How to Scale Your Start-Up
Canadian engineers, researchers and entrepreneurs prove time and again that Canada doesn’t have an innovation problem. Unfortunately, we do have trouble achieving scale. That’s one of the reasons Canadian start-ups are snapped up by US firms often before they’ve hit the $100M revenue mark (sometimes much earlier). As Micheal Kelly, Dean of Laurier University’s School of Business and Economics observed in a recent CATA speech, Canadian innovation policy has been designed to create vibrant tech startup clusters which then simply become “a farm team for Silicon Valley”.
Venture capitalists and incubators will argue that the buyout of Canadian start-ups creates experienced and well-funded entrepreneurs. Entrepreneurs who become angel investors in other start-ups and are themselves prepared to swing for the fences to create a global success story the next time around. While there may be some truth to this, we’re still waiting for the next new Nortel or RIM to anchor the tech community in Canada. In the meantime, plenty of wealth and employment would be created by business leaders with the mindset that winning means building a business not just selling it.
Building a Sustainable Business
Building a sustainable business refers to growing, particularly in global markets, while simultaneously evolving the business model to enable more efficient and profitable operations by:
Lowering the cost to acquire new customers
Increasing the efficiency of delivering products/services
Streamlining the effort to support customers
Reducing cost of goods sold (COGS)
Accelerating the ability to recruit and retain talent
Reducing development and engineering costs as a percentage of sales
Maximizing synergies from well chosen and effectively integrated acquisitions
Implementing business process that support delegated but aligned decision-making across a larger organization
Funds generated in this way can be returned to investors and reinvested in the business to fuel further growth.
Progress depends on continuously improving inter-departmental processes and connections so companies need managers possessing broad, integrated knowledge of the functional areas essential for a successful business. As Micheal Kelly explains, “Scaling requires functional expertise in a number of business areas. It requires management structure, planning and forecasting capabilities, sophisticated analytics to help you understand your industry and your customers and markets, the ability to manage teams and Parners, an understanding of complicated finance issues, knowledge of international markets and market entry strategies – and more.”
New Processes for Scale
Crossing the chasms that prevent companies from scaling up requires replacing ad hoc, brute-force business practices with new processes in five categories:
Sales and Marketing: lead generation, professional sales processes or account based selling (the ability to delegate sales and marketing techniques to new people within the organization rather than the relying on the founders for business development).
Product Management: shifting to a more formal product management process that uses business planning, financial analysis and product roadmaps to prioritize and manage investments rather than ad-hoc /agile engineering driven decisions.
Business Operations: putting in place sales and operations planning, offshore manufacturing, intentional cost reduction programs, viable repair and return processes, etc.
Human Resources: investing explicitly in the employee value proposition and employer branding as the foundation of a continuous talent management process.
Finance and Planning: introducing business planning, quarterly business reviews, executive dashboards, commercial approval processes and formal budgets to keep the organization focused on strategic priorities.
If these things sound familiar to you, it’s probably because you’ve worked at a larger company or one that eschewed venture capital to self-fund its expansion. Many of the continuous improvement disciplines traditionally found in well-established or boot-strapped businesses (ones that internally fund their growth) are those that are scalable. Unfortunately, many entrepreneurs have been trained in the pressure-cooker of growth-oriented, pump-up and sell, VC and private equity investing. Many have never run a larger business themselves so don’t have the experience to recognize scale opportunities or the skills to implement scale initiatives. This, combined with a “#hustle” mentality that drives leaders and their employees to work ever harder to deliver growth, means that “working smarter” isn’t always a priority around the management table.
The problem isn’t limited to start-ups. Ron Carucci in the Harvard Business Review points out that even for mid-cap firms, “the stall point . . . is when they find themselves a $100 million organization trapped in the body of a $30 million company”. Carucci exhorts leaders to shift from working in their company to working on their company to secure scalable growth.
Finding Business Scalers
Ironically, in this age of millennial entrepreneurs and GenX workforces, the answer to achieving sustainable growth through scale may be in the knowledge and experience of more mature workers. It’s the grey-haired “entrepreneurs in residence” at incubators, the ex-C-suite executives on advisory boards and the seasoned consultants who have the necessary expertise, along with the scars on their backs to prove it. Retaining or hiring talent with longer resumes, people who have been there and done it, is an excellent way to accelerated the path towards scale.
There’s no doubt that Canada needs more entrepreneurs who dream big. These entrepreneurs need access to more venture capital and government seed money. But to create the next big, Canadian success stories, the ones that employee thousands of people, build communities and grow economies, entrepreneurs must become business scalers, not just business creators. And they must tap into the right talent to help them scale their dreams.