Can your business be scaled? What if you lack experience of scaling up? What obstacles might you face? We ask leading international expert on high-growth entrepreneurship, Professor Thomas Hellmann of Saïd Business School, University of Oxford, where he is academic director of the Entrepreneurship Centre
How many small firms scale up?
Thomas Hellman (TH): "Relatively few scale up. Most are happy to achieve stability and modest growth - few are high-growth orientated. Scaling a business isn't easy. It involves risk and there are big challenges. Some fail, others sell their business along the way. Not many original owners achieve high growth and retain full ownership."
How much growth are we talking about?
TH: "Scaling up means achieving significant growth. High growth is defined as 20% growth in turnover or employees in each of three consecutive years. Many small businesses have ambitions to scale, but few achieve it. Some business models just aren't scalable and in some sectors it can be more difficult. Businesses fail to scale for many reasons."
Why don't all businesses owners want to scale?
TH: "Some are happy to create a reasonable income or run a business that fits their lifestyle choices or circumstances. Others fear failure. It is difficult, and some owners just don't believe it's right for them."
How important is scale-up funding?
TH: "Essential, because scaling requires investment, which has cash flow implications. You might not achieve the growth you want by gradually reinvesting your profits - external funding may be required. You should realise the implications when considering funding options, because it can involve giving up some ownership and control. Overcoming aversion to this is a major hurdle for some."
What if a business owner lacks scale-up know-how?
TH: "It can hinder growth, but there are many organisations you can reach out to for support and information. You'll probably need to bring in people at board level with the necessary experience, knowledge and contacts, while working with an experienced mentor can really help. You must build the right team - and empower people to help you take the business to a far greater level of success."
What about recruiting staff?
TH: "Skills shortage is a real problem in some UK sectors, but scaling up requires you to recruit well at all levels. As well as knowledge and experience, recruits should share your ambition, drive and commitment. Your business culture must be right, too. Attracting good sales and business development people is crucial. Where necessary, you must invest in staff training. You must professionalise your business throughout."
How important are management systems?
TH: "Very - they must facilitate growth, not obstruct it or fail you as your business grows. Preparing for growth includes assessing your systems and improving them where necessary."
Can serving a small market prevent significant growth?
TH: "Yes, of course. You might need to target new customers within your current market or territory, but most achieve high-growth by selling internationally. You may also need to develop or introduce new products or services. Scaling is made possible by sustainable significant sales growth."
What about suppliers and premises?
TH: "Both must also support your growth ambitions, so you'll need to consider the viability of sticking with your current suppliers. You may also need to move to bigger or better premises or operate from more locations. This all needs to be well planned."
Any other words of advice?
TH: "Know that scaling up can take a lot of your time and it usually requires sizable investment. Make sure you know your market well. Access reliable professional support - often it's free. Reaching out via your informal networks can help. Find a mentor with experience of scaling a business; also build a strong board and senior management team. As you grow, share your success by rewarding your people. It will inspire them to help you deliver more success."
TH: "Being risk adverse can limit your success. Once you've achieved a good growth early on, attract investment so you can reduce your own financial risk. Things become less stressful when you know your home is no longer on the line. This can make you more inclined to take risks, so you can really take your business on to even greater things."