Why are scale-ups more valuable than start-ups?

What if Bill Hewlett and David Packard had never got out of that famous Palo Alto garage? If they’d stayed a two-person company, we likely would’ve never heard of them – and the history of Silicon Valley would have been very different. Instead, at its peak in 2011, Hewlett Packard had nearly 350,000 employees around the world.

There are many small startups of the size Hewlett Packard was back in that garage, and it’s important for governments to encourage entrepreneurs to start companies. But the economic value of entrepreneurship isn’t in two-person startups. It’s in “scale ups” – companies that have hit a growth curve. Scale-up companies have particular value because:

Reliable jobs: Scale-up companies create ongoing employment– not only in technology, but ranging from  marketing and sales, to production and support – and this creates more consumer spending to stimulate the economy and a larger tax base.

Skilled workers have a chance to shine: Successful scale-ups require leadership at every level as their organizations grow. Leadership can no longer come just from the top; it also needs to come from within.  As companies grow and scale, they require access to specialist skills and are able to offer secure, well-paid jobs to highly skilled professionals.  In turn, that keeps the knowledge and technical skills in the country while giving individuals the chance to build their professional and leadership skills as well.

Spinoff economic activity: Successfully scaled-up companies provide more than direct employment. They create spinoff activity, potentially creating new industries, and requiring increased activity from their own suppliers while supporting their customers’ growth.  In turn, both the suppliers and the customers become stronger businesses.

Technological advancement: They can gather the financial resources and skills to invest in developing and commercializing new technologies. Scale-ups can  also leverage the innovation and technological advancements coming from startups and bring them to a larger audience, helping other startups to also begin scaling.

Our book “Scale Up” quotes business guru and venture capitalist Daniel Isenberg, “One venture that grows to 100 people in 5 years is probably more beneficial to entrepreneurs, shareholders, employees, and governments alike, than 50 which stagnate at two years.”

This book points out that in many parts of the world including Canada, the focus for business growth is on helping start-ups succeed. People wanting to start companies find financial help, coaching, and other support through incubators and other institutions. “Scale Up” points out that startups are fun, exciting and sexy.

By contrast, the growth process is more of a hard slog. It’s not that common for a company to have a winning combination of a good idea or technology, along with the vision and determination, to grow past the “garage” stage into mid-size, scale-up stage. But when they do, there has not been the support network to help them successfully grow.  Governments and organizations are now recognizing the need to create an eco-system for start-ups to help enable them to Scale-Up.

The CFO Centre has worked with thousands of companies over the past 17 years. Using this experience and the experience of our clients in Scaling Up, we have identified the key attributes and requirements for a company to successfully Scale.  Over the next few posts, we will explore and explain our Scale-Up Framework. Because so many companies either fail or have trouble scaling, you need to have every possible advantage on your side.

So maybe you’re not working out of a garage, as Hewlett and Packard were when they started. But to follow their success path, you need to change your thinking from a startup mentality to a scale-up. Success isn’t a matter of predestination – HP’s founders hit many failures before they found what worked for them – but it does help to have a roadmap to help you on your journey.

The result is a company that is much more valuable when it comes time to move on to the next stage of your life and career.

Is your company ready for rapid growth and positioned to Scale-Up?

First mover advantage doesn’t go to the first company that launches, it goes to the first company that scales.”   – Reid Hoffman, co-founder of LinkedIn

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