An entrepreneurial venture that has achieved product-market fit and now faces either the “second valley of death” or exponential growth.
A scale-up is not a start-up
99.6% of ventures stall out or die. To grow from a start-up team of about 15 employees towards a scale-up company of more than 100 employees, a company needs to transform itself, from:
- Team to company
- Founder to CEO
- First to recurring revenues
- Projects to processes
- First product to innovation pipeline
There is no simple formula.
The Art of Scaling
In researching over 500.000 ventures and working closely with teams in our programs,
we discovered that scaling is an art.
It can be distilled into several factors that differentiate between those that scale and those that stall.
Scale-up potential is defined early
The starting point is scale-up DNA:
- Compelling vision: Articulated mission to resolve a large, urgent need through an ambitious, future-oriented, and innovative business concept
- Great market: The market provides you with tail wind – market size, growth and industry margins
- Delighted customers: Who are buying the product “just as fast as one can make it” because it is significantly better and fills an urgent need
- Competitive edge: That makes a product distinctive – something owned, mastery of skills, a privileged relationship
- Scalable model: With increasing returns, viral dynamics, improvement through use and economies of scale
PHYSEE is an award-winning scale-up dedicated to making solar-powered windows without compromise for users, the building and the environment. The two founders work with developers across Europe to create new homes that are sustainable and carbon-independent.
- With four product offerings, PHYSEE has patented the PowerWindow: a unique triple-plane that converts sunlight into green electricity.
- They have their own production factory, and have developed a Research and Living Lab in partnership with TU Delft.
- They are working to expand their market into all types of windows – transportation, greenhouses, even reading glasses.
A start-up is a little turtle on a clear path: to reach the sea. Once it does, an ocean of opportunity lies ahead: which countries/market segments to operate in, which new products to develop? Time to take strategic bets.
Horizon 2 and 3
Where and how to compete in the future and what to do to get there.
- Going international: Selecting the right international markets to enter; Selling directly (at least initially); Committing senior capacity to developing new markets
- Keep innovating: Keep launching new to the world innovative products; Keep expanding the product range; Ongoing R&D investment
- Riding waves: Take advantage of unexpected opportunities as these arise; Optimize the timing of business building actions; Be able to act fast and take maximum advantage; Keep updating the strategy
Example: Landlife & Sensoterra
A great example of an impact scale-up making bold strategic moves, that joined the ScaleUpNation programs. The company has moved from providing the cocoon – a biodegradable water container to enable the growth of tree roots – into producing moisture probe systems and undertaking full scale land restoration projects.
- Landlife undertakes large scale land restoration projects turning desert into forest. Sensoterra provides low-cost, wireless moisture probes.
- Both companies are founded and led by Jurriaan Ruijs, an entrepreneur with a corporate executive background.
- The companies have both received series A funding and are scaling well.
When growing from around 10 to 100 employees, a company needs to become productive – net income/employee becomes linear. This means having key operational activities in order. (From Geoffrey West)
Accelerating sales momentum
Operations keep the business moving and functioning at peak level, as well as rapidly learning how to become better and more efficient.
- Beachhead: Speed to customers, dominant share in a niche segment, solution selling and marketing focused on advocacy
- Lean Operations: End-to-end process control, pruning not needed functionality, standardizing processes, modularization and IT architecture
- Learning velocity: Key performance indicators that define success, quantified benchmarks and targets, constant experiences and tracking results, big data – advance analytics and embedded intelligence
- Impact leverage: Monetizing impact for favorable equity, debt and grant opportunities other companies don’t have access to
Forcare is one of ScaleUpNation’s first ever Runway participants. It is a great example of how a software company striving to increase its customers’ productivity and workflow managed to also increase its own productivity with scale, alongside its users.
- Forcare is an IT platform that provides healthcare professionals with real-time access to patient data and optimizes the use of expensive medical equipment.
- Like all Saas companies, Forcare needed to be able to scale easily with rapidly increased usage. By embedding this into the company’s DNA, the company’s own productivity increased with no additional cost.
To transition from start-up to scale-up requires clear decision making processes, organizational focus, a structure with clear responsibilities and performance orientation. A CEO/MT able to combine effective external orientation with efficient internal coordination.
From a family to a tribe
A scale-up needs more organization than a start-up, but at the same time needs to remain highly flexible and adaptable to deal with this phase of rapid development and change.
- Continued learning and consolidating: Ambition, experimental mindset, growing from failure, willing to challenge convictions while defining common practices, articulating standards and not reinventing the wheel
- Rapid infusion and keeping the soul alive: Secret source to find people and a search for true talent without bias, rapid onboarding process while maintaining a unique culture, performance orientation, togetherness and trust
- Business beat and entrepreneurial freedom: Focus, targets, accountability and transparency combining projects with process while maintaining the ability to exploit unforeseen opportunities and highlight spectacular solos
Ecochain helps companies get the highest return on their sustainable investments by measuring and monitoring the ecologic and economic impact of energy and resources within the company and the entire supply chain. They participate in our program and are a great example of creating structure within the organization.
- Ecochain is scaling very rapidly as they bring on new corporate accounts and develop new tools.
- To fully capitalize on surging demand, Ecochain restructured the organization of about 35 people to streamline sales, operations and development.
- This allows them to take on larger contracts and be more efficient in delivery.
The essence of scale-up leadership is to be open to learn, so to realize one’s own limitations and biases, seeking diversity of input and specialist support and embarking on a journey of experimentation, learning and adjustment.
In the majority of scale-ups and stall-ups, the founders continue as MT in the scale-up phase, so they play a major role. Scale-ups are founded by at least 3 individuals – a real team. Having a team allows for constructive debate combining different perspectives.
- Experienced entrepreneurs: Management teams of 3 or more
- Performance orientation: Ambitious, confident and competitive
- Ambidextrous: Entrepreneurship and operations, internal and external orientation
- Dream team dynamics: Risk takers – highly tolerant of ambiguous states, broadly inspired explorative mindset
- Continuous renewal
Squla provides e-learning for children in a gaming environment. The company is scaling successfully in the Netherlands and internationally. Squla is an impressive example of leadership development and joined our program to continue this journey.
- Squla was founded by André Haard who through vision, persistence and entrepreneurship brought the company to a lead position in the Netherlands at a young age.
- The second generation of leadership – a true team with deep expertise – is now expanding Squla internationally and extending the product to age group K12.
To successfully scale a venture, you must develop proficiency in all of these factors, which is why the odds are so low. At the same time, every scale-up is unique and some scale-up success factors are more important for your venture than others. In our programs, the first thing we do is to help you prioritize and focus.
Creative commons: 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.”