Internet sensations such as Facebook and WhatsApp, names that are admired worldwide, began life as tiny underfunded startups. Stories such as theirs have found a great deal of interest in Britain– and have inspired investors and the government to focus on finding ways to encourage entrepreneurs at home.
A recent report by the government’s Information Economy Council, though, has called attention to the way overwhelming support for the startup scene has come at the cost of even better opportunities. Rather than having investors, banks and the government lavish all their support on unproven startups, the report recommends, they should back proven ones — businesses that are scale-ups.
What’s a scale-up?
A scale-up is a startup that has shown promise by surviving for over three years with at least 10 employees, and adding new employees at a rate of 20% a year. The government today has begun to believe that focusing on scale-ups, rather than startups, could be a better idea for the economy.
While British entrepreneurs launch even more startups per capita than entrepreneurs in America, only a negligible proportion actually scales up — one out of two startups go under within three years. The government’s intention of focusing on scale-ups, rather than startups, is simple — paying attention to startups wastes investment on businesses that mostly don’t make it. Scale-ups, though, are more likely to be winners. If even 1% of scale-ups manage to establish themselves, they would add a quarter-million jobs to the economy, and put nearly $40 billion into the economy within three years.
What the country needs, then, are better government policy, access to investors, infrastructure and access to talented workers, for scale-ups.
With much support shifting to scale-ups, startup entrepreneurs need to find a way to quickly get their entrepreneurial ideas to that level. This can be a huge challenge. Less than 5% of all scale-ups get to a position where they are able to achieve a turnover of ₤1 million in three years.
If you’re a startup, how do you scale up?
Keep your eye on the prize: Scaling up is about growth. Rather than believing that growth will come on its own when your company is ready for it, you should squarely aim for it. Creating detailed business plans that offer you a map to follow can give you a useful way to track your success.
Understand how running a business is different: Running a business isn’t the same thing as being a talented employee. When you’re good at marketing, PR or manufacturing management, you only pay attention to your field. As an entrepreneur, though, you will require a great deal of expertise in a variety of areas in every part of your business, and be good at them all.
Publicize yourself: While CEOs of large corporations are usually not able to directly engage with the customer base of their company, you, as the CEO of a startup, can do it. Building yourself up as an industry personality on the Internet can greatly affect your success. Consumers tend to bond with personalities that they admire, and transfer their affection to their companies’ brands.
Pay attention to the basics
While startups and scale-ups do need vision and inspiration, these do not by themselves make a business succeed. It takes old-fashioned business sense, too.
Join a startup incubation program: Incubation programs offer first-time entrepreneurs valuable training, ideas and contacts as they try to scale up. They can be an important way to quickly learn the skills needed.
Operate with prudence: While startups and scale-ups do need to take risks to succeed, it’s important to understand the difference between risk-taking and carelessness. For instance, startups often neglect to spend adequately on business insurance, simply so that they can save money. This type of risk-taking, though, can have disastrous consequences. While it makes sense to compare business insurance policies to find a competeitive quote and save money, it doesn’t make sense to skimp on coverage.
Paperwork and accounting: A thoroughly kept set of books is vital to startup success. Investors expect to see in-depth accounting information, financial information and proof of legal compliance before they will consider investing.
Hiring the best employees: To investors, much of the value of a business startup lies in the quality of its employees. Often, startups and scale-ups are in demand not just for the business opportunity, but for the teams that they have. Finding the best employees can be an excellent way to attract investment, and successfully scale up.
To successfully scale up a startup, you need to know what investors look for, and directly appeal to those demands.
Scott Byrom’s background involved working with sites such as moneysupermarket.com and moneysavingexpert.com’s energy club. He was integral to MoneySupermarket’s energy growth between 2006 and 2012. Scott joined UK Power in December 2012 to head up the commercial aspects of the business. He enjoys sharing his ideas and business insights online.
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