Startup culture is full of promise. As a startup entrepreneur, you believe that you are creating the perfect mouse trap: a breakthrough innovation that will delight customers. As almost half of startups fail within the first years of their operations, you regard the early stage of the business’s life cycle to be the riskiest. All your focus is on rapid prototyping towards gaining first customer traction.

But is it true that the startup phase is the most vulnerable one, and that after you progressed from this phase scaling up will come with a high probability? And if this is not the case, what can you do to optimize your chances?


The second valley of death is the deepest

We used Crunchbase’s data to analyze the companies founded 10 years ago 1 in the EU and looked at the number of employees these ventures currently have. What we found is that 39% of ventures launched 10 years ago got to more than 10 employees. Of those, 23% reached more than 50 employees. Of those, 60% gained more than 100 employees.

Basically, growing from 10 to more than 50 employees is the most challenging phase. Only after that are the chances of further scaling quite high.

So, unfortunately, the “second valley of death” (the first valley being failing to bring a product into the market) is the deepest.

From our research on our database of 800 ventures in this phase, we know that this phase corresponds with the transition from founder to CEO, from product orientation to customer orientation, from acting local to going international, and it is this phase that demarcates the birth of strategy. All in all, this phase is a difficult transformation instead of “more of the same”. Geoffrey West in his book “Scale” shows that only at this size do companies start to become productive. And Greiner shows in his famous model that companies of this size shift from informal creative teams to well-structured organizations.

Little difference between countries

Does it matter in which country I am trying to get through the scale-up phase? Many argue that country-specific factors like the entrepreneurial culture, the size of the home market, the availability of sufficient venture capital, and the proximity to large tech firms as potential partners, all matter in increasing the probability of scaling up.

We compared the rates between different geographies and found
them to be remarkably similar (image 2). Yes, Silicon Valley scores the highest (30%), but none of the other cities or geographies score outside 25 ±3 percent. This means that none of these countries/geographies is clearly better at scaling up than any of the other countries. Being in the right ecosystem apparently is not that crucial.

It takes about 6 years to get through the scale-up phase

In the OECD definition, any firm that has an annual FTE growth of at least 20% in the last 3 years and had at least 10 employees at the start of the 3-year period is a scale-up. Is that correct and what does it imply for the number of years it takes to get through the scale-up phase?

To answer this question, we put the vintage years in sequence. The vintage year of 2022 had 1 year to develop, the vintage year of 2021 had 2 years, the vintage year of 2023 had 3 years, etc.

The S-curve plot shows the number of ventures that have grown above 50 employees. On average, scale-ups get above 50 employees by their 6th year since being founded.

Assuming that you take the first 3 years to get above 10 employees, you have to grow the size of your organization by about 70% in each of the next consecutive years to get from 10 to above 50 in the next 3 years. This is a much higher year-on-year growth rate than the OECD definition of 20%! And if you take all 6 years to grow from 10 to above 50 it still requires a year-on-year growth rate of
about 30%.

Better be ready – bring in expertise

So, what does this all mean for you at the cusp of scaling up? You are like a skipper on a small boat about to navigate a rough sea and you have little time to cross it. Delivering on this takes courage –defined as taking bold action rooted in expertise.

As the vast majority of CEOs of ventures enter this phase for the first time, it is expertise, not boldness, that is typically lacking. Lack of expertise on how to rapidly transform from inspired founders to an aligned, effective MT. Lack of understanding of how to turn everyone from being product-focused to customer-oriented. Lack of experience on how to develop the organization and install a performance culture. Lack of expertise on how to make the right strategic choices.

Lacking expertise in itself is not the killer. But not being willing to obtain expertise from outside is. As Bruce Kirchhoff (1937-2011), a distinguished professor of entrepreneurship, said: “It is widely believed that all highly innovative firms are destined for high growth. This is not true. Some firms and entrepreneurs are simply not willing or unable to obtain the resources they need for achieving growth. In fact, the unwilling entrepreneurs exceed the unable, but no entrepreneur will admit to being unwilling. The largest percentage of constrained growth firms are self-constrained.


If you want to know more about scaling up, please contact

Research by ScaleUpNation.


1 We took the averages of the years 2012, 2013 and 2014

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