What do scaleups have in common? Are there any founder personality traits we can learn from? Or behaviours we can imitate, whether that’s in how your company is organised or sectors which are hot for growth right now?
The number of scaleups is far fewer than the number of start-ups or small businesses. There only around 30,000 scaleups compared to 5.6 million small businesses in total. But in terms of GDP, the scaleup community generates over 50 per cent of total SME turnover. SMEs account for £2.2tr of GDP, of which scaleups deliver £1.2tr.
What is the difference between a start-up and a scaleup?
A scaleup is a business that is over three years old and has been showing growth of 20 per cent or more in either turnover or employment and already has at least 10 employees. Many of scaleup businesses are over 15 years old.
Irene Graham, CEO of Scaleup Institute, explains: “It’s all about growth in turnover and employment, not necessary profitability. So, businesses which take a long time, such as life sciences, can be growing very significantly in terms of employment and assets, but still not yet be profitable.
>See also: How to scale a tech start-up in a recession
At what point does a start-up become a scaleup?
For Graham, a differentiator between a start-up and a scaleup is that scaleups are both highly innovative and focused on exports, which are key to a growth mindset.
What are the common traits of scaleup founders?
Are there any common personality traits of founders of fast-growth businesses? Are there behaviours that can be used as paragons by other founders determined to succeed?
For Andy Gregory, CEO of Business Growth Fund, a combination of ambition and a deep-seated conviction that your business will succeed is something he has observed.
Founders have a driven, almost messianic belief that their start-up will succeed and become a scaleup and possibly even a unicorn with $1bn a year revenue.
Gregory says: “They are self-confident enough to almost not accept failure as an option, which is a very different mindset to workers in larger enterprise businesses, who have a more balanced assessment when it comes to risk and reward. These individuals must have a more glass-half-full, positive conviction about what they do, because they are placing big bets – not just in terms of capital but in terms of their own time.”
George Windsor, data and research director at the now-defunct Tech Nation, agrees that it takes a unique and dynamic, ambitious and charismatic individual to spearhead the growth of a high-potential scale-up.
Windsor says: “It takes confidence and the ability to win hearts and minds, whether that’s seeking investment or hiring your first few employees. There’s going to be a lot of hurdles to overcome as the founder of a company that’s doing something new.”
That said, successful scaleup founders are also open to influence from others.
Gregory says: “The best ones really do listen and actively seek out the views and guidance of others. These are people who recognise the value of getting alternative views and people who have gone down similar paths before.”
Windsor points out that founders from a more technical background may not have that a showman side to their nature, which means relying on a founding team to push the product onto the market. The profile of the person who leads the scale-up can look quite from the founder, he says.
Windsor says: “Either they have got a big idea and know they can win people over or they’ve who’ve come up with something and need other people to bring it to market.”
>See also: 5 steps to prepare your company for scaling
Sectors where scaleup companies are found
George Windsor is not so sure about the great man theory of history, pointing out that the nature of the company rather than the personality of the founder is a far better indicator of success.
In 2022, despite current challenges, fintech, deep tech, health tech and climate tech have all seen growth investment, even if that rate of investment has slowed given the parlous state of the world economy.
6 things that scaleups have in common
Our panel of experts did identify common factors shared by scaleups and their founders.
Elite higher education
Tech Nation analysed 34,000 profiles of tech leaders in the UK from around 7,500 companies and worked out that 75 per cent had an undergraduate degree, 50 per cent had a masters degree and 12 per cent had a doctorate. Overwhelmingly these degrees were in computer science, economics and law.
And that most founders went to prestigious universities, not just Oxford and Cambridge but also ivy league colleges such as Stanford and MIT in the US.
And because these founders are pretty homogenous, these are the personality types who venture capitalists look for when deciding whether to invest.
However, George Windsor does not necessarily see this “tech-sclusivity” as a good thing, pointing out that that there’s no reason why founders who come from a design or creative background from having equally successful ideas.
Not that Dr Windsor is arguing that intelligence or a first-class education is bad, rather that it’s a narrow pipette to squeeze through.
Importance of team building
Clearly, it is not just about having a vision. Another thing scaleups have in common is building a team and winning hearts and minds. “The best entrepreneurs can convince others to join them on the journey,” says Gregory.
A successful founder recognises they need strength and depth and complimentary skills around them, the BGF CEO says. The skills to start a business are different to what’s required to scale a business. “To take a scaleup to the next level, you need a rounded team around you,” he says.
Another indicator of a scaleup is that it sometimes pursues a buy-and-build strategy, acquiring businesses and bolting on companies to scale quickly. With prices having softened, right now this is an attractive and value-for-money way to scale your business quickly.
Companies with high levels of IP are also more scalable. Those sectors are much more likely to scaleup if executed well.
Scaleups cluster together
One more thing that scaleups have in common is that they are often located near to other scaleups in the same sector. Clustering leads to knowledge sharing and transfers of talent and capital. Companies in life sciences, gaming, climate tech and fintech all tend to group together around Britain. Partly it’s about access to knowledge, such as university campuses like the Cambridge-Oxford corridor, to access to money.
Says Graham: “There’s real synergy in basing your business near other businesses in your sector, whether that’s the creative sector in the Midlands or in Manchester or science parks close to a university environment. I would say to a founder reading this, that they are helping themselves if they physically locate their business in a hub where they are near are other businesses in the same sector.”
Windsor adds: “It’s an unavoidable truth that you do see clusters of excellence and high performance where companies are clustering together and you see those benefits.”
However, Windsor does wonder if, post-pandemic, we will see the benefits from clustering in the digital space instead. One can emulate the right kind of connections between founders and create strong peer-to-peer networks digitally, he suggests.
Indeed, some businesses prosper by deliberately distancing themselves from a cluster hub, the converse being that if it’s a hot talent market they could be the strongest local recruiter.
And those working from home in the tech space point out that it doesn’t really matter where you are because you can recruit staff globally if you can offer a better work/life balance.
Scaleups use finance more
Start-up founders have been resistant to taking on private equity, partly because of fear of diluting control. However, Andy Gregory can point to examples of where scaleups have taken institutional investors on board to turbocharge their business, which has meant they have not had to sell up too early.
What can be done to encourage more scaleups?
Experts agree that there is a need for more education, more case studies as paragons and successful role models. That and a need for more resources, whether it’s talent or access to capital or mentoring.
However, maybe the single biggest thing that scaleup companies have in common is the sheer difficulty of growing at pace in this difficult economic environment, as companies are battered by inflation and energy costs plus post-Covid and post-Brexit staff shortages.
Graham sums it up nicely: “The one thing that scaleups frequently have in common is the challenges they all face.”