Alesondra Mora, assistant vice president of marketing at Streamline Funding, recently sat down with two of the private lending industry’s thought leaders: Romney Navarro and Chris Ragland. In this casual Q&A, they offer their (sometimes differing) perspectives about how to scale a private lending business, including how to prepare to scale and the best markets for doing so.

Mora: What’s the difference between scaling and growth?

Ragland: I think growth is a bit unpredictable, whereas scaling is more methodical. It’s more quantifiable. It’s predicted, whereas growth is kind of organic. Sometimes organic growth can be good; sometimes it can be dangerous. Growth is what should happen if you’re doing your job. Scaling a business is more deliberate and intentional.

Navarro: You took the words right out of my mouth. Scale is deliberate. You don’t scale without a plan and without action. Growth happens if you’re running your business correctly. Every business needs to grow, but not every business needs to scale. When it’s time to scale, it’s not the same set of rules. Scale has a plan.

Ragland: That leads me to something else we’ve talked about before, which is “grow or die.” Growth could be in a number of ways—in volume, being more efficient, or maybe growing as a person. So grow; otherwise, somebody that has a better way of doing things will take your place.

Mora: How do you decide whether to scale?

Navarro: Scale has a bit more of the end in sight: There is a defined goal, a defined target. Why does somebody decide to scale? They want to achieve something. There is also a personal component. Some people are built to grow, and some people are built to work. For those who are built to scale and want to achieve something, that’s the point where they’re saying, “OK, next stop, exit. Next stop, some level of wealth, importance, significance. It’s the next big hurdle in that person or that organization.

Ragland: Not everyone’s really built to scale. I know people who excel in small teams and work groups but fail in large enterprise organizations. Sometimes person is the owner—and that’s not a good day. But sometimes it can be a salesperson or an operations person—not everybody is meant to be in an organization that’s truly scaling.

Mora: What should you have in place before moving forward with scaling your business?

Ragland: If you want an academic answer, it’s: Here’s the well-articulated plan, resource allocation, budgets, Porter’s Five Forces—all the academics. Another way to answer the question is your resources, which for me is human capital and actual dollars, most of the time. I’m either going to spend money to scale, or I’m going to recruit the right people to scale. If I have the right team that can execute, I can attract the capital to scale my business. So, the short answer for me is ensuring that I have the right people with enough diversity of skill sets to survive. If you’re going on a mission, you don’t want four people to know how to do the same thing. You need people to have a broad variety of skill sets so you can get to the other side.

Navarro: I’m going to take this in a little different direction. I continue to hit this hurdle of scale versus startup scale—totally different conversations. You need some baseline stuff to scale. You can go into product and all the things a business needs, but if you do not have profits, it’s not time to scale. There’s a place for a startup to start with no cash and get to revenue. However, I still think it’s No. 1 profits and then No. 2 some form of an operating system. Finally, No. 3 is. technology. Scale means different things to different people. It could mean $1 million to $10 million or even to $100 million, depending largely on where you’re at in technology. So, profits, an operating system, and technology.

Ragland: I will disagree that you need profits to scale. In the startup and venture capital worlds, the scale moment is when you prove your product for the first time. You might be losing money on a run basis, but “We actually sold our first product ever this month!” With that sale, you’ve validated the marketplace with your product. I believe that’s actually when you want to scale. You know it works. You have a viable product. You know people want it, you know the marketplace—now go sell 100,000 of them.

Navarro: Again, startup versus scale, I think the people who live in our community of private lenders are generally operators already. We’re not talking about a blank book, “How do you start a business?” I’ll agree to say scale probably is going to be triggered by some type of product. Sure, you could sell the same thing you’re selling right now a bunch of times, but it’s the next frontier when you sell the next thing 100,000 times. Take the product to market; if it works, then multiply.

Mora: Which market is more favorable for scaling a business—one that’s up or down?

Navarro: There’s opportunity in both, depending on what you’re working with. In a down market, if you’ve got something people need, you might actually have an opportunity to scale and just kind of fly by people. In an up market, again, if you have all those key things—revenue/profits, tech, and a real operating system—I think what you’re working with at that point is going to be a real double, triple heavy push on sales and marketing. I always go back to sales and marketing because that’s the fuel that feeds the machine.

Ragland: I think it really depends on your resources at hand in those two marketplaces. Either market could be better than the other depending on your resources.

Mora: Regardless of the market cycle, you need to be able to articulate your value to the market. How does a business find its niche?

Ragland: What makes you unique, your niche, if you will—a lot of it boils down to trial and error. You should be AB testing, kind of like a marketing campaign. If you’re going to scale and you’ve decided it’s going to be through product differentiation, then you really need to AB test. You have to find out what appeals to the market and what can you build that’s unique, because part of scaling is also essentially winning. What I mean by “winning” is if you’re selling the same thing everybody else is, then you’re only able to compete on price; you’re a commodity. So, you have to figure out how can you differentiate yourself in the marketplace. That’s an organic process over time. What made you unique today and why people want to contract with you will be different from what it is in a couple of years.

Navarro: It’s almost impossible to keep pressing the same button or running the same play for years. You need some sort of innovation. Set a calendar timer every six months or so to do some sort of innovation. To establish your niche, you have to figure out product. This is what separates the mom-and-pop shops from the others. There’s features and there’s benefits. Innovating is just turning those features into benefits that are unique to you and that are meaningful to the consumer.

Mora: What do you need to keep in mind when trying to find your niche market?

Ragland: When you’re searching for your differentiator, there’s two things going on. Your competition is learning from you and effectively emulating you to beat you. Simultaneously, the market and the needs of the market are changing. So your strategy is outdated the moment you deploy it. Defining your niche is less important than constantly modifying it.

It’s kind of like skeet shooting. When you shoot clay pigeons, you don’t aim at the pigeon, you aim in front of it to hit the pigeon. However, you see a lot of people who’ve had a lot of practice using clay pigeons get out in the real world and go duck hunting. They’re like, “Oh, my gosh, it moved on me.” Welcome to the real world.

Navarro: Sometimes the pigeon actually doesn’t move. That’s going to typically be true of some type of flagship product. Keep in mind that flagship product still needs to grow, and it’s usually through additional product innovation. So, when you talk about a niche, you can simply be known for that flagship. You just do the most basic thing perfectly.

Mora: Innovation is the most common strategy when trying to break away from the pack. What advice do you have about finding your path?

Ragland: Let me tell you something, and this is going to be counterintuitive. Breaking from the pack is not always good. Sometimes when you live in the ivory tower and build your own thing, you innovate and plow way out ahead. But there’s a reason the pack is where it is. So, when you look at everybody in the industry and they’re in a certain zone, it’s OK to be with the pack. You probably want to be on the fringe, where the grass hasn’t been trampled, but you still want to be kind of close to the pack.

Navarro: At no matter at what stage of business—$0 in revenue or a billion— the competition’s always emulating and the market’s always changing. I think emulating is important, in general. But to stand out, there’s nothing wrong with studying the ones that are doing it the best and then just tweaking it ever so slightly. Get on the fringe, or turning a 4 to a 4.1. What they’re doing is working for a reason—there’s no need to turn it on its head.

Mora: To go from 4 to 4.1, how large a role does technology play?

Ragland: It’s massive. It’s a really big part of scaling a company, not necessarily growing your company. If you want to scale and don’t have the right technology in place, get ready to fail. It’s that simple. If you try to scale without the right technology, you will fail. It’s OK to grow organically without it. You’re just going to be less efficient. But I don’t think you can scale because there’s no foundation and support to hold up that infrastructure—that scale.

Navarro: It depends on why you want to scale. For some, it’s to exit. Is there an exit that exists in today’s day and age without tech? Sure. You’re just going to get a lower multiple, a lower valuation. In our world of private lending, we’re just scratching the tech surface. A lot of proprietary stuff is now starting to be created. Who knows where it’s going to go, but somebody’s going to get it right—and a few people already have.

Mora: When talking about resources like tech, how do you leverage existing businesses/partnerships to scale versus start from scratch?

Navarro: Chris calls this build or buy. I’m not saying reinvent the wheel, but always improve the wheel. There’s a cost to build and there’s a cost to buy. You have the triangle of price, speed, and quality. Pick two; you can’t have all three. If you’re sprinting, and we’re in the middle of a sprint of sorts right now, buy is not a bad option.

Ragland: I’ll be your contrarian deliberately. Right now, we’re in a down market. If you are capitalized, if you’re sitting on reserves, right now is a great time to be building. You can save money. You can have something that’s more custom to your needs. When things level out and we start to accelerate again, you will have a competitive advantage.

Mora: Final question: Ready, aim, fire? Or ready, fire, aim?

Navarro: In today’s kind of crazy marketplace, there’s opportunity. We catch ourselves putting a lot of things in writing for future generations. I think it’s time to put our pencils down, take our guns up and “ready, fire, aim.”

Ragland: It depends on what you’re trying to do. If you’re trying to scale your company, you have to aim. You can’t just shoot; you have to be deliberate. That’s the only way you’re going to scale successfully.

Navarro: I heard somebody say the other day that “money likes speed.” I started thinking about that—the things we think about that we don’t do anything with, don’t monetize. Those things don’t translate into anything except good conversation. But the things that we think about and take action quickly on—those do monetize.

Ragland: I do think ready, fire, aim works—if you have another bullet. That’s another important part. If you’ve only got one shot to scale, you don’t get to aim again. It’s over. Your chances are gone. Some people in our industry did scale improperly and are now closed because they had only one bullet. So, it depends on how many lives you have, your ability to adjust, and then scale again. Bottom line, it’s unique for everyone.