Top 10 Challenges of Scaleups

How to, Interview
The mentality of a startup company is very different to one of a scaleup company. Yet what we see over and over is that scaleups continue working in the old startup mode, expecting that it will deliver great results, but eventually crash. To avoid such failure in your scaleup, you, as a founder, should work on changing various aspects of the company. We asked Bill Reichert, an experienced venture capitalist who’s invested into 150 companies, to share his advice regarding the process of making a transition from startup to scaleup.

To understand the difference between a startup and a scaleup, it’s good to know what both of these terms mean. Steve Blank, a well-known Silicon Valley entrepreneur, defines a startup as a temporary organization in search of a repeatable and scalable business model. On the other hand, a scaleup is a dynamic organization which already has a well-defined scalable product and business and is focused on generating disproportionate value via rapid growth. To make the shift from a startup to a scaleup, you have to change your mindset, skill set and processes.

Challanges startup has to overcome to grow.

  1. Changing the Organization of Your Business
  2. Converting Business Model from Words to Financials
  3. Building a High-Performing Team
  4. Creating a Culture and Activating It
  5. Creating a Culture of Leadership
  6. Putting Product Development Process in Place
  7. Creating a Repeatable Process for Sales and Marketing
  8. Implementing a Dashboard for Financials
  9. Proving Your Ability to Execute
  10. Creating a Global Strategy

1. Changing the Organization of Your Business

In startups, everyone is responsible for everything which feels good because you are a group of friends who sits around one table and helps each other. But you cannot do this forever. When you scale up your company, you need to assign roles and responsibilities to your employees, create processes and be stricter when people don’t fulfill their role.


2. Converting Business Model from Words to Financials

When you are in the startup phase, you are constantly figuring out all the elements of your business model. But once you scale up, you have to build a financial model (If you wonder how to create a great business model, click here) that pins down all the metrics which then become your KPIs and you need to measure yourself against this model each month or each quarter.


3. Building a High-Performing Team

When you are a startup, you are all brothers and sisters who’ve known each other for a long time which can be fun. But in order to scale up, you need to create a scalable high-performing team, which has a good combination of skills and a diversity of perspectives and argumentation.


4. Creating a Culture and Activating It

During the early days, there are a few people who know each other well and share both passion and suffering. The problem occurs when the team grows bigger and the original group refuses to mix with the newbies. This leads to segmentation and feeling that who came later is not part of the team. When you are scaling up, you have to include everyone in the team, have explicit shared values and norms that apply to everyone and make sure that the culture is lived every day, not just put on the wall.


5. Creating a Culture of Leadership

In the beginning, responsibilities are delegated and everyone is kind of leading. When you scale up, the question is, “Who will lead?” A common definition of a leader is someone who has followers. But you don’t want to have followers, you want to have challengers. If you hire followers, your company will not scale up because they will not take bold decisions. It’s  critical that everyone has leadership skills and responsibility.


6. Putting Product Development Process in Place

As an entrepreneur, you’ve learned that key to the first product is creating a minimum viable product (We’ve written extensively about the MVP in this interview). But this isn’t true for the scaling part. You need to build a stable, secure and scalable product and put in place a continuous improvement process. Quite probably this will mean that the hacker-programmer guy who initially started the product development will have to be replaced by the vice president of engineering.


7. Creating a Repeatable Process for Sales and Marketing

When you are in the startup mode, you are doing customer discovery which means that you have to kiss a lot of frogs. You get out of the building, talk to customers, do sales and hope that some people will buy your product. When you scale up, you need to put a disciplined sales process into work – you have to prequalify customers, generate qualified leads and convert them – and besides figure out how to continually improve the whole process.


8. Implementing a Dashboard for Financials

In the early days, you don’t really know what your financial model is, but you are trying to figure it out. When you grow you need to build a detailed financial model with all the numbers, put a stake in the ground and say, “This is how we are going to build our company” and then hit the numbers. So, put together a dashboard of key metrics of your company to achieve milestones and measure them consistently. If you want to know how to create a great financial plan, read our article.


9. Proving Your Ability to Execute

Whether you are in the startup or scale up phase, you are constantly looking for an investment. The difference is that when you are starting out a company, you are selling your dream, whereas when you get to series A, you have to prove your ability to execute and show concrete data. You need to talk about marketing and sales pipeline, customer funnel, the matrix you are using to convert customers, unit economics for each sales and customer, lifetime value of customer, etc. So, be prepared for it.


10. Creating a Global Strategy

When you are starting up, you have a global vision, but you are thinking local. When you scale up, you have to act globally, moving to other geographies and thinking locally in each market.

Bill Reichert is one of the Silicon Valley’s icons. He studied History of Science at Harvard, obtained an MBA from Stanford University Graduate School of Business and then went straight into the world of business. Together with Guy Kawasaki, he co-founded Garage Technology Ventures, one of the first seed & early stage venture capital fonds in Silicon Valley, in 1998 and since then has invested into 150 startups. Bill is currently a Partner at Fenox Venture Capital and one of the fathers to the concept of the Startup World Cup.