Scaleups

Startups focus on innovation, finding the right product-market fit, and experimenting with various market strategies. However, a scaleup goes beyond a promising concept — it’s a business poised to deliver on its potential and ready to expand its impact. The shift from startup to scale-up represents a critical transformation that brings both new opportunities and challenges; a company’s long-term success depends heavily on how well this transition is managed.

The current standard definition of a scaleup, proposed by the OECD for traditional businesses, is “firms that achieve an average growth in revenue and/or employment of at least 20% per year over three consecutive years, and have at least 10 employees at the beginning of the period (at least 18 at the end). This impressive growth, which must start with at least 10 employees, places these companies ahead of startups, boosts their chances of market consolidation, and enhances their resilience in crises.

The key to a scaleup’s rapid growth lies in its scalable business model, its ambitious mindset, and its focus on long-term sustainability. These qualities are essential in attracting investors and securing funding, which is crucial for such companies early on. Scaleups are gaining popularity globally, particularly in regions like the US, Israel, China, and the UK.

Financially, a scaleup generates between $1 million and $3 million in turnover and has raised at least $1 million in funding. Once these benchmarks are achieved, the company moves beyond the startup phase, where, as Eric Ries describes, extreme uncertainty reigns.

In essence, a scaleup is simply a successful startup. A startup can’t stay in its early phase forever — its future will follow one of three paths:

• It may go bankrupt.
• It could merge with or be acquired by a larger company or scale up.
• It may evolve into a scaleup itself.

A scaleup generally aims to continue its growth by expanding its market, often with strong international aspirations. Shift Technology, for instance, is a French startup ranked among the top 2% of most promising startups by Early Metrics. It has successfully scaled up and is now operating in North America and Southeast Asia.

From another perspective, a scaleup represents the next stage in a startup’s lifecycle. By this point, the company has found its product-market fit, validated its business model, and is poised for accelerated growth in market reach, revenue, and team size. The focus is no longer on survival but on scaling.

Key Traits of a Scaleup Business

Although definitions of scaleups may vary, certain features consistently define these high-growth companies:

• The ability to sustain high levels of growth
• Significant market impact with potential for disruption
• Enhanced brand recognition
• Creation of a substantial number of jobs
• Focus on optimizing processes
• A proven business model with long-term viability
• Major investment in leadership and organizational development

Types of Scaleups

Scaleups can be categorized based on growth speed, industry, and business model.

At one extreme, some scaleups follow an aggressive “blitzscaling” strategy, rapidly doubling or tripling their revenue and workforce each year. On the other hand, some companies take a more measured approach to growth, focusing on risk management and stable expansion through partnerships, acquisitions, and steady market growth, particularly in mature industries.

In between these extremes, some scaleups balance growth with profitability, carefully expanding their customer base and operations while maintaining financial health. Each scaleup’s path is shaped by factors such as leadership style, the funding environment, and resource management strategies.

Examples of Scaleups

Uber – This company took less than 5 years to scale. It was evident early on that the business model needed to be drastically overhauled with what. Started as a fairly unorganized work model. With the launch of services abroad, constant increase in employees, strong leadership, and dedicated investors (not just capital), this company was able to scale up in 2011 and has seen key and continued growth since.

Hubspot—This inbound marketing company was founded in 2006, at a time when alternatives to traditional marketing were slowly starting to emerge. By 2007, they had already begun scaling by increasing sales and employees. In less than 10 years, they experienced an average revenue growth of 35.18%, which is incredible.

Difference between Startup and Scaleup

Here are a few key differences between startups and scale-ups:

1. Stage of Funding

It’s possible that startups “have no funding, seed funding, or have gone through Series A funding.” This means that the capital a startup leverages to grow comes from sources like crowdfunding, bootstrapping efforts, bank loans, etc. The money is generally used to test concepts, marketing strategies, and audiences.

When a company has reached a scale-up phase, however, more capital is raised, which is used to support operations and infrastructure. The capital is leveraged to refine and further establish the business to support additional growth.

2. Market Validation

When creating a business around a new product or service, it’s imperative to find out quickly if the market is ready for it. Many entrepreneurs face the challenge of market readiness. While the service or product they created may be a true “game changer,” if the market isn’t ready for it, a startup will not succeed.

A scale-up business has overcome the challenges of market readiness and has proven it can sustain profits with repeatable sales and customers. Instead, it is looking for ways to expand what’s already proven to be a winning formula.

3. Level of Risk

As a startup, the ability to pivot quickly is a great advantage. Identifying problems and addressing them on time is easier when the customer base is still small, and monitoring what’s working and what’s not can be handled by quick fixes and easy communications. Adding new features, gathering meaningful feedback, and experimenting is generally easier. However, the risk is still high in the startup stage as your model isn’t tested yet.

With a scale-up, the margin for error goes down dramatically as the product or service has already been tested and successful. Outside investors support scale-ups because they have proven their reliability, and the risk level is lower than a startup.

Conclusion

Understanding the distinctions between startups, scaleups, and established tech companies helps appreciate the stages a business undergoes as it grows. Scaling a company requires strategic planning, strong leadership, and a commitment to continuous improvement to navigate this crucial development phase.