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Crossing the chasm: The startup to scale-up gap explained

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Startup and scale-up are two distinct stages in the lifecycle of a business. Where startups are early-stage businesses focused on innovation and finding product-market fit, scale-ups are companies that have proven their business model and are in a phase of rapid growth and expansion.

Whilst a critical milestone in the growth of a company, the journey from startup to scale-up isn’t linear and it often feels like a ‘chasm’ to cross between the two. Moving out of a phase of experimentation and searching for your product-market fit into one of strategic, scalable growth involves a lot of change, thought and above all, confidence – more on that later. 

Where are you in the startup to scale-up journey?

start up to scale up gap

The above diagram shows the improved growth as a business moves from an early stage startup, through to a later stage startup, gaining traction in terms of your customers and business processes.

As a later stage startup, this is where you’ll likely be looking to close on your Series A funding round. Some of the typical aspects of this stage include:  

  • Focus on Innovation: Introducing new products, services, or business models that aim to address unmet needs or gaps in the market. 
  • Limited Resources: Operating with limited resources, including capital, human resources, and infrastructure. Often in the process of securing funding and building a team to support your growth. 
  • High Risk and Uncertainty: Still testing your business hypotheses and market assumptions.  

Overall Objective: Prove the viability of your business idea, secure funding, and achieve product-market fit. 

 

Once series A funding has been achieved, it’s time to look to the next stage of scalable business growth (scale-up) which is characterised by slightly different criteria: 

  • Focus on Expansion: Shifting your focus from the experimental phase to scaling your successful business model. Aiming to expand and grow operations, enter new markets, and increase market share. 
  • Increased Resources: More resources at your disposal, including access to funding, a larger workforce, and established infrastructure. 
  • Reduced Risk: You’ve already validated your business model and achieved a degree of market acceptance. 

Overall Objective: Achieve rapid and sustainable growth, increase revenue and profitability, and establish a strong market position. 

The right moment in time 

If you’ve achieved your series A funding, it’s probably time to enter into your next phase of rapid growth and expansion. With new targets and opportunities on the line, this is where it takes foresight and that previously mentioned confidence to take your business to the next level. We like to demonstrate this ‘gap’ and the moment in time to push the business into the scale-up phase using the concept of Charles Handy’s Second Curve. 

If you’ve not heard of this concept before, it was introduced by Charles Handy, a prominent management thinker and author, in his book “The Empty Raincoat: Making Sense of the Future” published in 1994. The Second Curve is a metaphorical representation of the challenges and opportunities that individuals, organisations, and societies face when navigating periods of significant change. 

second curve

As shown in the diagram above, the First Curve represents the traditional or established way of doing things (and your startup phase). It is characterised by the current business model, practices, and strategies that have brought success in the past. During this phase, businesses are focused on optimising their existing processes and maintaining their current success.  

However, Handy argues that no business or organisation can sustain continuous success by solely relying on the First Curve. External factors can disrupt the status quo and make the First Curve strategies less effective over time – eventually resulting in an inevitable peak and then decline.

This leads to the need for the Second Curve, which represents the path of innovation, adaptation, and transformation (and Scale-up). It signifies the exploration of new opportunities, the development of new business models, and the willingness to embrace change and new challenges. 

What’s most interesting about this concept is that the Second Curve should be pursued before the First Curve starts declining. It’s important to recognise the need for change and innovation while the First Curve is still strong – waiting until the First Curve declines may mean it’s too late to catch up effectively. 

Ready to scale? 

In our case, this Second Curve represents the strategic and deliberate decision to move your business into scale-up mode. If you think you’re ready to take your business to the next level, we have devised a set of key criteria to reach this next milestone as well as a three-part, hands-on programme to guide you – The Merchant Scale-up Programme. To find out more, reach out to Lana Fowler, Scale-up Programme Lead: Get in touch

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