No entrepreneur can remain insensitive to the phrase “Chase the antelope, not the mouse!” (Well, some do! Read “Fuck the VCs” by the founder of Camera+ if you feel like you are one of them). For those who stayed, you are probably interested in a bucket list to know when to scale and a clear plan to know how to do it. Unfortunately, such lists do not exist, but people who have already scaled up do. This article follows the discussion that Christian Kranicke, founder of Leading Edge Advisors, and Carlos Silva, manager of the Founders Institute, had with participants of the 2017 SeedStars Summit. Here are the main takeaways:
What does scaling up even mean?
Scaling up is having “more”, but more of what? This is the first question participants answered. Some mentioned scaling up was replicating the Business Model (BM) in new bigger markets, others said that scaling up meant having more paid customers from all around the world while another participant mentioned that scaling up meant shifting the focus away (in his particular case, it meant starting to manufacture physical elements instead of only doing software). The point is, scaling up is a different experience for each start-up.
However, there is one common question to all start-ups wanting to replicate their services in new markets (the main aspect of scaling up we will tackle in this article): when is the right time to do it? The question is open but the moderators offered some answers. The business should already have a base in its core market before considering expansion, meaning it showed organic growth. Once you know the BM works, you need to know it is replicable, which is done by looking at the clients you sell your product to (they shouldn’t be friends and family). Finally, after the concept is proven, you need to look at the endemic problems you solve and see which markets face the same issues.
This is when things start to get messy because the answer to the article’s headline depends on where you want to expand your start-up. First, we will see how to open the way for growth in developed countries before trying to see how it is different from doing the same in developing countries.
How to scale up in developed countries?
The key to the European and American market is getting into a start-up accelerator. However, keep in mind that, even though there are accelerators in most countries today, they are far from being helpful to scale up. The household names (500 Start-Up, Y-Combinator, …) are really what you want to be looking at as these institutions offer credibility, help and a huge network. The hardest part, of course, is getting in by showing that your model is replicable and that it has real traction in the market.
Once you are in, you are sure to build a brand and attract investors, allowing you to scale up without using a penny of your own money. However, you need to make sure to “keep the cap table as clean as you can” because you are offering your liberty in exchange for investments. This is why you need to choose your investors wisely according to what they have to offer: always choose Venture Companies (VCs) with knowledge of the business and of the markets you want to expand in.
But whatever happens, you need to make sure that you are doing everything on your own terms. Investors will ask for a quick scale up (often too fast), which often leads to self-destruction. In this case, you need to understand your competitive element and know if you can face your local competitors, but you should also be sure of your infrastructure and your ability to deliver to the new market.
How to scale up in developing countries?
There is no single way to succeed in emerging countries, winning the market over depends on how original you are. However, the help of local partners is always very important as they have way more knowledge of the environment than you do. In this case, you cannot be as picky and only choose the investors you want, but you should try to partner with the good stakeholders; however unfair this advantage may seem, it is the cost of doing business in developing countries. Creativity comes into account to put in place an unofficial revenue sharing and satisfy all the stakeholders (without forgetting that you should be at the centre).
Unlike developed countries, BMs in emerging markets are based on institutional voids, which makes even neighbour markets completely different. This may lead to complete transformations of the BM, which is very risky but not impossible to do. To get ahead, an important question to ask is “Who has been there and done that?” By tapping into that knowledge, you will get a different story than that of the VCs but also new tips and new ways of being creative. One of them will probably be how to find the legitimacy that will get you a seat at the table of investors.
Wherever you want to scale, the hardest part of your journey will be to build a solid BM. Once you know that your idea works, try to find the local knowledge that will boost your start-up and allow you to replicate your services in the new markets you are targeting. But most of all, keep in mind that getting investors on board really boils down to one single question only you can answer: “It doesn’t matter how good a product, are you credible?”
Last modified: 31 août 2020