Scale-ups require a different type of support to start-ups, a type of knowledge and guidance that is often very difficult to source. This is because taking a business from 20 to 80 people requires a different, niche set of skills and knowledge to that required of a business looking to grow from 60 to 100 for example. This support can be difficult to source at a reasonable cost to start-ups, both in terms of money and time and most often, the support offered to scale-ups is too generic or resource intensive.
Scale-up has become a major area of focus in the entrepreneurial journey, particularly since the Scale-Up Institute published their 2014 Scale-Up Report which highlighted the profound impact these companies have on the economy. For those who aren’t familiar with the term scale-up, this is a company with more than 10 employees, a 20% average employee growth and annual turnover of 20% over a 3 year period.
Out of the start-ups we have worked with over the years, 50% e.g. have gone on to xyz. As we have continued to work with start-ups and scale-ups over the years, we have developed a rich understanding of how the challenges they face differ as they grow. Here’s what we’ve learned:
According to businesses screened by SETSquared in their 2017 ‘What do scale-up businesses need?’ report, scale-ups found it easy to find initial adopter clients when they were starting up, but the challenge started when they tried to appeal to the mass market in the scale-up phase. Businesses explained that they felt they needed to appear larger than they were and behave like a –‘grown up company’ with processes and larger clients. Transitioning to this from the previously informal style they adopted with smaller clients was one of their first challenges as they sought to scale-up.
The main operational difference between startups and scale-ups is that, whilst startups are often still experimenting with customer acquisition, product features and customer segmentation, scale-ups on the other hand have the experience and knowledge of the return they will receive from putting X amount into the business. This means tech scale-ups are often far more confident in diverting funds into areas of their business on a larger scale. Startups are generally still looking to discover ‘what works’ – a process that can take around a year for most tech startups.
Of course, to scale-up, your team needs to grow. Ultimately this means the culture of the ‘founding few’ can be difficult to maintain and so your business has to prepare to adopt a different type of management style. Crossing this ‘chasm’ requires companies to become more structured, formalise processes, put hierarchies in place and become consistent in its delivery.
It can be hard to introduce specialists in a small company where the founding few are used to being flexible across all of the company functions. Firms explained they needed an expanded skillet and existing staff needed to be allocated to specific roles. According to SET Squared, a big learning curve for companies was delegating, hiring and reallocating responsibilities within their company.
During the scale-up phase the team needs to grow in order to address supply and demand. In the meantime, the company may struggle to have sufficient cash flow to cover the new salaries. Tech scale-ups screened by SET Squared reported this as a vicious cycle because, without more employees to support growth, businesses risk failure. Whilst without cash to hire, companies aren’t able to expand. One of the challenges they identified was managing growth and cash flow. As a scale-up, there was an emphasis on the need to estimate growth and hire based on these predictions. If cashflow to hire in line with market salaries was a problem here, they found offering shares a good way to attract candidates.
Although it still stands that most often a UK based company is likely to have more British employees, today’s world sees a growing percentage of companies having globally distributed teams. Many scaleups report that it can be cheaper to hire international staff for certin bysiness areas but that it is hard enough to find the right skills, experience and values-fit in the UK let alone on an international scale. Screening candidates requires businesses to clearly define the requirements and qualifications they’re looking for. Even when candidates are on board, it can be difficult to manage candidates from afar – a challenge rarely faced by startups. Modern video conferencing technology has made this easier in recent years, but nonetheless, the process of getting global candidates to this stage is harder than ever in the current skills climate.
Something we experienced ourselves as ISL grew from its founding few onto larger, more structured teams, is that with growth, comes the risk of losing touch with the values you started with. As we set out to hone in on specialist sectors with formalised processes and specialist roles, it became essential that our hiring processes were equally focused on culture and values as they were skills and experience. Without this, our growth could have diluted our values if the people we took on did not mirror our autonomous and mature environment and commitment to investing in long term client relationships, rather than transaction-focused recruitment they may have witnessed in other firms.
We called this ‘The Rule of 40’ as our own personal experience taught us that reaching a headcount of 40 is a critical period in which we believe your cultural values must be clear as day in order to withstand the pressures of scaling up.