The scale up phase of a business is a tricky time for founders and teams, but have you ever wondered what a venture capital investor’s view is? We caught up with Gareth Jefferies at Northzone to get a unique perspective on this make-or-break time in the life of a business.
At Northzone, we have seen the scale up process a number of times. Our companies all go through it, some successfully, some less so. It’s a hard time in the lifecycle of any business, but if you get it right you’ll be set for growth. Here are our top tips on the key things to think about while you scale up your early stage business.
Have a clear roadmap for growth
As you grow, you have to formalise functions and have a clear roadmap of where you are going as a business.
At a Series A fundraise, investors would like you to have found product/market fit, and by Series B, they will definitely expect to see this. By this stage you should have the core value proposition nailed down and have scalable, well-understood acquisition channels in place – then you can test additional products and geographies separately.
If you’re a B2B business, investors will expect to see a handful of flagship customers that love you, and low churn.
Control your burn
As you scale up, you need to control your burn rate. We often see companies that expect their unit economics to stay the same, or improve, as they grow.
The reality is often different. Your early customers are easier to convert; the latter ones may require more effort, and therefore your customer acquisition costs may well increase. As you expand, it is sometimes tempting to ‘pre-scale’, and overspend on hiring. It’s important that you and your team keep a close eye on costs at this stage.
This is one of the reasons why investors like to see businesses being data-led in their decision making – the possibilities can seem to be endless with a scale-up company, it’s important you have the focus and discipline on scaling up the right things.
As you scale, you will perhaps be looking at international markets. Taking the step to open an office abroad is a big one, and finding the right country manager is not easy.
If this is a next step for your business, we’ve often seen success when country managers are treated like ‘founders’, rather than employees. Of course, they can use the resources and learn best practice from HQ, but the most successful country managers are the ones who are given the autonomy and responsibility to go and build the business in their particular market.
If you need to raise more external capital from new or existing investors to support your growth plans, remember that your board structure will become more complex.
Make sure your cap table is in order (ideally this starts at seed stage) and remember, no venture investor likes to see a founder or founding team who no longer holds a significant stake in their company.
Get your culture right
Finally, getting your culture right is hugely important as you grow. When you are small, the culture is created by the people around the table but by the time you are scaling up, you have to formalise this.
It’s important that you keep culture in mind across everything you do – like hiring, marketing – even your office environment. It’s one of those things that’s intangible and complicated to define but if you lose it, it’s very hard to get it back.
Implement strategies to ensure the employees understand the culture and values of the company, and keep a two-way dialogue open as much as possible.
Northzone is a technology investment partnership. Since 1996, they have been chosen by exceptional entrepreneurs as a long-term partner for growth. So far, they have invested in over 100 companies (including MarketInvoice), injecting some 200 years of collective operational and investment experience into businesses that truly make a difference.