Startup to Scaleup - there is no quick and easy formula to success, 99.6%of new ventures either stall or fail. For ambitious entrepreneurs to grow from a startup to scaleup to a unicorn - founders need ingenuity, good timing, and growth hustle for a scalable business model.
Early-stage companies have an obsessive drive for growth and scale. Whether it's scaling a startup of about 8 employees to a scale-up company of more than 100, or getting from a scale-up to the grand prize of unicorn status.
In many cases, chasing hypergrowth or premature scaling without an operational excellence mindset can lead to an implosion. But don't worry; in this article, I apply our experience of scaling companies and product-market fit to empower you to maintain your enthusiasm and belief in your business model. Inspiring you to take focused action to scale and succeed.
Scale-ups, are high-growth market innovating ventures that disrupt and revolutionise entire industries with new business models.
According to the OECD, a scaleup is defined as a company that has an average annualised growth of at least 20% over three years with 10 or more employees at the start of the period.
Whilst another widely adopted definition of a Scaleup is a business that grows to more than $10 million by their 5th year of revenue.
Scaleups make up a large chunk of employment and revenue of all startups once they reach maturity. According to a report by Deloitte, the chances of a startup to become a scale-up is around 0.5%, which means that only 1 out of 200 surviving startups make it to the coveted title of a scale-up.
“Unicorns” make up a tiny subset of scale-ups; currently only 600 startups are valued at over $1 billion in the world.
A startup is searching for its product-market fit, experimenting with customer segmentation driving towards healthy margins. Scale-up: A scaleup is beyond this stage and has already validated its product, the market and has proven sustainable unit economics.
Scaleups topple incumbents that have been around for a long period with a fresh new outlook and accumulating an unprecedented amount of wealth for the founders.
Aside from different stages of funding and revenue growth, other distinctive characteristics differentiate a startup from a scaleup:
Experienced Leadership We all have a stereotypical image of a 20-year-old college dropout that goes on to become a billionaire, but the reality is the stark opposite of that.
7startup research found that scaleup founders largely had prior corporate experience under their belt. Many already had industrial, entrepreneurial experience, and academic degrees. Interestingly, a startup founding team is more likely to reach scaleup status, as opposed to just an individual founder.
Scaleup founders typically have a research background and corporate experience that qualifies them as leaders of a particular discipline. The bulk of their qualities and abilities can't be learned from reading books or listening to leadership lectures, these are developed through years of experience.
There are a few ingredients that every startup founder needs to be successful:
Leading a scale-up requires added leadership foundations, a functional edge: a capability that’s difficult to copy has a broad market application – distinguishing the scaleup from the incumbents:
A 2014 Deloitte report on scaleups in the UK showed that 61% of leaders said they'd grow faster if hiring specialists from established businesses was an option. 85% of all active unicorns had at least one founder with extensive market expertise at the beginning of their journey, contributing to a comprehensive understanding of the target audience and the market.
I think implementing the right tools and metrics at the scaleup phase can transform existing teams and dramatically increase confidence in the leadership:
Startups follow a specific mantra: launch as quickly as possible to maximise the limited resources, gain traction, and hopefully profitability before running out of runway.
Early-stage businesses work on the assumption that as long as the customer base likes the product and customer retention rates are good, it will generate revenue, company growth, gain growth investment and success is not far.
In 2021, many incubators and accelerators promote and propagate the fastest-time-to-market model, working on the premise that:
- Once the product is in the market the startup can quickly pivot - Insights enable constant improvement along the way - Leading to investors being convinced of the future potential While this approach has proven results in achieving a minimum market position, it says little about the company's scale-up potential.
Scaleups have an “open” business model which takes advantage of customer networks to scale. This allows the product or service to garner traction quickly. Uber is a prime example of an open business concept that is sustained by taxi drivers volunteering to join and a comprehensive feedback system to motivate drivers and customers.
Scaleups need to demonstrate that the product has reached product-market fit (PMF), and is scalable, ready to be distributed profitably. If this milestone isn't achieved then the business isn't ready to scale and move to a stage of high growth.
Aggressively raising capital to grow your startup without first achieving PMF usually ends up in failure. As an investor, imagine investing £50 million+ in a startup that shows promise of profitability but ultimately fails to reach the unit economics required.
Your scaleup success and exponential growth depend on great product features, smart marketing channels, and marketing automation but even more on riding the wave, unlike a salmon that swims against the stream. But how do you get the market timing right? Even experienced entrepreneurs can struggle with getting their market timing right.
Data shows that six in ten (57%) scaleup leaders experience moments of uncertainty when they were afraid that their business would collapse. In reality, I think this number is far greater, facing doubts is par for the course for entrepreneurs. For scaleup leaders growth can also be scary – especially if investment in systems, operations, the right team, and infrastructure is crying out for attention.
Timing a startup determines much of the outcome. Getting from a startup to a scaleup and beyond also depends on the product, highly successful scaleups create either a shift in user behaviour, a shift in technology, or both.
If you’re a scaleup founder or a budding startup entrepreneur consider the size and phase of the market you’re entering:
We understand the unique challenges that entrepreneurs face because we’ve lived them personally. At 7startup we build a strong foundation for your business that can supercharge your company’s growth, from a startup to scaleup, faster than ever. Our (Objective and Key Results)OKRs planning service creates the right infrastructure for your scaleup. OKRs are a Unicorns-adopted management methodology and incorporate best practices improving alignment, productivity, engagement, and performance.
Learn more about our OKR Planning service: OKRs - Grow like Google.
Amit Khanna is the founder of www.7startup.vc and has 19 years of experience with Startups and the Enterprise, holds an MBA, focusing on Growth and Investments. Amit supports entrepreneurs with every aspect of their business including concept and product development, investor presentations, fundraising, and scaling up.
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