Do you ever wonder whether a few expert tips to scale up your innovation business would make all the difference? Radium Capital works with start-ups of all different sizes and stages and from all different sectors. Time and time again, we see clients that have put the building blocks for growth in place scale up more readily. The reason for this is simple. No matter how unique a company’s new service or product is, its journey from start-up to scale-up tends to follow a predictable path with similar challenges. Although this notion may seem a little confronting to businesses doing cutting-edge research, it’s reassuring to know you can learn vital lessons from other founders and avoid common pitfalls.
Start-up or scale-up: what’s the difference?
Start-ups are shiny new ventures fine-tuning a product or service and exploring cost, supply chain, customer demand, customer service and other early-stage issues. By contrast, scale-ups are businesses that have gone through this test and learn process and settled on a viable product or service. In other words, scale-ups have greater certainty and are ready to ramp up their operations. So when is the right time for start-ups to begin scaling? In our experience, it’s never too early to map out future growth. Even if your business is still in its infancy, it pays to be ready. Start planning for expansion as soon as possible because some start-ups grow more quickly and reach the scale-up point faster than they anticipate. But even if you’ve reached the scale-up stage without a plan in place, it’s not too late to make one. Now is the time to prepare for success rather than just hitting the accelerator, careening through your scale-up journey and hoping for the best.
Why grow your business in the first place? And what’s wrong with staying small? Scaling up is where the value is for start-ups. It’s when all the hard yards and bootstrapping begin to pay off. So progress is not something your business should be actively eschewing. According to McKinsey, two-thirds of value creation happens in the scale-up phase. And the alternatives to scaling up aren’t exactly appealing. The odds of an Australian business making it past the four-year mark are currently only marginally better than a coin toss, with the survival rate for new businesses sitting at just 52% according to the Australian Bureau of Statistics. This is a 10-year low. But don’t despair. You can use eight tried and tested methods to increase your odds of making the leap from start-up to scale-up.
1. Step back and strategise
It takes passion, energy and long hours to get a new venture off the ground. However, it’s essential to carve out time and hone your business strategy. Step back from the day-to-day operations and consider what you want your business to become. This doesn’t need to chew through weeks of your valuable time. We’d recommend ring-fencing one or two half-days for your strategy and using tools and methodologies such as the One Page Strategic Plan and developing a Big Hairy Audacious Goal (BHAG) for your business. Then map out a big picture plan with milestones to keep you and your team accountable for getting there.
2. Focus on the finances
When you’re scaling, you’ll need more capital to hire new staff, ramp up marketing to drive sales and invest in systems, infrastructure and processes to support your growth. So it’s vital to consider what capital mix is right for your business. Perhaps now is the time to attract investors or start looking at other types of financing. The good news is scale-up businesses are more likely to attract venture capital (VC). In 2018, 63% of the $135 billion US VC firms invested went to successful start-ups scaling their product or service. However, VC backing comes with a dilution trade-off.
So map out how much equity you are prepared to exchange for funding before you start courting VCs. R&D financing such as Radium Advances are non-dilutionary and can help your company access more capital without having to give away the business you’ve worked so hard to build. Using R&D financing such as Radium Advances strategically can help you scale up your capital and your company. Radium Advances are essentially loans that let you access your R&D tax refund early. Reinvesting your Radium Advance into more innovation has the double benefit of progressing your R&D and making you eligible for additional tax refunds. Take the experience of Radium client, Recce Pharmaceuticals. The Sydney-based biotech used Radium Advances to help scale up its manufacturing. Thanks to Radium Advances, Recce increased its annual R&D tax refund by 25% and boosted its R&D expenditure by 33% without raising additional capital.
While it’s important to focus on accessing additional funding, it’s equally important to avoid missteps when it comes to deploying that capital once you obtain it. Here are a few common financial blunders scale-up businesses should endeavour to avoid.
- Overspending: When scale-ups access VC and other finance, they can be tempted to spend money too quickly. Don’t fall into this trap. Keep a tight rein on cash flow. Make sure you align your outlays with your strategic plan for scaling.
- Misspending on marketing: Marketing is crucial to scaling any business. But remember, there isn’t a direct correlation between what you invest in marketing and new customers and sales. Digital marketing solutions are data-rich and allow you to get a bird’s eye view of how your marketing dollars are performing. Use these insights to zero in on the marketing efforts that deliver for your business and cull those that don’t.
- Converting variable costs into fixed costs: Outsource as much as you can for as long as you can. Many scale-ups shoot for the stars with gold-plated in-house systems or functions, then lack the cash flow to continue scaling. Worse still, they can lose the agility to respond rapidly in a changing market.
3. Check in with your customers
During the scale-up phase, keep your finger on the pulse of what existing and desired customers want from your product or service. This is the time to hone your existing offerings and develop new ones if that’s part of your strategy. Anticipate customer requests and new needs. Keep your team focused on quality and delighting customers, to keep your existing customers with you as you scale up and attract the new customers you’re seeking. Radium client and baby wearables pioneer Goldilocks Suit is a prime example. The scale-up is not only enhancing its product’s ability to identify developmental issues early on, it’s also developing new products to assist aged care and disability care residents and is exploring wearable products for remote workers.
4. Scope out your structure and systems
If you don’t start delegating, you won’t be able to scale your business. Scope out a management structure for your business that favours growth. Find the sweet spot between governance and agility to maximise efficiency as your business scales. Implement systems and software that decrease your team’s workload and propel growth.
5. Culture counts
Obviously, founders have an outsized impact on the vision, values and culture of their companies. During the start-up phase, team members absorb the company culture by osmosis. But when the business starts to grow rapidly, the shared experiences that bound the original team together don’t apply to the new hires. If left unchecked, this can lead to friction. Avoid this common pitfall by articulating and sharing the company’s vision, mission, values and business goals with all employees on an ongoing basis. This will help your employees unite towards shared goals and transform into the high-performance team you need to scale your business successfully.
6. Hire the right people for the right roles
The people you hire will be a deciding factor between your start-up becoming a successful scale-up or fizzling out. Bring in subject-matter experts who believe in your business vision. Hiring people who are better than you will help your business accomplish more. Make sure you have systems in place to recognise, reward and retain the top-performers your business attracts. Once you add a management structure and bring in specialists, it’s vital to hit pause on your jack-of-all-trades tendencies. Step back and let the professionals you’ve hired show what they can add to your business. Empowering your team, while staying attuned to your business, will make it easier to draw more top talent as you continue to expand.
7. Steer a steady ship
Before you begin to scale, calculate how quickly you should grow. A mantra of bigger, better, sooner can spell disaster for start-ups. Although it could seem counterintuitive, it’s imperative to learn when to say no as you begin to scale. Use your strategy and scale-up plan to help decide the opportunities to grasp and the ones to swerve. If you and your team become overextended, or lose sight of your vision, your business can’t continue to grow. Your product, service and overall customer experience could be negatively impacted too. Set a timeline for scaling up, and don’t be tempted to cut corners and rush your growth journey.
8. Expect the unexpected
Pandemics aside, market disruption, political changes and natural disasters have always had an unnerving knack of throwing curveballs for new businesses. So it pays to expect the unexpected. Build enough flexibility into your financial strategy and business systems so your company can withstand the cut and thrust of market forces and be well-placed to pivot if a major disaster strikes.
Start planning your growth journey today
Radium Advances offer businesses with R&D fast, flexible and affordable finance. Whether you need non-dilutionary capital to fine-tune your R&D while you scale or simply boost your cash flow, Radium Capital can help you access your tax refund early. So start your journey towards scale-up success today by scheduling a call with our R&D experts or visit our website to find out more about Radium Advances.
 McKinsey Analysis. 2019. 2Q 2019 PitchBook – NVCA Venture Monitor. [ONLINE] Available at: https://pitchbook.com/news/reports/2q-2019-pitchbook-nvca-venture-monitor
 McKinsey Digital. 2020. The big boost: How incumbents successfully scale their new businesses. [ONLINE] Available at: https://www.mckinsey.com/business-functions/mckinsey-digital/our-insights/the-big-boost-how-incumbents-successfully-scale-their-new-businesses