By Jon Dawson, Manager at haysmacintyre
You were once considered a start-up with a handful of employees and contractors, excited by the announcement of open banking and busy developing a platform to allow the world to view their personal finances at the scan of a fingerprint.
Fast forward three years and you’re going through your beta testing, perhaps you’ve even got a thousand test users, and your monthly burn means you’re getting through that last round of investment twice as fast as you forecast.
You’re now considered a ‘scale-up’.
Often even more challenging than the early years, you’re now in a position where you have to answer to your investors. You’re spending more time raising money than working in the business and the seven day working weeks you once loved are becoming more tiring.
Whilst it may seem overwhelming, it’s certainly manageable. Here are some tips on how to deal with the growing pains you’re experiencing.
Having an end goal is crucial. It doesn’t have to be an exit and might even be to develop a lifestyle business. For many, the goal will be an exit and planning for the exit as far out as possible is crucial. Do you have a magic number in mind? Do you want to stay involved post sale? Is your business right for a trade sale, corporate sale, IPO, LBO, equity crowdfund or a merger?
Having an end game in mind will prevent you from being distracted when you receive an offer out of the blue. You won’t be forced to drop everything to focus on the intensive due diligence that is about to start (which is always more time consuming than you ever thought it could be). You want to have an idea of what an offer might look like and an expectation of when you might be ready to consider it.
You’re spending more time raising money than working in the business and the seven day working weeks you once loved are becoming more tiring.
With an end goal in place, working out your KPIs and personal performance targets along the way can be much easier. The trick here is to avoid vanity numbers. Business owners often talk about employee numbers when they talk about growth and forget about some of the core KPIs which can really impact their business, such as customer satisfaction, server downtime and cash reserves.
On top of business KPIs it’s important to keep personal goals and motivations at the forefront of your mind. Some of you will be driven by annual sales or an exit valuation, but others might be driven by something much more intangible like a goal to deliver a payday lending service to those in need, without bankrupting them. Keep coming back to your goals when you’re experiencing growing pains and use them to guide the decisions you make.
Very few fintech companies are scaling at the pace they need to without serious investment. The speed of the industry is putting pressure on businesses to spend a huge amount on research and development to prevent being overtaken by competition. Raising well is crucial to survival and this means being organised. Without any hiccups, you should expect a ‘Series Fundraise’ to take at least 8-12 months to get across the line, and this is assuming you have all your ducks in a row before the process starts.
Start thinking about your investment before you need it and raise more than you think is needed. It’s best to assume there will be delays in raising and your forecasts will underestimate how much you’ll spend over the next 12-24 months. Fundraising will take up a huge amount of senior managements’ time and you don’t want to find yourself raising too often – get back to running the business.
On top of business KPIs it’s important to keep personal goals and motivations at the forefront of your mind.
Raising well also means partnering with the right investors. You might be a network driven business, benefitting from the advantages of having your customers fully engaged in the business and may decide that a suitable route for you is through crowdfunding. You might be a sole-founder who could benefit from an experienced support network and finding the right Angel investors might the right choice for you. For a lot of scale-ups looking to raise through a Series round, one or more institutional investor, VC, PE or family office will likely be your preferred option. Remember in all investor pitches you walk into, it’s a two-way sale.
Right now, securing the next round seems the most important thing, but remember you’ll have to work with your investor for years to come. They’ll all have different approaches and different levels of involvement in the business so consider this before you start looking for investment. Do you want the expertise of having an investor on your Board and involved in running the business or do you want to limit all contact to a call once a month? Look at their track record and speak to other founders of companies they’ve previously invested in. Speak to your advisors, they will be able to spot whether any of the proposed terms of investment seem unusual or should be avoided.
Surround yourself with the right people
As a start-up, the founder can be responsible for all decisions in the business and take on the responsibility of being the ‘bottle neck’. Now you’re a scale-up, this is no longer the case. You need to self-appraise and ask your team for feedback – what are your weaknesses and which areas of the business should you now be completely removed from? It’s probable that you could hire a HR manager who will be better at hiring than you, or a Finance Director who will be more experienced to look after the financials than you. As Lee Iacocca famously said, “I hire people brighter than me and get out of their way”.
It may even be the time to start considering whether you’re best placed to be the CEO. Some Founders develop into fantastic CEOs, whereas others are much better at building a product than running a company. It’s time to do what’s best for your business if you really want to see it flourish.
As a start-up, the founder can be responsible for all decisions in the business and take on the responsibility of being the ‘bottle neck’.
If you are the right leader, now is the time to appoint a strong Board around you. This might include non-execs, angel investors or mentors as well as executive directors. It’s also time to consider whether your advisors are right for you. Having experienced, industry focused lawyers, accountants, bankers and corporate financiers will be crucial throughout your next period of growth.
Maintaining a culture when there’s ten of you under one roof is easy. Once you start expanding globally, employ overseas developers, have multiple offices or reach the unwritten rule of 50 employees, you’ll notice that preserving the culture becomes much more difficult. You might not even be able to describe what the culture is, but just know it exists. The first thing you should do is write down what the culture was like in the early years so you can refer to this as you scale. This might take the form of values and a mission statement but be creative, there’s no right way to do this.
You might not even be able to describe what the culture is, but just know it exists.
A number of clients I work with have provided great examples of ways to ensure that the culture is maintained including away days, weekly open feedback sessions, 360 appraisals, flexible working conditions amongst others. However, all of them agree on one thing; the key is to hire with your values in mind. Perhaps the culture forms part of the interview process, or you might ask candidates to take part in a psychometric test, designed to highlight those individuals with similar values. Take them out of their comfort zone, do they still demonstrate the same values when under pressure?
There’s no hard and fast rule to scaling a business. Different businesses have gone about this in very different ways and it’s important to be unique in your approach. However, appreciating that you’re in a different stage of the businesses’ life to when you were a start-up will help you as your business develops and grows through the next phase.
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