From Startup to Scaleup

Success factors among German Scaleups

Scaleups are not startups 

The factors that drive early-stage startup growth and survival are many and varied. However, once a startup succeeds in moving beyond the initial stage, there are new organisation and management factors that are important to growth and that successful scaleups have in common.

The transition from startup to scaleup is far from inevitable and scaleups are more the exception than the rule. In Europe and Germany approximately 9-11% of businesses annually are considered high-growth firms. The dilemma of why so few startups are able to transition to scaleups and continue to grow and become large, preferably huge businesses is the focus of our study. In addition to many articles and theories on earlier-stage startup survival, our ongoing research scientifically proves there are new and different internal organisation and management factors at play during scaling and these influence the probability a venture will successfully transition to a scaleup.

Conducted among a ten-year panel of over 3,700 German startups and scaleups at the revenue generation stage, the preliminary findings show that when controlling for known and external factors that can influence differences in growth, there were three significant internal organisational factors that improve the probability a startup will transition to scaleup.

There are three significant internal organisational factors that improve the probability a startup will transition to scaleup: process innovation, reorganisation for scale and consistent influence of entrepreneurial behaviors.

First, new process innovation is important. More specifically, the introduction of new processes aimed at improving efficiencies and reducing costs (thereby improving the economics of scale of the business model) significantly improved the probability of becoming a scaleup. The earlier new process introductions are made at the start of scaling, the better. This means that excessive focus on product innovation to improve quality or launch new products at the expense of process innovation designed to drive efficiencies may be detrimental to scaling up.

Secondly, a reorganisation for scale, particularly relating to the founders role and decision-making is needed. A shift from centralised to less centralised decision-making resulting in a more inclusive, autonomous organisation is important. This implies that founders take a step back and rise above the weeds. That they let go of some of their tight control on decision making and delegate to specialist staff that they recruit. Redefining their roles as required.

Finally, the strong influence of entrepreneurial behaviours, which may have been present since foundation. Specifically, the factor of competitiveness significantly influences the probability of scaleup transition over innovativeness, proactiveness and risk-taking, which is less significant to scaleup transition among German firms. This implies that while startups are innovative and risk-takers by nature, it is not a significant differentiating factor between startups and scaleups with similar ages and profiles when it comes to transitioning to scaleup.

 

What got you here will not get you there.
Claire Mula & Baris Istipliler

We can conclude that scaleups indeed require a different focus to startups and that a reset is required among founders at the start of scaling. They cannot carry on in the same manner as they have done so during the early startup stage. In other words, “what got you here will not get you there”. New factors begin to emerge that are influential to growth and success during scaling. Similarly, some factors that have always been present play a more active role.

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Founders and management at the start of scaling should be aware of these factors and the need to reset. The best operators should seek internal and external knowledge from specialist staff, advisors, peers and trainers on best practices in scaling management and avoid ‘scaling blind’. Hot button topics such as the changing roles of the founders, introduction of new processes including technologies and organisational to drive business model efficiencies, and an orientation that seeks to defend and strengthen entrepreneurial behaviours, are all important areas that can improve the likelihood of scaleup transition success improving returns to stakeholders, innovation ecosystems and economies.

The OECD (Eurostat, 2007) defines high-growth enterprises, sometimes referred to as scale-ups, as “all enterprises with an average annualised growth in employees or turnover greater than 20% over a three year period”, and “with at least ten employees in the beginning of the period.” In 2016, above 11% of all firms grew at >10% per annum for at least three years. (Source)

Obtained from IAB/ZEW foundation panel (IAB/ZEW Gründungspanel), a 10-year panel of German entrepreneurial ventures founded between 2007 and 2018. 

About the Authors

Claire Mula (Strategy Nation)

Claire is an entrepreneur, coach and advisor. She supports entrepreneurs and their ventures through research, program development and advisory. Claire has 25 years’ entrepreneurial, and corporate experience across Asia-Pacific and Europe. As a technology entrepreneur, Claire experienced first-hand the successes and pitfalls of startup life, ultimately exiting through a direct sale to a listed firm in 2017.

Baris Istipliler (University of Mannheim)

Baris is a researcher and lecturer at the Institute for SME Research and Entrepreneurship of the University of Mannheim, Germany. His research interests focus on family business management, entrepreneurial cognition & action, digital entrepreneurship, and strategic management. 

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