What are the challenges scale-up leaders are currently facing as the UK looks to a post-pandemic future?

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For this special feature, Business Leader spoke to leaders and policy makers about what it really means to be a scale-up business and how can you best navigate the common challenges you will face at this stage of the growth cycle.

The word scale-up or scaling up has become common parlance in business circles, but like the word entrepreneur, a strong case can be argued that it may have become overstretched and overused with many businesses classed as a scale-up, when they are not.

This feature examines the challenges facing our scale-up leaders, but to begin with, we felt it prudent to start at the start – and understand how you define what a scale-up company is.

To do this we spoke to Josh Robson, who is Head of External Affair at The ScaleUp Institute.

He says: “I think it’s worth giving some background as the ScaleUp Institute was founded back in 2015, following a report into the subject by Sherry Coutu CBE in 2014. At the time, it was considered a fringe idea to be looking at creating a category for the stage beyond being a start-up business.

“To define whether your company is a scale-up or not, I would say the Organisation for Economic Co-operation and Development (OECD) definition is the best one to use, and this says that a business must have ten or more employees and be growing at 20% more in turnover every year, for three years.

“This is important because it is creating a situation where a company is facing a very particular set of challenges, and in facing those challenges, those companies have much more in common with each other.

“The reason why we use the OECD definition is for international comparability. There are a few other situational definitions that some people look at, usually to do with application or delivery of programmes. But when you stray too far outside of that 20% definition, you find companies with different challenges, which is not to say they’re not important, of course.”

What are the challenges facing scale-up businesses?

Josh also talked about some of the challenges that scale-up companies are facing now, based on research carried out by the Institute.

He says: “We’re seeing five core challenges and, of course, each business will be facing ones unique to them, depending on the growth phase they are in, but they are access to talent, access to markets, access to finance, leadership and development, and infrastructure. Our research shows that these challenges have shifted over the years, and we can say with confidence that access to markets, both domestic and international, has become the number one challenge.

“You might immediately think of international markets, but it’s also about understanding how your business can access government procurement, for example, and other more complicated markets. Over the last 18 months, we have also seen access to finance increasing, and one of the things that is interesting about financing scale-ups is that the money will be doing something, rather than just keeping the fires burning. This is about building a new product line or about understanding how to get into a new market, for example.”

Anthony Rose, who is the Founder and CEO of SeedLegals, agrees with Josh on the core challenges. But he also says that the way you need to change your thinking as a leader is one too.

He says: “I think one of the most fascinating problems is the change in thinking that is needed as you switch from first to second gear, as how you run the business is completely different when it is scale-up, compared to a start-up. As the founder, you must reinvent yourself, because the person that is right to head up the business when it is five people is not necessarily the same at 50, or 100 employees. For me, that is a larger challenge, and it asks some tough questions of a leader.”

Anthony also says that having a Co-Founder can help, as you lose that span of control as the company scales.

He explains: “I think there are three roles that a company needs; number one is the domain expert; number two is the person that is going to help deliver the vision, and that often aligns with the CTO or the product position; and number three is ‘Mr or Mrs Money’, the person that aligns with a CFO role that will help fund the business.

“Our data at SeedLegals shows that start-ups with two founders rise faster and are more successful than companies or one with three; and tend to grow to become scale-ups at a faster rate too.”

Developing a scale-up

Every business owner probably wishes they sometimes had a time machine, as growing a successful company often means mistakes; and sometimes lots of them.

Firdaus Nagee is the Founder and CEO of bona-fide scale-up business FCI London, and he says that getting the right people on board is critical.

He says: “One of the things I would wish I had known 20 years ago was how people are super important. It sounds easy and obvious but getting the right people in the right places is pivotal to success. Linked to this is the culture of the business.

“When you are five people or 10 you are the culture, but as you grow beyond those numbers and layers of management come in – and you are not talking to every single person, every single day – then building a new culture is important to how you’re going to scale. You need to keep an eye on your culture too, as it can slip when you have explosive growth and bring in lots of new people. You will be presented with the questions of whether or not you bring people in just to carry out a role, or you bring people in that fit your culture.”

On how you develop a strong culture as a scale-up business, Firdaus says: “You can run strategy days and define your vision and mission, and make a nice infographic and that’s great, but I think actually nailing your culture is about having core values. This can be four or five points that underpin your culture that everybody in the company agrees with, and you can use these for decision making.

“Whenever there is a problem, you can go back to the core values. Whenever you are hiring, you can go back to the core values. It is also important to adopt a policy of hire slow and fire fast too. It’s tough to do it, but if you have people in the business that aren’t aligned with your core values, you can’t be scared to do it.”

It is all about credibility

Listening to leaders about the ingredients that separate a start-up from a scale-up, you cannot help feeling that many are at the surface common sense issues, but ones that require deep-thought, lots of investment in time and often substantial resources.

Merilee Karr, who is the CEO and Founder at Under the Doormat – another scale-up business – says that credibility and becoming a trusted brand can help scale your business. But it takes time.

Merilee elaborates: “We work in the short terms and holiday rentals market, which sometimes can have a challenging reputation. So, for me it was all about building credibility and trust from the word go. To do this I became involved in setting up the industry association and working with government to set the standards for our industry.

“I did this because it was the right thing to do for the industry but also because it built huge credibility for the business. This approach also landed us some very good clients, and we became the first to be accredited in the UK and have an insurance policy backed by Lloyds of London.

“This approach meant that we saw competitors growing quicker than us, but then we also saw some of them collapsing. We had a clear strategy, and we knew who we were and what we are about, and we have stuck to this. You are not always the quickest to grow this way, but you are building a reputation and a brand. You cannot speed up reputation.”

Access to networks

Running a business is a lonely place and it only becomes lonelier, the faster the company scales. Karen O’Grady, who is a Director at Memery Crystal, said that taking the time to access networks can be important when helping with the pains of scaling your company.

She says: “From my experience of working with many scale-up businesses, the ones that sometimes have an advantage are those that can tap into networks and peer groups. For example, when raising funding, it is very rare you will send out a pitch document cold and have a positive response from that. You must build relationships with funders and those that can support your business.

“In addition to this, founders must deal with a lot beyond their core idea, and you won’t have expertise in every area, so being able to tap into networking and peer groups is an important part of scaling your business successfully.”

Navigating the funding maze

On the list of challenges leaders face was funding, and with so many options available, it can be difficult to know which avenue to pursue.

Josh says that knowing exactly what you are trying to do with the money is the first thing.

He says: “I think the important thing for a business is to really think carefully about what it is you’re trying to do with the money and what do you need it for. It is said a lot, but it is important to also go out and talk to the funders and the people who can lend you money.

“There are also some great tools that are emerging, like the finance hub by the British Business Bank, which are demystifying the maze and can give you a good understanding of what is available and how it can help your business.”

Anthony adds: “An irony is that the time when it’s easiest to raise money is when you don’t need to raise money. If your business is tripling year on year and you are in the news everywhere, investors will be calling you. Your first round of investment is all about having investors perceive that you’re bigger than you really are, so it’s important to engage in marketing and get your brand and name recognised.”

For Firdaus – the actual presentation matters too.

He says: “The actual numbers and projections are key. Often entrepreneurs can spend too much time on snazzy looking decks, but when you get to the nuts and bolts, such as what is your cost per acquisition, your runway to profit, CTR and digital marketing plan, for example, then they do not have the answers.

“Rather than just saying it is a £1.5bn market and we are going to do this and then that – I think it pays to be clear and humble about what you are going to do with the funding. You need to be very specific about where every single penny is going to be spent. For a final point, you also need to try and work with funders that love what you do and who you are, and investors that will cheerlead for you.”