better view of what serves their customers’ needs best. With that in mind, CFOs should not narrow their vision of their company and its finances to the point of not being able to see how important other strategy is for scale.
If you, as the CFO, can identify your company’s place in the market, you can accurately identify where you need to scale to without the weight of growth. Self-awareness of competitors and industry gaps will allow you to create a concrete plan for how your company can fill them or outpace the competition.
Focus on Value, Not Price
Perhaps most obviously, CFOs have a great deal of influence on the pricing of a company’s offerings to help increase market performance. However, while price adjustment to aid scale is one tactic, CFOs must remember that a company is not just its price point. A company should present value to customers. Focusing on the value of the offering can justify the price, aid in marketing, and show a dedication to more than revenue increase.
Pricing is often the communication point that can make or break a sale, and in effect, efforts to scale. However, CFOs without a valuable way of assessing, presenting, and understanding price will have no chance at reaching the audience needed to scale.
Invest in Your Company’s Culture
While this is less directly related to finances, company culture is especially important to maintain while scaling up. Increased revenue provides opportunities for bringing in new talent, investing in improved technology, and streamlining existing operations. When you are scaling, core values can get lost or muddled. Renewing your dedication to those values will attract the best talent, help you obtain the best technology for analyzing and managing your financial data, and clearly define how to continue to scale.
Startup CFOs are particularly familiar with this notion, and the same lessons can be applied to more established companies. As David Stack, CFO of QStream, writes in Entrepreneur, “Stay true to your core values and culture as you grow, and make sure that everyone on your team understands that building for scale is an essential part of your success plan.”
Understanding the differences between growth and scale is critical for CFOs as they manage the finances of a rapidly expanding company. Going from a $10 million to a $99 million company requires CFOs to think resolutely while also maintaining the strategies and values that helped them rise to the mid-market in the first place.