Why Startups Stop Scaling — and How Founders Can Turn Things Around and Grow Stronger for Longer

We have a problem. Too many exciting startups get stuck in the ‘growth gap’ and struggle to expand rapidly.

From one nation’s cohort of 2019 ‘best in class’ startups, a year later, only one of those companies had qualified as a scaleup.

Yet, many of these companies, in different ways, enjoyed a successful year…so…

…what the heck’s going on?

Firstly, everyone has a different definition of scaleup

  • OECD definition of a scaleup is 20% per year growth — starting from the point of a minimum of 10 employees.
  • Microsoft define a scaleup as a company that has passed $100m in turnover or money raised.
  • TechNation’s UpScale program looks for companies that are growing 20% per month (that’s > 700% growth per year).
  • Steve Blank suggests that a company is a scaleup when it has 40+ staff

The last three measures nearly always involve raising lots of money — so some people say that a Scaleup is defined by their fundraising stage — Series A or B or C or D. Yes, take your pick.

Classic scaleup measures like these (revenue, investment and staff) are quantifiable and objective — but they fail to inform founders of how to prepare for what is going to hit their young business next.

Why Does This Matter?

Successfully growing a large, high growth business — regardless of what you call it — depends on ‘appropriate’ solutions based on the maturity of that business. And, applying ‘inappropriate’ solutions will destroy or diminish the potential of that young company, retarding its growth.

And that’s the key discovery from the inception and creation of the Scaleup Canvas.

It’s why the intelligent understanding of the maturity (and maturing nature) of a young high growth company helps that company grow stronger and for longer. That’s how the framework provided by the Scaleup Canvas can help.

Young High Growth Companies are Like 13-year Old Kids

Imagine you are a 13-year-old kid — and the only schooling options for you are primary (elementary in the US) or University? Neither is ‘appropriate’ education.

We have the same issue with young high growth businesses. Just as a 13-year-old may be perfectly capable of going to University at 18 — they are 5 years away from being ready — both in terms of maturity and, with only rare exceptions, also educational ability.

It’s the same with high growth startups as they become early-stage scaleups — they get stuck between in the growth gap between great startup programs (primary school / elementary school) but they are not ready for the big league of full-on scaleup programs.

Imagine if we failed to provide our kids with secondary or high school? How many children would actually make it to university and complete the education that helps them achieve their best potential?

Well, that’s effectively what we are doing to high growth startups. We expect the high growth startups to leap from primary school to university without any additional support, help or education.

Free marketeers may hold their hands up and say ‘who cares — let the market decide’ — but most of us will be wise enough to recognise that if we want someone to pay for our retirement, our health care or even just a good police force and defence, then we need more companies to succeed more strongly and for longer.

Scaleup Canvas

Scaleup Canvas

So that’s why we designed and created The Scaleup Canvas — it is to help high potential startups and early scaleups make the many maturing steps — one by one — which ultimately lead to success at scale. (Click here for a printable version of the Scaleup Canvas)

The Scaleup Canvas is a framework for growth that helps founders choose appropriate steps according to the changing maturity of their young company.

My ambition for the Scaleup Canvas is that instead of helping founders create successful £1m or £5m turn over businesses — the framework helps them build £10m or £50m or £5bn turnover businesses.

The Scaleup Canvas is designed to give you early insight into the nature of growth and scaling so that you can make smart choices for yourself and your team.

How does the Scaleup Canvas Work?

Instead of using numbers to define startup or scaleup, the Scaleup Canvas looks at changing maturity across a range of factors which can largely be classified under the headings of product, team, customer and culture.

Two Critical Insights From the Scaleup Canvas.

Thinking in this new way about scaleups, gives us two critical insights:

Firstly, maturity can move at different speeds in different areas. Think of a young boy whose voice is breaking — his voice can be both adult and child-like at the same time! So your product could be maturing quickly but your culture is barely even born!

Secondly, maturity is reversible! A startup which pivots classically reverts back to an early stage startup product experimentation because the product to market fit has failed to deliver sufficient results.

Equally, a corporate which radically reinvents itself — think of Steve Job’s return to Apple and his ‘crazy one’s speech’ — pushes its maturity back from Corporate to Scaleup in the realms of product, team, customer and culture.

This explains how some new businesses — such as a new franchise branch — can immediately be mature — and corporate — in its thinking and approach and an ‘old’ or large company — can still behave in a highly experimental fashion — think of Twitter or Amazon.

What is Your Main Focus?

To think about how you can apply the Scaleup Canvas to your individual businesses — let’s start by comparing what happens at each stage of maturity:

A startup is focused on demonstrating product to market fit.

This happens through a series of increasingly complex product or service iterations — from basic proof of concept to a functional ‘minimum viable product’.

The aim is to match real resolution of customer pain or worry with powerful user engagement and a strong sense of purpose, all of which, when aligned to strong user engagement, leads to rapid sales and new user growth — often measured by word of mouth recommendations.

Once we reach scaleup maturity with the product then the product to market fit is largely established.

Now the company moves into a new phase of growth where it is challenged by a myriad of complexity that risks crushing the founders time and turning their growth strategy into a reactive ‘keep the ship afloat’ mentality.

The Scaleup Canvas is designed to provide founders in the startup and scaleup phases with a tool to simplify and better prioritise how they tackle the new challenges.

In the corporate phase of maturity, everything is focused on the removal of error and predictability. The squeeze down on error! The insight here is that the desire for predictability removes any ability to experiment and equally innovate in radical or new directions.

Hence, corporates cannot be startups, but if they want startup innovation, they are best advised to buy them, rather than attempt to copy them or, they need to copy Steve Jobs and drive their corporate organisation back to scaleup maturity.

Equally, some young businesses — such as a new branch of a franchise business, can be corporate in maturity from day one — in that there is no experimentation of product, culture, team or customer — beyond using the pre-existing customer recruitment tools.

What marks out startups and scaleups from other young businesses, therefore, is the degree of experimentation and where that experimentation is focused.

What is Your Startup’s ‘Experimentation Focus’?

High growth startups are focused on product /service experimentation.

At this stage, any decent hypothesis is worth testing and data is the only evidence which counts.

As your startup matures, so its product or service experimentation moves to a product improvement process where the core product is established but missing functionality; such as, languages, operating system compatibility, apps and payment methods and so on and so forth.

Scaleup Innovation takes place where the product innovation has shifted from raw experimentation to a series of structured improvements.

The scaleup now begins to innovate in new areas, broadly; teams, culture and customer — but more specifically, founder roles, brand, rewards, sales leadership, hiring, internationalisation, customer development, decision cultures, how execution is delivered and who is answerable to whom.

When a scaleup matures to a corporate, then product, team, culture and customer challenges are now improved incrementally rather than wholesale or radically. Thus, the focus of innovation shifts!

At the stage of corporate innovation, new ideas are nearly all about increasing distribution. This may come about by adding additional countries where your product can be sold, signing distribution agreements with other large organisations or buying companies who have a distribution network that you want to acquire or new products you can sell to your existing customers.

There may come a point in a mature corporate where all aspects of the business are focused on incremental improvements and no further significant innovation is taking place.

Let’s Now Look at How Changing Maturing Affects Key Aspects of a Young Company:

Changing Founders’ Roles as a Company Matures

In the startup phase — the founder roles are challenged by differing commitments among the founders — classically, when you think of a breakfast plate, the chicken is interested (they invested an egg) but the pig is committed (that bacon is their backside!).

Resolving commitment issues is often key to a successful founder team.

As the startup scales, so the founders’ roles change. It is now possible to pay founders a salary and their roles need to be defined more clearly.

Hence, who is now responsible for setting and creating the company culture? Who decides how much people get paid and who receives equity or options? And who is responsible for sales or product execution?

In the Corporate stage, the founders have typically sold out and become spokespersons or advisors only — which explains why founders leave their ‘sold’ business so quickly and so often!

It is wise to recognise this corporate stage, as it may or may not be part of what the founder team really wants to create! Big companies, such as Tesla, have avoided becoming corporatised.

Changing and Maturing Role of Brand(s)

In the startup phase, the brand is almost entirely a function of the personal reputations of the founder team mixed with the strength and clarity of purpose that they bring to this project.

As the business matures to the scaleup phase, the personal and purpose brands are joined by product brands, recruitment and culture brands. Hiring a team, fast, but without corporate security or salaries requires a strong pull effect of a ‘cool’ brand.

Lastly, corporates are often defined by a painful search for purpose and mission… but they pay well enough to keep their staff regardless!?!

Changing and Maturing Teams

The rewards for being a founder — on the startup team — are share certificates and a life lived on bread and water! It is important to remember this sacrifice when negotiating with new staff or investors at a later stage.

In a startup team, the culture is one of equality — and yet, a dependence on data — if the data says do it — you do! And follow the consequences to its natural conclusion.

Hiring for a startup team is largely about who you know — it’s hiring mates and close friends and trusted people. It has to be, the risk is so great, you have to believe in each other.

International sales, if your startup has any, are a happy accident!

And sales are made and administered by the founder team or your automated channels.

In comparison, scaleups are dealing with very different team issues. Rewards in a scaleup take a different form as salaries are now possible. Share options take on a different role and a new responsibility — taking care of the wider team — becomes a key issue for the founders.

The culture of a scaleup is created at this stage. No longer are you hiring mates / people you already know, but now, you are deciding how to build diversity in terms of skill, experience, language, culture, gender, age etc…

And, within your organisation, no longer can all voices be equal, but nevertheless, how do you ensure that all voices are heard?

Hiring at scaleup stage is high speed and often urgent. Therefore, how are you attract and retain the right people and on-boarding and then integrating your new talent, is key.

Now prepare to do all this in two languages — at least! As your scaleup internationalises….

Lastly, your scaleup sales process and pipeline moves from simple, one to one or direct sales — to complex sales. Now you are selling to multiple decision makers and increasingly the founders are working with either a newly hired sales director or a sales team or an outsource sales function or a combination of all three! All of which need to be found, hired and integrated into your emerging Scaleup culture.

 

How Corporate Teams Compare and Why (some) People Prefer Scaleups

Finally, let’s consider corporate teams as way to contrast with startup and scaleup team challenges as you may be seeking to recruit people from corporate roles to your startup / scaleup and wondering why there seems to be a poor ‘fit’.

Rewards for corporate employment is simplified again — it’s about the money.

Culture wise, corporate businesses are largely top down, hierarchical and rigid. Knowing this helps you recruit smart people who prefer your freer scaleup culture!

And the recruitment in a corporate is concentrated in a specialist department and has become formulaic.

The international structure of a corporate business is based on global regions — such EMEA — Europe Middle East and Africa! With regional head offices as well a global HQ.

The sales responsibility has been concentrated under a series of senior sales directors — who in some cases, will also be divisional managing directors.

Scaleups are very different environments — and there is a risk in bringing culturally corporate people into your teams — no matter how talented they are.

How Sales and Customer Pipelines Change as your Company Matures

At the startup stage, founders know nearly all their customers — because they either sold to them or administered the sale. Typically, these are either individual customers or, if other businesses, they will be small startups where you speak directly to fellow founders.

As your startup matures to a scaleup, so you can begin selling to larger customers — either private individuals through a 3rd party — so a high street shop; or to enterprise business or government organisations.

This scaleup sales structure requires pipeline management as a number of people need to be ‘sold to’ and the purchase decision now takes a number of steps, each of which need to be ‘managed’.

Therefore, recruiting or engaging with an outsourced sales team or something similar, is a key area of learning (or experimentation) for scaleups.

How Decision Making Matures in a Scaleup

And, how you make decisions in a young company changes drastically as you grow…

In a startup, experimentation is king and data rules!

In a scaleup, boundaries are established to limit the degree of experimentation and rules and processes are established. However, ‘sensible’ experimentation is still encouraged.

Where you set the boundaries and how you set the rules will significantly impact on the area and level of experimentation that your scaleup experiences

 

How Execution Matures

And how you execute changes as your young company matures too:

Startups rent everything and use open source and free applications in all cases, except a few business-critical areas which are built from scratch.

Scaleup execution takes place at a fierce and accelerating pace where the burn of cash is measured against the churn of customers and users and revenues.

Once we get to corporate maturity, the overriding objective of a product launch or any execution is to avoid — or squeeze down on — error! The brand damage risk of a mistake is just too dangerous!

Who Do Founders Answer to?

An often over looked part of startups and scaleups is who the founders answer too. That’s partly because we perceive unlimited freedom of escaping rigid or semi-rigid structures in corporates. However, founders are held to account in a variety of change ways:

In the startup phase founders answer to each other, to angel and seed investors (if you have any) and always to family and friends — who suffer alongside you!

At scaleup, typically, there are Venture Capitalists too, who will bring their own reporting demands and needs. Some of these demands will and some will not be acceptable to you and your founder team. Equally, the original angels will still be in the background and of course, family and friends too.

At the corporate stage, shareholders want quarterly reports and investment meetings! Not all founders remain in the business at this stage!

Summary: What does the Scaleup Canvas Teach Us?

So, to summarise what we have learnt about scaling and the Scaleup Canvas:

It is wise — from the strategic and business development perspective — to view startup to scaleup to corporate as a series of maturing steps — which can either be reversed or prevented! Some large companies — particularly those in Silicon Valley — still behave like scaleups even though they are huge in size and turn over!

Scaling up well is good management of the huge complexity of the new challenges — which break down into four key areas; product, team, culture and customer.

…and each of these areas can mature at different rates too.

Using the Scaleup Canvas allows you to prioritise — as a team — which steps to take now and which issues are questions for the future. In this fashion, the Scaleup Canvas helps you apply appropriate solutions given the various stages of maturity that you product, team, culture and customers merit.

About

The Scaleup Canvas is based on three decades of experience of growing and building digital products, startups and scaleups— both as a founder as well as coaching many high growth companies.

I’m Neil Lewis, a Got the T-Shirt Scaleup Coach, and we at Media Modo are empowering entrepreneurs.

You can download a free copy of the Scaleup Canvas here.