It’s dangerous to go alone – What makes governance expertise essential for scaleup tech success
Every tech start-up that survives to become a ‘scale-up’ has needed to continually prove its resilience, flexibility and mettle in overcoming the many hurdles to growth.
Once a business has achieved a reasonable size, however, many boards face both new challenges and an uncomfortable realisation. A lack of global expertise and inability to illustrate effective governance, become major barriers to further success, or new rounds of funding.
Simply put: the self-sufficient qualities that were essential for an early growth start holding promising tech scale-ups back.
What higher tier investors look for in the balance sheet, strategy and executive team of a scale-up tech business is fundamentally different from how they evaluate start-ups. Larger, more complicated businesses need formal, rigorously tested and sustainable finance and admin practices and need to prove they have carefully considered the jurisdictions in which they operate and how they structure them.
Tech founders who’ve enjoyed freedom from oversight must learn to suppress their self-sufficient problem-solving habits and seek help. This is about more than heading off unanticipated tax or regulatory burdens, with access to experienced and knowledgeable support, businesses establish a far more secure basis for long-term success.
Below we’ll investigate what every promising scale-up must consider if they wish to graduate from scrappy start-up to lucrative scale-up.
Help investors measure the business
Investors in scale-up businesses evaluate potential and growth with a very different lens than those specialising in start-up businesses.
Investors want to know an experienced, professional eye is looking at the company’s revenue. They will gauge the presentation of how the business has secured its position, prepared for entry to additional markets, responded to evolving user needs, and even how it is evaluating the ‘stickiness’ of the customers that underpin revenue.
For example, when Two Rocket backed companies – Digital Services SG FIVE and BlueNest – wanted to expand into Asia, Hawksford aided their operations by preparing financial accounting reports, overseeing the care of their payroll and completing the tax filing. Beyond alleviating administrative burdens so they could focus on growing their business, these companies were able to present their strategies in an attractive and clear format.
Preserve and protect what makes your business unique
As every scale-up business knows, privacy and discretion are crucial to preserving a unique proposition. While opening up parts of the business to more scrutiny may be what investors want, most scale-ups will be wary of revealing every aspect of their business, lest they risk losing a hard-won advantage over other market players.
It may be years before many scale-up businesses consider a public offering of shares, where the requirements for transparency and accounting become far more rigid. But in those critical years leading up to an IPO, preparing a higher standard of financial statements and presentations, not for public consumption is an important indicator of a business’ maturity.
Scale-up businesses should seek partnerships with organisations which have effective and proven track-records of preserving the interests and privacy of their clients. As advisors to corporations, family offices and high net-worth private individuals, businesses like Hawksford have built their reputations on understanding of the value of discretion in effective partnerships.
Equally important is securing the right financing for the stage of your business. Hawksford works with leading VC Funds and specialist lenders that are attuned to the financing requirements of businesses at all scales from startup to IPO. These lenders and VC funds not only provide financing but a level of experience that often drives growth earlier on in a lifecycle.
Stay flexible by outsourcing
Many scaling businesses succeed by operating with small, nimble and adaptable teams. As they grow, however, trying to solve every problem in-house becomes a burden.
Scale-up growth doesn’t always follow a linear path. If a business needs a larger workforce, it can take significant time to hire new employees and get them settled into the organisation. Equally, if growth in a market slows, divesting a business of employees is costly and can be particularly painful for scale-ups which have established close working ties.
With many companies trying to operate on leaner budgets and headcounts, choosing a qualified outsourced accountant is a great investment, and businesses’ first step towards a lower and higher-value workload.
Externalising accounting, tax and legal functions lets a scale-up business continue to operate flexibly, while benefiting from large teams of skilled professionals. It also allows them to reduce headcount and present a tighter and more focussed P&L sheet for investors.
Thinking about taxation
Taxation is another consideration that looms larger and larger for a growing business. For tech companies, the particular speed by which they bring their products abroad only exacerbates the problem.
It’s therefore imperative for technology companies with global ambitions to think early about a plan for managing multiple tax jurisdictions. Establishing a foothold in a jurisdiction with an established structure to support tax neutrality can significantly smooth the route to international growth.
There is an additional advantage in access in the most well-established beneficial tax-regimes: decades of accumulated expertise. In regions such as the Channel Islands, where Hawksford is headquartered, companies are within easy reach to a far greater range of potential board members with established specialist knowledge of any technology sector.
Make connections and bolster your boardroom
The importance of showing a high calibre of experience and sector knowledge at the boardroom cannot be overstated. As businesses expand, investors are comforted to know that a business has sought the advice of individuals with a proven track record of helping companies grow.
Technology thrives in ecosystems where networking and collaboration are encouraged. Digital Jersey, for example, is an independent body which has been actively cultivating one the of the world’s most vibrant digital communities. In 2019, Jersey boasted over 400 digital businesses, and over 3,000 professionals in digital tech roles. This means that growing tech businesses are opened to an extensive and focused community where they can bring in senior viewpoints and build more resilient strategies.
Opening up – new processes, new markets, new relationships
Reaching scale-up stage is a tremendous achievement for any business, and only happens as a result of hard work, a clear vision and a passionate executive team.
Scaling up your business should never feel like abandoning your values, but it does require mental fortitude. Inviting the right advice is a significant change, but it’s also the best way for scale-up business to keep exploring exciting new markets and opportunities, solving the problems it was founded to address.
David Carswell is a Director of Hawksford’s Corporate Services Team, based in Jersey. Fabio Stella is an Associate Director of Hawksford China.