Ve Interactive is the latest high profile name that serves as a reminder that many tech scale-ups have failed. There are many causes, but it shows that the short term goal of making the participators wealthy does not always pay off. A scale-up can engage with a long-term strategy to remain owner-managed and a family business.

Issues and challenges faced by scale-up businesses

There are many challenges to overcome in scaling up your business;  some of those challenges are about taking time to consider and implement the changes you will need to make for the long term – taking the long view:

• Hiring good people – take time to pick the people you are going to work with, whether that’s your board, your staff, your suppliers or your investors. Don’t just go with those already on board or showing interest. Hire quality, you need to take a long-term view, how do those people fit into the bigger plan, make sure those people can fit into your vision, your culture and your team, especially if the business is family-owned.
• Managing issues – address key issues as they arise, especially as people can be out of their comfort zone in a fast growth business. The big issues might be product, market, people or finance – your role as leader is to confront those issues, make decisions and move on. Family businesses can raise specific issues such as succession planning, family working in the business and separating family from work.
• Leadership and culture – it is likely that the management team and structure will need to change to adapt to growth of the business. You will want to take efforts to retain the integrity of the business’ culture and ensure people are in the right roles, scaling really challenges that as the number of people increases.
• Product demand – with growth comes increased emphasis on sales. You should first focus on the creation of long-term demand for your product or service, focusing your strategy on how to create sustainable buyer demand.

Setting long-term strategy and objectives

Firstly, scaling is more than growth – it requires a strategy fit for the long-term, not just to address short-term growth issues. A vision or mission document is not enough, neither are market analysis or financial forecasts. Any scaling company needs to know its market positioning, examine opportunity and threat analysis as well the unique selling points (USPs), and identify the investment required to sustain the business.

Exit should not be a strategy. Your aim might be to build the best company you can build, measured by customer satisfaction and staff fulfilment and profitability.

Every entrepreneur has their motivations, but they should consider whether a short-term exit is really the answer, or whether your strategy is to build a company in which you, and indeed your family, has a long-term interest.

Why a family business?

The family business has a place in the fast-growth tech world, the strengths of the family firm can help the business remain sustainable. There are challenges, you have to manage succession, handle conflict, honour the culture, make decisions and take action – but these are challenges any scaling business faces. The advantage of a family business is the team knows who they are and what they want, and their certainty of culture gives the business focus, and that is a key driver for any scaling business. This can also be aligned with the aims of investors who will recognise the potential for greater returns on a mature company.

Investors

Getting in investment does not provide an exit, it brings in the cash to continue scaling and addressing the challenges that raises. If fundraising is part of your plan to expand the business you will need to ensure that your ambitions are compatible with those of an institutional investor, otherwise you won’t get out of the blocks raising capital for a family business.

Typically, institutional investors want to be able to exit companies within five years of their initial investment or soon after, whether that is by way of M&A, a secondary buyout or initial public offering (IPO), so there needs to a clear dialogue on what your respective expectations are.

You will also want to understand what long-term value the investor can add to the business beyond just capital. The best investors will also be highly experienced entrepreneurs themselves and have deep networks that can help accelerate the growth of their portfolio companies. This can be a game changer for a family business to grow the business more quickly than they would have done under their own steam. At the same time, they need to appreciate that the culture of the business can change dramatically as a result with new personalities, more rigorous reporting and governance processes.

Conclusion

A scale-up can engage with a long-term strategy to remain owner-managed and stay a family business. Family businesses can deliver high performance, using their commitment, hard work, knowledge and culture to meet the challenges of the scale-up journey.

Andy Braithwaite is a Partner and Head of Commercial at Ashfords LLP.