How to navigate the path from start-up to scale-up
Posted: Tue 5th Mar 2019
Businesses experience significant growing pains when evolving from start-up to scale-up. Entrepreneurs can feel every bit as awkward as the gangly teenagers who don't know how to handle themselves.
The difficulty of scaling a business is shown in the relatively small number of companies that make it. Small businesses with 0 to 250 employees account for 44% of salaried staff. However, the average number of staff per business is low at just five employees.
Most companies are micro-businesses with less than 10 employees. This is partly by design. Owners don't want to grow beyond a certain point. But many of those who try to scale up fail to reach critical mass or go bust trying.
We've looked at the key subjects business owners need to consider when starting this journey including the mindset that you need, value creation, marketing and finding the right staff.
Understand your niche and USP
Growing from start-up to scale-up requires a clear understanding of the value the business creates. Start-ups have a set of hypotheses, which include things like customer problems, price points or a belief about how services can be delivered.
Scaling requires a solid understanding of the answers to these questions. Some businesses find product-market fit immediately. But it often takes years of listening to customers and improving your offering before you take off.
How do you know when you have product-market fit? It's a tough question to answers but positive indicators include:
the quality of customer reviews and the number of advocates
demand outstripping capacity
new customers quickly understanding what you do
Think about creating a 'why' statement for your business. Simon Sinek's seminal lecture on the subject's a good place to start. Write down company values, which codify your start-up's beliefs. Define the unique selling points (USPs) of your products.
These frameworks make it easier to communicate and prioritise. They provide a benchmark for success and guidance for tough decisions. They help make sure you understand the value the business creates. Keep revisiting them as you understand more about your market and the way the business works.
Be relentless about productivity
The amount of time required for financial planning, staff management and strategy increases as a company grows. This leaves founders with less and less time for day-to-day client delivery work.
Don't be a bottleneck. If you don't put systems in place and step back from day-to-day tasks you risk choking the company's potential growth. It's tough to let go of roles you've been responsible for from the beginning. But the reality of running a scale-up is that you can't do everything.
The systems you put in place should allow the business to operate when you're not there. As small business expert Michael Gerber says, half-jokingly: "If your business depends on you, you don't own a business - you have a job. And it's the worst job in the world because you're working for a lunatic!" His book The E-Myth Revisited delves into the importance of automation.
It's important to prioritise what you spend time on and be productive. Life coach and business strategist Simon Alexander Ong challenges entrepreneurs to ask themselves: "What is the most important thing on the to-do list? What will impact all the other areas?"
Outsourcing offers a practical way to free up founders' time. Cocorose London founder Janan Leo started the foldable footwear business as a part-time project. She recommends outsourcing as much as possible to free up time to work on your business.
Here are a number of other ways you can improve your productivity:
Use the tools that work for you
Plan your strategy for the week and revisit your to-do list every morning
Automate and delegate where you can
Block out time for moments of single focus
Hire the right talent
Start-up management structures remain relatively flat. Layers of management are added as the team grows. As a rule of thumb, managers shouldn't have responsibility for more than eight direct reports.
Companies with more than 40 staff normally need a human resources manager. Discipline expertise becomes essential, too. Someone needs to take responsibility for marketing that has domain expertise. Management accounting, payroll and expenses become too complicated for the business owner.
The need to introduce new management may feel like you're diluting the company's culture but it's essential to growth. More than that, hiring can propel the business forward.
David Abrahamovitch, founder and CEO of London café, bar and restaurant company GRIND, extols the benefits of building a team.
"Employees are the people that are communicating the brand every day," Abrahamovitch says. "My advice is to invest as early as possible and as much as possible in people. When you get the right people doing the right things your whole business takes on momentum. It grows and develops in ways I could never have done personally."
Abrahamovitch's advice on hiring and retaining staff is to create a great environment for people to work in. Employees will tell their friends and customers may become staff. GRIND focuses on developing people internally, too.
Know your sales funnel inside out
Scale-ups need to have a clear sense of the impact investment in sales and marketing has on the bottom line.
"One of the easiest ways to tell when a digital start-up becomes a scale-up is a growing understanding and repeatability of its business model," said Enterprise Nation board member Richard Fifield.
Fifield added that this means knowing the type and cost of sales generation activities at the top, middle and bottom of the funnel versus the results created. This means knowing your cost per acquisition and lifetime value of your customers.
The way sales funnels work varies by business. There a few key questions to ask yourself:
How long does it take to hire and onboard a new salesperson? How quickly can they reach an average level of contribution?
What's the ROI of your two-three key marketing channels? To what degree can they sustain spending before your target customer base is saturated?
What benefits do you get from brand building exercises where the ROI's difficult to measure?
Set objectives for any investments in marketing and sales, and discuss how they measure up. Ask team members to take the same approach to help build understanding across the company. Make sure staff feel comfortable talking about what isn't working as openly as the successes.
Create a long-term vision
Planning is crucial throughout the scale-up process. Growing revenue without reflection or design leads to short-term thinking. You need to understand why the business exists, what you're doing and where you want to get to.
Emma Bridgewater built a £20 million business out of sheer determination. She argues for the need to keep thinking about the kind of business you're building - and the level of growth that's healthy.
"It's about finding your sweet spot. To feel that you're only in it because you're growing is totally cuckoo. If you don't have a plan and keep revisiting it there's a great danger that you will just work. That you'll wake up one day and go 'who, why?," she said.
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