The scale-up phase is about building your race car while driving it.
A scale-up is an entrepreneurial venture that has achieved first revenues and now faces either the “second valley of death” or exponential growth.
To grow from a start-up team of about 15 employees towards a scale-up company of more than 100, a company needs to transform itself, from:
- Founders to CEO/MT
- Team to company
- First to recurring revenues
- Projects to processes
- First product to innovation pipeline
- Local to international
The Scale-Up Success Factors
Scale-ups are more likely (74%) to have a clear future vision compared to stall-ups (41%). A clear vision is essential for guidance, especially during the scale-up phase and when pivoting. A compelling vision should be rich, future-oriented, new-to-world, and technology-based, while also addressing urgent needs, being impact-oriented, and inclusive. It should also be tangible, realistic, and practical, making business sense and appealing to intellect, emotions, and instinct. In short, it triggers the intellect, touches the heart and feels right in the gut.
Just as you can predict a baby's growth by her parents and environment, you can determine if a venture will scale up. In the same manner, scale-ups can be distinguished from ventures that are destined to stay small forever. Through our research we have been able to determine these traits that determine a venture’s scalability: market attractiveness, competitive edge, scalable business model, and customer delight.
56% of scale-ups, as opposed to 37% of stall-ups, offer a ``must-have`` product, defined as something customers buy as quickly as it's available, fulfilling an urgent need and surpassing existing solutions. Just like a chef pleasing customers with their desired meal without explicit requests, delight extends to both the product and the overall user experience, making customers proud to be associated with your company.
Scaling is akin to sailing, not rowing, leveraging changing market conditions and understanding that the rudder works with momentum. A compelling strategy should be goal-oriented, value-creating, smart, creative, option-rich, realistic, and clear, contrary to mechanistic execution plans. In an uncertain future, scale-ups require learning experiments, resilience, and strategic partnerships due to external influences.
Scale-ups, in contrast to stall-ups, are typically founded by teams. Scale-up leadership teams boast more extensive entrepreneurial experience, with 46% having founded at least three ventures with over 5 employees, surpassing the 25% of stall-up leadership with such experience. Entrepreneurial experience takes precedence over industry knowledge or functional expertise. The most critical aspect is the ambidextrous nature of scale-up leaders, who can simultaneously innovate and manage business growth, impacting both business and people leadership.
Scale-ups face a crisis during growth, leading to a lack of structure, overloaded leadership, and stressed teams. The formal structure typically includes separate functions led by the management team, but the informal culture is equally crucial. Common culture elements in scale-ups are:Creating a learning culture that fosters continuous innovation and entrepreneurial freedom.
Creating an attractive workplace with trust-based relationships, diversity, inclusiveness, and transparency.
Establishing a business beat with clear roles, responsibilities, well-defined processes, focus, rhythm, and guiding metrics for shaping the future direction.This combination resembles playing in a top-level jazz combo.
In the scale-up phase, most ventures have boards of directors. Effective boards share a clear purpose, are well-suited for their roles, and have the right structure. Notably, 80% of scale-ups (compared to 54% of stall-ups) have board members who serve as coaches rather than interveners. These coaches possess the skills to effectively guide the CEO in addressing urgent business challenges.
Market pull refers to a solution that is so appealing to customers that they ask for it. This results from a deep understanding of the customer needs, and the ability to turn this understanding into the perfect solution for the customer. The opposite of market pull is product push: when the company needs to sell the solution to the customer. Scale-ups create market pull- they do not resort to product push.
It all starts with educating the market on the problem, not on their product. For this, they engage in storytelling (public speaking), sharing their technological knowledge, building alliances with multiple stakeholders, and influencing favorable policy changes. We call this trailblazing.
Scale-ups aim to sell as quickly as they can deliver, requiring efficient and reliable operations. To achieve this, they need operational control, modular IT, high automation, and cost reduction. This transformation typically occurs when the organization reaches around 30-50 employees. Lean operations involve removing waste, such as unnecessary product features and defects, akin to sculpting a masterpiece by continuously eliminating waste.
In the scale-up phase, improving the product quickly to enhance usability and stay competitive is crucial. Having a metric aligned with customer delight, like electric vehicle range for electric cars, is essential. This metric allows for product performance tracking and continuous experimentation with customer feedback to make the product a ``must-have.`` This iterative process is called the ``learning loop,`` and a higher velocity (more cycles per quarter) accelerates learning and progress, akin to a Formula 1 racer using lap data to improve performance.
But how do companies scale?
There is no simple formula.
In researching over 500.000 ventures and working closely with 130+ teams on the ground, we discovered that scaling is an art. It can be distilled into about 20 factors that differentiate between those that scale and those that stall.
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Having a common language about scale-up success factors will contribute to the scale-up ecosystem. It provides a shared way to talk about investments and priority setting. Therefore we promote every practitioner to use these materials and others on our website for their own benefit. Lawyers call this “creative commons.”