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Is scaling up right for you?

Over the course of the week’s events with SVC2UK, we noticed the focus for many conversations was scaling up. We heard companies discuss the struggles they have experienced with scaling up, and the related funding rounds to finance the scaling. 

About the author

Meera Shah

+44 (0) 20 7556 1452
shahm@buzzacott.co.uk
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One of the most common issues was striking the right balance between continuing to run a successful business and spending time on the growth and fundraising processes.

With increasingly high valuations for tech companies, and ever-shortening timescales to complete funding rounds, the pressure for businesses scaling up is rife. 

Keeping in mind that chasing venture capital (VC) money and scaling up is a difficult process, we challenged CEOs of scale-up companies on one simple question: why are you scaling up?

The responses we received varied, and more often than not the honest answer we received back was that actually they were content with the current level of growth and were unsure as to why they were scaling up.

In a market where a lot of money (both equity and debt) is available to fund companies to scale and grow, CEOs may feel the pressure to follow the crowd and pursue significant levels of growth. 

Our advice regarding this is simple: make sure you understand your reasons for scaling up and believe that it is right for you. Before you start looking for funding and scaling up, you need to have a clear idea of why and how you plan to scale. 

Let us look at a well-known example, Deliveroo. In 2015, just three years into starting out, Deliveroo had raised a total of $100m, and the latest raise in that year focused on expansion into Asia, the Middle East and Australia. This reveals the clear rationale for the raise and scaling Deliveroo demonstrated at the time. Their reason for scaling up was to expand into another market.

With considerable competition in Deliveroo’s home market - the UK, from the likes of Just Eat and more recently Uber Eats (with the latter now providing Deliveroo’s buyer an excellent opportunity to cash out through its recent bid for the company), expanding into another market where your business could make a real impact is a good idea.

So, now we’ve discovered the why, let’s look at the how. Not only did Deliveroo have a solid reason for upscaling through expanding into Asia, Middle East and Australia, they also had a solid plan of how they were going to do so. As written in Essential Retail, Will Shu, co-founder & CEO of Deliveroo, outlined that his business plan was to spend resources on attracting restaurants and their riders (people to deliver) initially, then concentrated on engaging customers and increased their marketing efforts. 

This is Deliveroo’s scale-up story. Deliveroo’s clear vision and plan has undoubtedly assisted it in its scale-up journey and showed that it was right for them at that time in its market. However, it should by no means be taken as a given for all tech start-ups, that these levels of fundraises are required for what they are trying to achieve.

Tech start-ups of today should not feel obliged to follow companies such as Deliveroo blindly without fully understanding whether scaling up is right for their own company and vision. 

Remember, a great adviser can assist you throughout, but ultimately the rationale for scaling, whether it is to enter international markets or pursue larger target customers, should be clear in your mind.

 

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