An enterprise cannot afford to remain in the start-up stage and delay maturation. It has to expand against all odds to be successful.

Expansion is a natural by-product of a successful start-up; this also means the entrepreneur has just crossed his first hurdle. Organisations have to go through various phases, sometimes difficult, as they mature just like individuals. For an entrepreneur the scaling up stage is like moving towards a matured organisation, and it has implications both on the founders, employees, investors and the market at large.

There are certain conditions before scaling up can typically happens for a start-up company. First of all the start-up company normally should have entered a niche market and sees an opportunity to be a market leader. Most often niche market do not carry these characteristics in which case any scaling up becomes problematic. Secondly, for a start-up company to be successful it has to better in what they do than any of their competitors. This happens if a start-up company is in an established and old industry environment. Scaling up also gets effected by the volatility of the industry or the market. This is a known truism in most technology companies where the entrepreneur faces a fast moving obsolescence for his innovation or products. It is also true of the service companies where the product / service offering is novel or nouveau. In these cases the market gains shifts as soon as any other offering comes into the place. Difficulties of scaling up can also happen because at the start-up stage entrepreneurs have not created enough entry barriers. In fact, in some situations acquiring quick scale is also an effective way of creating barriers to enter.

These are some salient market and environment driven challenges that new venture face in scaling up. But there are also management oriented challenges in scaling up. These are normally under three categories.

1. The owner’s goals and desires

2. Business Strategy

3. Changing culture and skills needed for future

The Owner’s goals and desires

This is purely a personal decision that owners have to take but often it is not that easy. It gets influenced by the employees, by the uncertainty of the future, owner’s desires and investment terms. Wherever start-up process has not been easy, owners show reluctance to scaling up. If the start-up time frame is long, the entrepreneur might have dissipated much of his energy or enthusiasm and may not want to rock the “Organisational Boat”. It is also possible that the entrepreneur has got another innovation in mind or another start-up in mind and is not ready to scale. Controlled scaling might be a strategic choice for an entrepreneur and is often found to be the case where entrepreneurs tend to think long term. Furthermore, an aversion to debt or dilution of equity control, might affect scaling up.

Business Strategy

Scaling up really means, as Geoffrey Moore explained in his book “Crossing the Chasm” - moving away from being a start-up. The start-up at this stage is in a situation where the clients are not innovators or early. In this scaling up stage the entrepreneur is upgrading to a more formal organisation due to the requirements of the market. Here the market norm is getting repetitive orders as the entrepreneur has proven the capability to deliver profitability.

In a situation like this, the original internal operating dynamics of the organisation comes under stress, as the funding team could still be keen on maintaining status quo. In other words, they are still busy with keeping the “market-pie”, whereas the new requirement is on expanding the “market-pie”. Many employees from the founding group at this stage may find themselves not capable of adoption or personal growth and change, whereas new recruits might show amazing promise. Normally, in the start-up stage the work force is small, and has close contact and regular communication.

One of the major requirements of the scaling up in a dynamic organisational context is the ability to manage funds and yet plan for growth. Obviously, it is a high excitement state with constant change and many entrepreneurs are surrounded by new team members and new opportunities. Under such conditions entrepreneurs often find themselves if not lost, highly flustered.

Changing culture and skills needed for future

This has been alluded to when I talked about internal strategy before. An entrepreneur needs to take stock of the current culture vis-à-vis specific personalities and see how it would fit a new culture that might be required.

So, is the current culture adequate and helpful in dealing with the chosen goals and strategy? The behaviour of people in a start-up is normally towards sharing information, sharing risk and working as a group. But a change in goals and strategy, particularly the ones that don’t get the approval of the full team can be problematic. Requirement for training and skill development cannot be less emphasised at this stage.

Thus, scaling up a venture is a truism and a want by most start-up entrepreneurs. But once they reach the stage; the issues are not that simple and plain. Growth and scale up may still remain an entrepreneur’s dream!

The author is the Executive Director of WCED. He brings a rich combination of academic and industry experience with a lifelong interest in Entrepreneurship. He has been a visiting professor at IIMB and IISc, teaching in the areas of Entrepreneurship and Service Business Design & Management.

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