By Klaus Berghoffer, SAP
Scaleups are not fledgling startups testing their viability as a business – they’re ambitious enterprises ready to soar.
Bringing proven products and a viable market fit, scaleups position themselves for rapid expansion and dominance as future behemoths with billions in revenue.
Think of Uber, Peloton, and Airbnb – these companies all began as start-ups, then graduated to scaleups before becoming market leaders.
According to the Organisation for Economic Co-operation and Development (OECD), scaleups grow at an annual rate of 20% or more over three consecutive years – in terms of number of employees or turnover.
Scaleup versus startup: What’s the difference?
Startups and scaleups have similar beginnings, yet eventually move in different trajectories. In fact, according to McKinsey, 78% of startups fail to see products through to full scaleup.
Startups and scaleup both start with a groundbreaking idea. However, startups only become scaleups if they can achieve and support a sustained period of very rapid growth – which is, of course, challenging to do.
There are other differences as well. While startups are mostly experimental, focusing on finding the right product or market fit, scaleups already have that fit and want to dominate the market. The goals, challenges, and needs of scaleups differ significantly – startups gamble, scaleups strategize.
Adopting the right technologies at the right time is crucial for successful scaling operations. Learn how you can dominate your industry with GROW with SAP for scaleups.
The employee structure is different, too. In a startup, employees are expected to cover a range of roles and skills, wearing several different hats at once. But in scaleups, employees tend to have dedicated, specialist roles afforded by a higher headcount.
The transition from startup to scaleup
Although many startups experience buzzy popularity, few become stable, highly profitable scaleup businesses. According to the Harvard Business Review (HBR), the key is an often-overlooked stage of development.
Traditional startup development has two stages:
- Exploration: A startup searches for a product-market fit by testing out hypotheses to determine how they can add value or solve a problem with a solution that customers are willing to pay for.
- Exploitation: The fast revenue growth from the start-up’s initial popularity slows, prompting the fine-tuning of the business model to strengthen competitive position and achieve long-term profitable growth.
But there is a middle stage that most startups skip or overlook – which is, according to HBR, critical for a successful transition from start-up to scaleup:
- Extrapolation: The company explores and exploits itself in ways that help ensure each new customer brings in revenue while incurring a marginal cost.
Extrapolation – which is all about finding the profit-market fit – is the secret to long-term sustainable growth. Otherwise, operating expenses keep rising because no one strategizes about how to increase revenue without adding costs.
Current landscape for scaleup businesses
Scaleups are on an upward trajectory despite current economic and geopolitical conditions. After all, they’re known for their agility and ability to pivot quickly in response to changing circumstances.
These businesses have transitioned from the uncertainty of the start-up phase and are on their way to more stable, sustained growth. They have cracked the formula for repeatable sales, have the right team, and are ready to expand into new markets or channels. Scaleups not only create jobs; they disrupt the market and their industry with innovations and nontraditional business models.
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However, “scaling up” requires a different mindset – and skill set – than starting up. Companies can lose some of the nimbleness of the start-up phase, while not yet achieving the relative stability of a large enterprise.
In return, scaleups encounter new challenges that must be sorted out to move forward – such as:
- Constraints on growth: Identifying and removing internal business model constraints on growth involve a rigorous approach that includes small-scale experimentation.
- Freedom versus standardization: While no one wants to lose the magic of the startup, scaleup must maintain a delicate balance between freedom and standardization to remain viable. For example, rules on which platform is used to communicate are imposed, while payroll activities are governed by a predefined, auditable workflow.
- Skills mismatch: Sometimes, people who are instrumental during the startup phase don’t have the skills and discipline needed for the scaleup phase. These exits aren’t easy, but having the right people in place at the right time is essential to success.
- Lost culture: Because the workforce has changed and expanded rapidly – sometimes from 10 to 100 to 1,000 employees – disorganization, fuzzy goals, and a lack of workforce unity often arise.
The right steps to fast and significant growth
Scaleups are more than just glorified startups. And by overcoming unique challenges and adopting the right strategies along the way, scaleups can achieve significant growth and drive job creation and innovation in modern commerce.
Adopting the right technologies at the right time is crucial for successful scaling operations. Learn how you can dominate your industry with GROW with SAP for scaleups.