Small biz is scaling up
The startup waters are notoriously hazardous. Generally speaking about nine in 10 startups fail, to the point that failure is recognized as an accepted part of any entrepreneur’s professional cycle and a way to sort out the good from the bad. And nobody worries there won’t be more startups on the way. But in Massachusetts, attention has turned to the next step in business growth — scaling up — as a crucial factor in strengthening the economy.
One of the main reasons startups fail is they offer a product when there is no evidence of market need. That’s not the case, of course, for a successful startup trying to get to the next level. Successful startups have demonstrated that consumers want their products through their sales and revenues. In many cases, that’s why they’ve grown their workforce. At this point, making the leap and scaling the business by adapting a larger workload and business size becomes a challenge. There’s a lot at stake.
Daniel Isenberg, a professor of entrepreneurship at Babson College and founding executive director of the Babson Entrepreneurship Ecosystem Project, calls the scaling process even more dangerous than the initial startup process. He says there is a lot more at stake, and that when startups suddenly accelerate and grow, the pressure can mount really fast. That’s because the need for cash skyrockets so as to handle growth. Furthermore, most entrepreneurs have not shifted gears and given enough thought to planning rapid growth, or how to pay for it.
With a business generating revenue, growth is the next logical stage. But it must occur in a way that does not compromise performance or revenue, because the landscape is littered with hot companies that have crashed and burned.
There are many methods for successfully scaling up a business, but most center on three main areas: team, technology and market reach.
Learning to walk
Much like an infant who becomes a toddler, the problems that a startup faces on day one are not the same that an established business faces when it is looking to grow to the next level. That’s important for founders and executives to accept and understand. On the hiring front, this usually means adding new employees who have experience in growing a company or are qualified for the new tasks this entails. It also means training employees to improve current practices and nurture talent so it can take on new roles as the business grows.
Few businesses can grow without some kind of technology upgrade. Luckily, this is where advances, such as cloud computing and software-as-a-service, have made it easy and affordable for businesses to increase their tech capacity without massively increasing the budget. As a business grows, it must have the right technology to handle the evolving business workload, encompassing voice, data, and Internet.
Increasing market reach is another area for businesses looking to scale their operations The reason is obvious: without additional revenue growth cannot be supported. Hiring more sales and marketing staff can help drive market growth, but also costs money, which may depend on available cash flows. Nowadays, businesses looking to increase market reach increasingly are turning to content marketing as a cost-effective option. Blog posts, videos and social media are effective branding tools for getting a company’s name out there and attracting customers. Experts say that a combination of the two — more sales staff and content marketing — is the best bet.
A helping hand
Massachusetts government leaders also have recognized the importance of successful startups that are looking to grow their businesses. The state contributes greatly to maintaining a healthy startup environment, but also has taken steps to support second-stage firms because. Doing so is good for the state’s economy. For example, former Gov. Deval Patrick established programs such as the 12v12 initiative and Mass Scale CEO Roundtable, which connect startups with established executives and investors, thus enabling mentoring and networking.
Gov. Charlie Baker continues these efforts with the MassSCALE program, which supports companies looking to continue their growth. Successful entrepreneurs — including Andy Ory, founder of Acme Packet, and Colin Angle of iRobot — have stepped up as mentors. They’ve also formed a working group that examines what can be done to better support companies trying to scale up in Massachusetts.
“There are a lot of issues and challenges that are very unique to this growth phase,” said Patrick Larkin, director of the Innovation Institute at the Massachusetts Technology Collaborative, a public agency that backs efforts to support technology startups. The Innovation Institute is a partner to the MassSCALE program. “These companies need support and mentorship by those who have done this.”
Larkin emphasizes that the state’s efforts to support business growth must not and does not end with startups. The entrepreneurial ecosystem plants and nurtures the seeds, but the real benefit comes from those startups that grow to the next stage and create more and more jobs.
Larkin says the state is willing to do anything it can to help companies figure out what works best when moving from launch to longevity.
For example, the Massachusetts Technology Collaborative and the Mass Competitive Partnership are co-sponsoring new research by the Industrial Performance Center at MIT, which researches and analyzes the growth trajectory in the state’s economy. The hope is that this research will produce key insights to develop a common understanding of scaling-up issues in Massachusetts, and ways in which the public and private sectors can intervene.
The Roxbury-based Initiative for a Competitive Inner City, which supports inner city businesses and entrepreneurs, focuses specifically on small businesses that are established and looking to grow, with the aim to keep them in the urban core.
The organization’s Inner City Capital Connections program helps businesses overcome one of the main hurdles they face when trying to scale up and grow — getting financial backing to fuel expansion.
Started in 2005, Inner City Capital Connections was designed to foster healthy business expansion by providing training, coaching and connection to capital providers, such as lenders and banks.
Over the past ten years, the ICCC program has been hosted in cities throughout the country, and comes to Boston this year. Thus far it’s helped roughly 800 urban businesses raise $1.2 billion in capital, thus creating roughly 11,000 jobs.
Initiative for a Competitive Inner City CEO Steve Grossman says the ICCC program focuses on established small businesses that are most ripe and ready for growth. He says the aim is to turn these growing businesses into “job-creating machines.”
He believes the success of the program speaks for itself.
“Those business that go through the program and get the capital they need are growing jobs at 9-10 percent a year, which means you double the size of your business every seven-to-eight years — and that is pretty good growth,” he said.
The fact that these businesses can grow much faster than typical businesses — average business growth rates are approximately 2 percent a year — has not gone unnoticed.
“There is virtually an unquenchable thirst for mentorship, training and capital from small businesses,” Grossman says.
This article appears in the July issue of Banner Biz. To view full issue click here.