There’s no quick formula for success, and 99.6% of new ventures stall or fail. For ambitious entrepreneurs aiming to grow from startup to scaleup and ultimately reach unicorn status, founders need ingenuity, timing, and growth hustle for a scalable business model.
Early-stage companies are driven by the desire to grow. Whether scaling from a small startup to a scaleup of over 100 employees or reaching unicorn status, the journey is challenging.
However, premature scaling without operational excellence can lead to failure. In this article, we share our experience and insights on how to successfully transition from startup to scaleup while maintaining enthusiasm and belief in your business model.
What is a Scaleup?
Scaleups are high-growth ventures disrupting industries with innovative business models. According to the OECD, a scaleup is defined as a company with an average annual growth rate of at least 20% over three years, starting with 10 or more employees. Another definition is a business that reaches over $10 million in revenue by its fifth year.
Scaleups are a critical part of the economy, representing a large portion of employment and revenue. However, the chances of a startup becoming a scaleup are slim, with only 0.5% achieving this status. Unicorn startups, valued at over $1 billion, represent a tiny subset of scaleups.
Startup vs Scaleup vs Unicorn Startup
A startup is in the process of finding Product Market Fit (PMF), experimenting with customer segments, and working towards sustainable margins. A scaleup has already validated its product, market, and unit economics, and is focused on scaling operations.
The key differences between startups, scaleups, and unicorns include leadership maturity, design for scalability, and market timing.
Aside from different stages of funding and revenue growth, other distinctive characteristics differentiate a startup from a scaleup from a unicorn startup:
- Leadership maturity
- Design for scalability
- Market timing
Experienced Leadership
Contrary to the popular image of young entrepreneurs, scaleup founders often have extensive corporate and entrepreneurial experience. These leaders possess qualities developed over the years, including the ability to inspire, empower teams, and manage risk. Successful scaleup leaders prioritize enterprise value, have low employee turnover, and develop scalable products.
Implementing the right tools and metrics during the scaleup phase, such as Employee Net Promoter Scores and a focus on enterprise value, can significantly increase team confidence and leadership effectiveness.
There are a few ingredients that every unicorn startup founder needs to be successful:
- Motivation
- The right mindset
- Independence
- Street smarts
- Agility
- Persistence and drive
Leading a scaleup requires added leadership foundations, and a functional edge: a capability that’s difficult to copy and has a broad market application – distinguishing the scaleup from the incumbents:
- The ability to inspire
- Empowering large groups
- Risk appetite
- Low employee turnover
- Core strengths to develop scalable products
A 2022 report by Innovate UK showed that 68% of scaleup leaders believe they could accelerate growth by hiring specialists from established businesses. Additionally, recent data reveals that over 80% of unicorn startups have at least one founder with significant market expertise, underscoring the importance of understanding the target audience and market dynamics from the outset. These insights highlight the critical role that experienced leadership and industry knowledge play in successfully transitioning from startup to scaleup.
I think implementing the right tools and metrics at the scaleup phase can transform existing teams and dramatically increase confidence in the leadership:
- Employee Net Promoter Scores as Manager Thermometer – asking whether employees would recommend their place of work to a friend is a gauge of their satisfaction at the scaleup and its leadership. These data-led insights can then be used to evaluate the confidence in any division.
- Enterprise Value > Team Value > Self Value – In a scaleup with hypergrowth, I think the leadership team needs to solve challenges for enterprise value first, then for their team, and then finally for themselves. If this equation is reversed then employees will lose confidence in their manager, leading to a lower employee net promoter score.
- Success is Interconnected – In a scaleup interdependency within business functions and processes (or lack thereof) is great, so, if one piece breaks there’s a ripple across the entire business. Scaleup leaders should stress test and systems and operation functions.
Transition from Startup to Unicorn
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 scaleup 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.
Scaleups need to demonstrate that the product has reached PMF, is scalable, and is therefore ready for profitable distribution. 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. This is, of course, not ideal.
The Market Timing
The success of a scaleup depends on market timing, product features, and marketing channels. Even experienced entrepreneurs can struggle with timing. Scaleup leaders must carefully consider market size, growth potential, and the impact of technology or behaviour shifts.
At 7startup, we understand the unique challenges of growing from startup to scaleup. Our Objective and Key Results (OKRs) planning service provides the infrastructure to supercharge your company’s growth, ensuring alignment, productivity, and performance.
Transitioning from Startup to Scaleup: Case Studies
The following examples highlight the successful transition from startup to scaleup, showcasing different approaches to growth and scaling challenges.
-
Slack
- Background: Slack began as a small team communication tool and rapidly scaled to become a major player in the enterprise software space.
- Challenge: Scaling the platform to handle millions of users while maintaining simplicity and usability.
- Solution: Focused on product-market fit, user feedback, and integration with other tools.
- Outcome: Achieved a $27.7 billion acquisition by Salesforce.
- Website: Slack
-
Airbnb
- Background: Airbnb started as a simple platform for renting out air mattresses and grew into a global online marketplace for lodging.
- Challenge: Managing rapid growth, regulatory challenges, and maintaining trust among users.
- Solution: Emphasized community building, user trust, and expansion into new markets.
- Outcome: Became a publicly traded company with a valuation of over $100 billion.
- Website: Airbnb
- Zoom:
- Background: Zoom launched as a video conferencing tool and quickly scaled to meet the demands of remote work during the pandemic.
- Challenge: Scaling infrastructure to support exponential growth and ensuring security.
- Solution: Focused on customer experience, scalability, and rapid response to security issues.
- Outcome: Valuation soared to over $100 billion, becoming synonymous with video conferencing.
- Website: Zoom
Transitioning from Startup to Scaleup: Case Studies
As the startup ecosystem continues to evolve, 2024 brings new challenges and opportunities for companies looking to scale. Understanding these trends is crucial for any business transitioning from startup to scaleup:
1. AI-Driven Scalability
Artificial Intelligence (AI) is no longer a buzzword; it’s a key driver of scalable solutions. Startups are leveraging AI to automate processes, personalize customer experiences, and make data-driven decisions. For scaleups, integrating AI can enhance operational efficiency and provide a competitive edge.
2. Sustainable Growth
With increasing focus on environmental, social, and governance (ESG) criteria, scaleups in 2024 are expected to prioritize sustainable growth. Investors and customers are favouring companies that align with sustainable practices, making it essential for scaleups to incorporate eco-friendly strategies and transparent governance models.
3. Remote-First Scaling
The remote work trend, accelerated by the pandemic, is here to stay. In 2024, scaleups are adopting remote-first models to access global talent, reduce overhead costs, and stay agile. Companies that effectively manage remote teams and foster a strong digital culture will have a significant advantage in scaling operations.
4. Customer-Centric Innovation
Customer expectations are evolving rapidly, and scaleups must keep pace by prioritizing customer-centric innovation. This involves using customer feedback to drive product development, enhancing user experience, and adopting agile methodologies to quickly adapt to market changes.
5. Resilient Supply Chains
In response to global disruptions, scaleups in 2024 are investing in resilient supply chains. This includes diversifying suppliers, adopting digital supply chain technologies, and implementing contingency plans to ensure business continuity.
6. Strategic Partnerships and Ecosystem Building
Collaboration is key to scaling in 2024. Scaleups are forming strategic partnerships and building ecosystems that allow them to expand market reach, share resources, and co-develop innovative solutions. These partnerships can accelerate growth and provide scaleups with the support needed to navigate complex market dynamics.
7. Data Privacy and Compliance
With increasing data regulations worldwide, scaleups must prioritize data privacy and compliance. Implementing robust data protection measures and staying updated on regulatory changes is essential to maintaining customer trust and avoiding costly penalties.
8. Global Market Expansion
In 2024, scaleups are increasingly looking beyond their home markets to drive growth. Global expansion strategies, including market research, localization, and understanding regulatory environments, are crucial for scaleups aiming to enter new regions and tap into emerging markets.
9. Capital Efficiency
While venture capital remains a key driver of growth, 2024 sees a shift towards capital efficiency. Scaleups focus on sustainable growth strategies that optimize the use of funds, reduce burn rates, and achieve profitability without sacrificing scalability.
10. Focus on Mental Health and Wellbeing
As companies scale rapidly, maintaining the well-being of employees is more important than ever. Scaleups in 2024 are implementing mental health initiatives, fostering supportive work environments, and prioritizing work-life balance to ensure sustainable growth and retain top talent.
Conclusion
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. This is especially true if investment in systems, operations, the right team, and infrastructure all need attention.
Timing a startup determines much of the outcome. Growing from a startup to a scaleup 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:
- Don’t waste your time with small markets that are not growing.
- Large markets with incumbents that have advantages in distribution, funding, and product are extremely difficult.
- Entering a small market with a lot of growth potential in the long term could work well. However, being too early is the same as entering the wrong market.
- You should try to find a small market that’s growing quickly. Additionally, a technology or behaviour shift should support your market growth.
Amit is an investor and advisor with two decades of experience and an MBA. He supports entrepreneurs with fundraising & go-to-market expansion in Saudi Arabia. His strategy is built on two pillars: deep investment acumen and a vast operational network. Reach out to us today and see if we’re a fit!