Launching and growing a tech business and making it through the funding stage is a huge achievement; ensuring it will survive and thrive is a whole other challenge. In the UK, a technology business is founded every hour. However, while small business survival rates sit at 91% after one year of trading, after five years just four-in ten-will still be operating.
UK small businesses, despite accounting for over half of the country’s private sector turnover, have struggled to survive and grow into scale-ups and ultimately large businesses. Technology companies in particular have to contend with an extremely fast-moving landscape. In short, raising money is hard, but it’s easy compared with successfully scaling a business. With no sign of this problem ending, it’s vital that everyone involved in the UK’s tech community looks at why this is and then proactively takes the necessary steps to address it.
Focusing on the future
The truth is that the technology scale-up community, whether that is the businesses themselves, investors, advisors and all that are in between, sometimes struggles to focus on the right things as the business grows. This is understandable.
In the early stages, growing businesses can be obsessed with securing funding and doing it fast. This is no surprise – capital is vital for any business and it’s often not easy for scale-ups particularly to secure the money they need. For example, 2017 was a record year for tech investment in the UK. But a study from British Business Bank suggested that securing funding is an issue for scaling businesses; in fact, the report highlighted greater availability of long-term patient capital as one way to help scale-up businesses succeed.
However, the approach to securing that investment is where tech businesses sometimes take a wrong turn. To scale, businesses must look for the right investment terms, that won’t hinder them from securing further funds in the future: for instance, avoiding too high a valuation. Equally, the best investors can often bring their own insights and networks to help the business grow. It’s not just about securing money at any cost, but the advice an investor can provide.
When funding is secured, many tech businesses act too quickly and struggle to truly maximise the real value of that money. They have been pitching for investment for years so once it arrives, they often pour that into areas that bring immediate, but short term gains. As these areas are not necessarily the ones that will sustain and drive that business forward in the next five, 10 and 20 years.
In short, the capital they thought would drive their business into a new, exciting booming era which has a short-term impact, one that can be hugely positive but not one which creates sustained, long-term growth across all corners of the organisation.
Pour time into planning
It sounds simple enough – draw up a good business plan. Nevertheless, it is amazing how often people rush this stage. This is especially true of growing tech businesses. All entrepreneurs will have a business plan at inception. But once they are looking to scale and are experiencing all of the market shifts, unexpected wins or losses and the ongoing evolution of the offering itself, those plans need revising.
Learning quickly can be the difference between success and failure in technology. Take the now world-famous social site Pinterest. Originally, Pinterest started life as a mobile shopping app called Tote, designed to allow users to window shop on their phones. But in 2009 delivering a smooth payments process proved too difficult, leaving the firm struggling.
However, the team at Tote recognised that they did have one very good idea: the collection of items for users to browse. From there, the team revised the purpose of the platform, creating the ‘pinning’ site that today has 150 million monthly users. For technology companies, understanding how the landscape is changing, and adapting accordingly, can make all the difference in scaling successfully.
Some areas may not need changing as a business grows, but others will need a total overhaul. A plan needs to exactly reflect that – mapping out targets, market position and opportunity, product roadmaps, staffing, plus business operations including offices and locations. Taking a long-term, measured view of this and really dedicating the time to adapt and refine the plan as the business grows makes it far easier to remain focused and ensure long term success.
As Jeff Bezos puts it: “A business plan won’t survive its first encounter with reality. The reality will always be different. It will never be the plan.” It is at this point that the lasting success of a business can be secured.
Finding the right areas for funds
With this kind of plan in place, it’s possible to maximise the value of an investment. When funding comes in, businesses with a detailed plan in place across the next five-ten years will know exactly where and how to use it.
For example, funding is often poured into marketing, office space, or in hiring. But to really maximise the value of that funding in the long-term, it’s the agile, detailed plan which will come into its own. If the plan then dictates that hiring or office expansion is the right option, then that’s great. The reality however is that for sustained success, businesses must understand the different areas that may need investment and the plan will identify exactly that.
Keeping a laser focus on the business offering is important. For sustainable growth, tech scale ups must map out and support the full product development cycle: product fit, scoping the market, acquiring user feedback, developing the solution and then international development. As the success of Amazon shows, ultimately it’s the quality of the offering that is often the determining factor.
Tech businesses must understand their own path to success, defining your goals and setting your plans to match those. That way, they can use their money to good effect, maximise their opportunity and avoid becoming the latest ‘flash in the pan’ from the tech start-up scene.
Simon Wax, Partner at Buzzacott
Image Credit: Everything Possible / Shutterstock