Clearly, someone has been doing something right. According to data published last week by Tech Nation, the UK more than doubled its total of $10 billion tech businesses in the first six months of 2021. In all, seven more companies achieved “decacorn” status, taking Britain’s total to twelve.
If nothing else, the burgeoning number of such businesses invites us to consider a new narrative. It used to be said that despite some great science coming out of universities and a buoyant startup scene, the United Kingdom was relatively poor at scaling world-beating technology businesses – certainly when compared to the U.S. Now it seems that things are changing.
The same could be said of Europe as a whole. Over the past five years or so, the startup ecosystem has got better at supporting scaling businesses. In its latest report technology sector advisory firm, GP Bullhound says 52 new unicorns emerged across Europe in last year, with the U.K., Israel, Germany and Sweden leading the way.
Gaps In The Information
All good then? Well, according to Netherlands-based VC, Knight Capital, the startup support structure isn’t perfect and there are gaps in the information available. Yes, there are a lot of unicorns and a handful of decacorns, but further back along the funding escalator many firms still find it hard to scale. They don’t know what it involves. Arthur Nobel – Software as a Service investor and principal at Knight Capital – says scaling companies often lack a playbook.
The Information Gap
“We talk to lots of companies and investors,” he says. “We’ve found that while there is a lot of information for startups and a lot of success stories coming out of unicorns and businesses that have achieved IPOs, the in-between stage is not covered.”
So, Knight saw a need to provide more information to companies scaling up on the spectrum between $1 and $25 million. The VC’s solution was to put together a book – published this month – containing insights and advice from a range of industry figures – 47 of them to be more precise.
Titled Leaders of Growth – the guide is structured around a series of interviews covering many of the issues that scaling businesses face. For instance, Sean Ellis answers questions about how to implement a growth-hacking strategy (very much has specialist subject). Mark Roberge – formerly of Hubspot – talks about building a replicable go-to-market model. And Micha Breakstone, co-founder of Chorus.ai advises on how to navigate the changing role of the founder. In other words, it’s all practical stuff, compiled by a VC that has a vested interest in helping startups to grow.
“We were aiming to tell stories about situations that people could recognize themselves in,” adds Nobel.
The challenges associated with scaling up are multiple but key problem areas include hiring and managing the appropriate people, putting effective processes in place, deploying the right tools, and deciding on relevant key performance indicators. And then there is the data challenge associated with effectively monitoring and measuring those KPIs.
The Human Touch
But when I talk to Nobel, it becomes apparent that there is also a human factor. Growth places new demands on the skillsets and qualities of the founders themselves and their senior team members. They can find themselves in uncharted territory.
Nobel cites people management as an example of how things become more complicated as a business scales up. “At the Series A stage a company might have 20-30 people on the payroll,” he says. “At Series B there could be up to 100. At Series C, the company could be employing 250 people.”
Clearly that means more people to manage, but Nobel says it’s more than a numbers game. “At each of those stages you will need different types of people,” he says. Some of those who joined at Series A will have to go at Series C. During the scale up, you tend to move from generalists to specialists.”
This is not a purely technical or managerial issue. There is the team dynamic and morale to consider. Few founders think a good way to incentivize staff is to let them know that after all the hard work, they are unlikely to be around for the next phase of growth. But that’s sometimes what happens. So there will be difficult periods of transition and probably culture clashes too as the profile of the workforce changes.
It’s not just the wider workforce facing continuing pressures. “The leadership team will also change, which can cause tensions between founders, particularly if they begin to drift apart and become less aligned as the business grows,” says Nobel.
“You have to manage the co-founder relationships,” he adds. “And it can help to have a coach to manage the relationships.” It’s perhaps more important to have a shareholder agreement to define – amongst other things – what’s required when one or more founders think it’s time to move on.
Changes in the workforce and the leadership team run in parallel with evolving ways of working. Typically, says Nobel, as businesses grow they become more process-led. “Series A companies don’t have processes for everything. But as companies mature the processes become more important.”
In other words, companies change, both in terms of the way they work and their people requirements and at some point they will probably outgrow at least some of their founders.
All this tends to be difficult territory for the idealistic young co-directors – perhaps close friends – who got the business up and running for the first time.
So Knight Capital is hoping that its book – downloadable from Amazon – will help European founders identify and navigate the practical not only the managerial but also human challenges thrown up by rapid growth. At a time when ever larger sums of money are being invested in European tech startups, Nobel believes VCs could be doing more to prepare their portfolio company leaders for the potential stumbling blocks that lie ahead on their journeys. Will a book help? Perhaps, but it probably can do no harm to have a look at it.