Updated: Jun 2, 2022
So you've started a venture and had some initial success with your innovative product and customer revenue. Now you are supposedly a scale up right? Wrong! So what is a scale up anyway?
Like all of you founders reading this, I learnt many new things during my entrepreneurial journey and was proud of the business we had built, but equally happy that we exited when we did. However the experience left me very aware that we could have got a better outcome for everyone involved. I realised that while starting a business is highly risky and difficult, scaling a business is infinitely harder. I became relentless about learning everything I could about scale ups and what I might have done different.
Scale ups are different to Start Ups
Scale ups are not start ups. In fact, they are a rare subset of firms that have solved early venture challenges of initial product-market fit and learning how to sell and implement repeatedly. They employ more people, attract more funding and achieve higher levels of growth comparatively. Double sometimes triple-digit growth rates over consecutive years, to rapidly become a huge business.
Scale ups are valuable
They are vital for not only innovation and value creation, but also productivity, employment and growth of economies. They typically drive new job creation and improve productivity. Collectively, their impact on an economy can exceed that of earlier-stage startups or more mature business counterparts. As such, they are not only highly valuable to everyone directly involved, but also to the broader economy.
Scale ups are more the exception than the rule.
However, the transition from start up to scal eup is far from inevitable. As founders, we are often conditioned to believe scale up is simply a phase that happens after startup. That once we solve the problem of product-market fit at some level and validate our business model through a few reference customers, put our foot on the pedal, invest some capital to hire more staff, invest in sales and marketing and start to accelerate growth. I am over simplifying this, but you get what I mean. Unfortunately.... (spoiler alert) -
By year 10, 75% of startups fail, including the underperforms or those that stagnate and simply survives climbs to 90% .
In Europe and Germany only 9-11% of ALL businesses annually are considered "high growth" at + 20% or more in staff or sales per annum over multiple years. For example, in Germany, we analysed a ten-year panel database of German firms founded since 2005. Among over 23,000 new firms, we identified over 3,700 that were revenue generating for 5 years. Among these 9.5% were growing at or above 20% per annum over at least 3 periods.
The dilemma of why so many successful start-ups, fail to get enough traction and transition to scale-up became the focus of my two year study with PhD candidates at the University of Mannheim, Germany.
Together with my co-researchers, Baris Istipililer, Nora Zybura and Thomas Hipp from the University of Mannheim, we embarked on a two year research journey to understand how scale-ups are different from other start-ups and high-growth firms of similar age, background, industry and profile. Having experienced it myself, I had a hunch that it had something to do with the conventional wisdom “what got us here, wouldn’t necessarily get us there.” But I learnt a lot more than this. II learnt that the job of scaling was very different from starting or evening growing. And that scaling begins early, much earlier then anyone cares to admit. If only someone had tapped me on the should at the time and told me the right things to focus on, at the right time, then maybe we may have been more likely to accelerate our scale up process, make decisions faster and get a better outcome.