The rise of the Unicorns have proved one thing. The speed of growth can take start-ups and their business founders by surprise. Google has a market capitalisation of $360bn whilst Uber is valued at $40bn. The pace of growth means these businesses are facing unprecedented challenges as they seek to secure their future, mitigate competitive threats and retain their unique start-up DNA and customer focused culture.
But what growth challenges do start-ups typically face?
Talent & resource management
Having the right people in place is one of the largest challenges facing a start-up. As the business grows there becomes a need for a more diverse employee base with various skills not previously required. Hiring people with the right skills is one thing, but it’s even more important to hire new employees which are a natural cultural fit with the organisation. Rapid hiring can dilute a start-up’s culture and can lead to significant growth pains if teams and leaders do not see eye-to-eye on the business’ fundamentals.
System and process architecture
Start-ups are typically reliant on home grown technology. Many technology start-ups are proud of their design and engineering heritage and will look to replicate and improve existing technology rather than buy something ‘off the shelf’. Many start-up leaders see opportunity in designing their own CRM and workforce management systems rather than securing outside expertise. For some start-ups systems and processes can prove to be their biggest headache but also their biggest win if they get it right.
All start-ups need to ensure they have a strong plan in place to help them move from small scale to large corporate. Imagine a service like Uber that uses a system to log incidents and tickets from upset customers. These tickets at the beginning are small in number and managed by a small troubleshooting team. The systems they’ll need are of limited sophistication. But then scale this to when Uber has over 8m users and a more complicated service offering. The same small or home grown system might struggle to cope if it doesn’t have the right technical resource and investment behind it.
As start-ups grow so do the politics. Investors, shareholders and analysts begin to pick over any internal rumblings or concerns when it comes to how the business is being run and managed. Google’s recent move to conglomerate has shown how much Wall Street approves of greater clarity when it comes to corporate governance. As a start-up grows it might begin to consider ‘going public’. The move to IPO requires significant changes in the way companies are managed and governed. Everything from auditing to annual reporting can prove very stressful for young businesses that find themselves under the glare of Goldman Sachs.
As the business expands leaders might not necessarily agree on the strategic direction they should be following. This can lead to fragmented strategy and, in worst case scenarios, teams beginning to set out on contradictory strategic paths. Non-alignment is one of the biggest risks to successful start-up growth. Divergent strategic opinions can lead to significant infighting and are a waste of effort, not to mention of great worry to investors and analysts.
Start-ups are typically closer to their user base than established corporates. They don’t baulk at having customers walk into their office. As the business starts to scale there’s the risk that new or existing people will dilute the unique DNA that makes the business special. Existing staff may become complacent or disillusioned with growth whilst new employees might not share the same vision as older employee generations.
So how can start-ups better prepare?
By setting up a dedicated growth team. A team comprised of individuals whose sole purpose is to guide the business from start-up to corporate. Their role is to safeguard the company’s future by identifying and implementing growth requirements, maintaining cultural DNA, supporting strategic decisions and mitigating threats.
The team can help support start-up leaders by recommending approaches and decisions that are in the business’ best interest. Such as, for example, whether the company builds its own CRM or procures one from the open market. By making the decisions centrally, openly and with founders’ backing the businesses will be able to grow successful without falling over.
An expert team
The team should be comprised of experts from across technology, processes, systems, legal, operations, human resources and finance. The team should be given high visibility amongst shareholders, analysts, investors and venture capitalists in order to breed confidence amongst supporters. Without this visibility the start-up risks being unable to garner future investment and support should it need an injection of outside help or capital. Negative market perceptions can prove fatal.
Members of the team should come from a diverse range of backgrounds. Recruiting those from the corporate world will help the start-up learn from previous mistakes and avoid falling into the known holes associated with some strategic and operational decisions or purchases.
The team should be open to connecting its leadership with other experts outside the business that can help support and advise on change. The guiding light for the team is ‘alignment’ and not necessarily ‘agreement’. Making a decision to outsource won’t be welcomed by everyone but alignment is all that is needed to ensure the business can move forward quickly and decisively.
The team needs to think ahead. Whilst the typical start-up is planning three or six months out this team needs to have a planning cycle of 18 months with a horizon of five years. For most start-ups this is a mental struggle, given their young age. No doubt things will change and the business will pivot but the growth team should be looking ahead of everyone else and planning for future decisions, partnerships, requirements and markets.
Growing up is an exciting time for any business. Start-ups can learn a lot from the mistakes previous corporates have made. They should face growth challenges head on. Those that do will find the transition a lot easier.
Paul Roberts, Strategy Activist