Back to blog

Overcoming Scaleup Challenges

The amount of startups that transition to scaleup is smaller than you may first think. Startup failure rates remain high, depending on which stats you look at, CB Insights suggest 9 out 10 startups fail and Startup Genome suggests that 74% of failures are directly linked to premature scaling.

So how do you identify the scaleup signals and make the right decisions to avoid the premature scaling trap. Let's start by asking yourself:

  • Do you have the right people doing the right things?
  • Is your customer base growing organically?
  • Can you accurately predict your revenue?
  • Is your profit increasing faster than your costs?

If the answer to these questions is “yes”, then you are probably ready to scale your business, and by reading this article you will discover scaleup challenges and how to overcome them.

What is the difference between a startup and a scaleup?

What is the difference between a startup and scaleup image

Scaling invites a whole host of newfound issues to overcome; from people management to processes and systems, from culture to team communication and effective collaboration. Being aware of these potential hurdles can smooth the way for transitioning from a startup to scaleup.

It is probably worth touching on the definitions of a startup and a scaleup.

Definition of a startup - The term startup refers to a company in the first stages of operations. Startups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand.

Definition of a scaleup - The term is less defined and somewhat subjective, but in general, the term scaleup is defined by team or revenue growth of more than 20% per year, for a minimum of three years.

So let's take a look at some of the common challenges transitioning from startup to scaleup...

What comes after product market fit?

Once you have achieved product-market-fit it is normal that the focus becomes about growth.

However the definition of growth is subjective and varies considerably.

This is where companies fail in transitioning from startup to scaleup. They don't define what growth means to them in enough detail, and commonly do not communicate internally enough what growth actually meas to everyone.

Obviously, startups through to scaleups strive for growth in revenues. But does that mean expanding to new markets, releasing new products, exponential headcount growth or a combination of these things?

Is it is vitally important you define your journey once you’ve reached product market fit and communicate this with your team members on a regular basis.

The role of leaders changes and processes become more time consuming

The role of leaders changes and processes become more time consuming image

Every business needs money to grow and the process for raising funding can often be a very long and time-consuming process as one example, especially as you transition from startup to scaleup. Founders and senior leadership teams can spend vast amounts of time in this process.

But be mindful  - when the founders and leadership team time are consumed in this process it can cause wide spread distractions across the business, communication can suffer and employee disengagement can take hold.

Before embarking on a fund raising process, or any other process to scale, ensure you have planned and have the resources in place to take over parts of day to day business which maybe impacted when founder and leadership time is focused elsewhere.

So what's the difference between growth and scaling?

Most companies think growth and scaling are the same thing, in there are subtle differences:

Growing – To become great or increase over a period of time

Scaling – Represent in proportional dimensions; reduce or increase in size according to a common scale

To put this into context, a startup raises funds to grow revenue and headcount but is likely not to be profitable, a scaleup is about maximizing profits, but the demand for headcount increases at a much slower pace.

It doesn’t stop there, though. 

Organizations which achieve scaleup status have similar traits:

  • Their teams communicate and collaborate effectively
  • They have solid cross-functional and strategy alignment
  • They identify and breakdown information silos
  • They empower employee deep work time
  • They have a productive company meeting culture
  • Data-informed decision making is common 
  • Systems and processes are future proofed
  • The right people are doing the right things

IMPROVE CROSS-FUNCTIONAL ALIGNMENT

Premature scaling is one of the main reasons why startups fail to transition to scaleups.

Ultimately, when an company scales too early, it typically means that the processes and operations were not ready to scale. This is typically caused by poor planning and lack of data-informed decision making.

How do you build the right team?

You have heard the phrase “Your employees are your best asset”. And this also rings true for the structure and skill set alignment of your leadership team and team leaders.

As trivial as it might sound, having the right people doing the right things will influence every step of your scaleup journey.

It does not matter how innovative a product or how effective your marketing strategy is, if a founder who is currently the CEO should actually be the Chief Product Officer for example, a company is likely to fail in the long run. All to often founders do not know when to let go of the reigns and do not consider objectively what is the right leadership team structure to scale.

But, it isn't just founders that need to be considered. It is the entire leadership team. It doesn't mean that you have to change all the people in your leadership team to scale, but it does mean the skill set to challenge alignment will require evaluation.

As a startup you will build your 1st layer of management, and a team structure will form. As you transition to scaleup, the complexity of a management structure changes, with more layers of management added, whether that be directly within the leadership team or team leaders.

Building a successful team and hiring the right people starts with aligning skill sets to scaleup challenges. Identify the gaps and ensure the right leaders are leading the right objectives.

Letting go of the reigns

A companies glass ceiling is usually determined by how far the leaders can take them, to break through that ceiling typically means a fresh approach.

It is common that founders are the people who invented, developed, and built the business from scratch, founders can feel very attached to the business and people, finding it hard to let go.

However, although the founder may have built the company, that does not necessarily mean that they are the right person to lead the business through scaling. Whether it be hiring an external CEO or bringing in a COO, a founder must put their ego aside, and make the decisions that are in the best interests of scaling efficiently.

This is where planning and skill set alignment for hiring the right leadership team is critical. If senior hires are made and their agendas or goals are not aligned to the founders, then this can cause wide spread disruption to the business. It is essential that as you make decisions about scaling or skill set alignment you communicate with your entire team about the changes taking place.

Understanding how your teams communicate and collaborate

We have already covered building your team, but as you scale the nuances of new teams increases, especially in consideration of communication and collaboration…

Maintaining a healthy workplace culture is just as essential as every other element in your scaleup journey.

Once a company gets over a certain number it can be difficult to maintain a healthy collaborative culture.

UNDERSTAND: YOUR WORKPLACE CULTURE IMPACT

It can also become difficult to maintain effective communicate across the business, especially if you operate a remote or hybrid working model. Poor communication can lead to a host of issues, mistakes are made, objectives are missed and people become disengaged.

The best scaleups take a pro-active approach to measuring and benchmarking team productivity, communication and collaboration.

And, because the company culture is built on transparency, employees do not feel like 'Big Brother' is monitoring their every keystroke, instead data analytics and insights relating to communication and collaboration, combined with regular employee feedback, becomes a force for good.


Failure to adapt quickly

In a lot of instances, what made a company successful in the early years won’t necessarily be the same foundations to scale successfully. As people, systems and processes evolve, it goes without saying that the way people work, communicate and collaborate should also evolve to cater for the changes required.

Adapting quickly requires the right data to make the right decisions. Your communication and collaboration tools provide a wealth data and knowledge, combining this data into a single source can ensure leadership teams, managers and employee all stay on track, productive and aligned to the objectives of scaling business.

Wrapping up

If you are preparing to scale your business it would be a great time to talk and show you how Flowtrace helps startups and scaleups to make better data-informed decisions, improve team productivity and increase cross-functional collaboration.

SCHEDULE A CALL