The term “startup” gets thrown around quite freely today. On the one hand, it’s brilliant, as Australia’s startup ecosystem is at the top of its game and all signs point to it continuing to flourish. But where does the term startup actually sit when it comes to the lifecycle or the growth trajectory of a business?
It’s important not to just label every business a “startup” because it’s a buzzword that people enjoy throwing around.
Instead, let’s start to draw a distinction between a startup, a scaleup and an established business, in order to better understand how each stage of a prosperous business operates and what it requires.
I’d define a startup as a new business that is based on an idea that its founders believe will offer a product or service that is significantly better than what is currently on offer. As a startup you will need money to develop your idea into a real product and that product will need to be validated in the market to see if the idea actually works and that there is a genuine demand.
A scaleup, however, will have proven to itself and its investors that its idea can fill a demand in the market that people are willing to pay for, and that the product is reliable enough to be sold in larger numbers.
It will be growing at well over 20% year-on-year and will have 10 or more staff. As a scaleup, you are still at an early stage and will probably be too short of cash to get your product to a much broader market without further investment.
The majority of businesses spend most of their time in a scaleup phase. If you aren’t scaling your business at some level, you are at best static, or at worse, contracting. No-one wants to be running a scale down.
As you transition from scaleup into a more business-as-usual operations phase, the danger is often that you become too inwardly focused on delivery, fulfillment and operations. Taking your eye off the market and customer needs, both anticipated and unanticipated, is always the beginning of the end for businesses — especially in this era of high business velocity and shortening product lifecycles.
Extremely large, well established businesses, like Apple, have the challenge of maintaining their ability to scale and grow. Once a product has reached maturity or market saturation, it’s very difficult to keep the growth going at a scaleup pace, so established businesses have to constantly feed their product pipeline with new ideas and keep the startup-to-scaleup process happening internally.
These could be ideas that either cannibalise your existing products or ideas that might not be your traditional core business. We are witnessing this with Apple with its move into the autonomous vehicle market — this is a rapidly emerging technology and Apple is very well placed to be a major player.
So as you move from startup phase into scaleup phase, here are four things to think about:
- When your product hits the real world, problems come at you that you never visualised or have previously come across at the R&D level.
Avoid scaling up without the company structure to support your growth.
You need people, space and systems in place prior to a rapid scaleup. There will be more pain and misery if you haven’t planned ahead. As you grow you mustn’t lose sight of the fact that your customers are everything. Ensure you have metrics in place for measuring your customer’s experience.
Make sure you’ve got enough money to fund the scaleup.
Rapid expansion kills off more businesses than anything else. It’s almost impossible to fund rapid growth through cash flow. You’ll need extra investment, so make sure you have secured it. Don’t be afraid to bring in external money and external experience to help you fill the gaps in your business. This will inevitably lead to a watering down of your equity, or influence, but it’s something you’ll have to accept as part of scaling your business.
There are a lot of highly skilled people you can tap into for support.
You just need to know where to look. I have a team of experts around me that I call on when I need advice. They range from university professors to thought leaders in sales and marketing, to other business professionals running scaleups. You never want to stop learning. So just keep asking questions of yourself and of your mentors. If you can learn a little every day, you are on the right track.
You want to make sure you haven’t got too much product out with customers at the early scaleup stage. And you want to make sure that your customers understand what phase of development you are in. Early adopters are generally very tolerant of a few early teething problems. But larger organisations are not.
Having a limited number of products in the market allows you to solve the problems quickly, and to make sure your limited number of customers are kept on side. You have to do whatever it takes to resolve problems you might experience at this stage.
The last thing you need is a bunch of unhappy customers bad-mouthing your product. If you’ve gone to scaleup in a blaze of publicity with a product that isn’t stable, you are setting yourself up for a world of pain and misery. It might finish your company off. Be absolutely sure that you have a stable product before you start to rapidly scale your business.
When you get to the scaleup phase, provided you have some cash behind you, your problems become ones that are more manageable and more predictable than ones experienced in the startup phase. You’ll be so happy that you are over the tortuous startup phase, with all of its risks and problems, that you’ll be looking forward with a lot more confidence and certainty.
Peter Holton is the managing director of Spectur Ltd.