While startup CEOs focus mainly on assessing market demand and navigating competition in the early business year, scaleup CEOs need to be much more focused on long-term strategy.
ADVERTISEMENTDid you know that about 900,000 new businesses were set up in the UK in 2023, according to the NatWest and Beauhurst New Startup Index? This was a new record and an 11.8% hike from 2022.
Out of these, about 318,000 were based in London, a 20% increase from 2022.
The top three sectors were online retailing, which saw the launch of about 43,195 companies, followed by the real estate and property rental sector, with approximately 18,196 companies, and the management consulting sector, with about 14,576.
But once a company is launched, what happens next when it wants to stay afloat? Although London and the UK as a whole seem to be seeing a startup boom, starting a business still comes with a number of challenges.
Around 10% of startups go bust within the first year, according to startup newsletter Failory, with years two to five being even more crucial in determining future success.
As such, startup chief executive officers (CEOs) need to possess some very key skills in order to keep their companies afloat for the first few years.
However, once the company is somewhat stable and starts growing more - or rather, it becomes a scaleup - the need for a very different leadership skill set arises.
This is because the company is now no longer focused on the short term, with a “fight or flight” mentality, and now needs longer-term, more sustainable strategies.
Although some sectors, such as technology startups can do quite well sticking with the same founder CEO, other sectors, such as food and beverage, are noticeably harder to crack in the long term.
Assessing market demand and beating the competition
According to CB Insights, 42% of failed startups do so because of incorrectly assessed market demand.
A lack of funding is the reason for 29% of failures, whereas in 23% of cases, an incompetent founding team is responsible. Competition meanwhile throttles 19% of failed startups.
Other significant issues arise from product mistiming, pricing/cost woes, bad marketing and user-unfriendly products.
As such, startup CEOs need to deal with a wide range of issues at the same time, during the business’ critical foundational years. To do so, they may need to be relentless, technologically and financially savvy and network with a wide variety of people to bring in investors, partners and customers.
Strong leadership qualities, as well as a tangible passion for their product or service, are also key. Leaders need to have a clear vision for their business, as well as be able to rally their team, even when results may be slow to come.
Creativity and innovation are also given a lot of priority in these initial years, as the business is still experimenting with what it wants to do and where it wants to go. As such, it has a lot of leeway to try new things and fail, if the founder is a risk taker,
A startup CEO also needs to have the requisite skills and emotional intelligence to hire the right strategic and leadership team, which will hopefully stick with the company for a long time. Furthermore, they need to be willing to wear several hats, to learn hands-on about the different parts of the business and so lead from experience.
Scaleup CEOs need to identify key long-term metrics
The OECD and Eurostat say “All enterprises with average annualised growth greater than 20% per annum, over a three year period should be considered as high-growth enterprises. Growth can be measured by the number of employees or by turnover.”
As such, for scaleups, long-term sustainable growth takes priority, for which companies may need CEOs who have years of experience in this exact position. At this point, wearing several hats and experimenting can take a backseat, since hopefully the company already knows what it wants to do.
ADVERTISEMENTThe scaleup CEO can thus do what they are best at, and lead the company with a strong growth-focused strategy while delegating other duties to members of the C-suite.
Although several startup CEOs could be serial founders, very few could actually have the required experience of leading a larger, faster-growing company, with a certain number of employees.
One of the most important things that scaleup CEOs need to do is identify key long-term metrics, such as unique selling points (USPs). While the startup founder may have managed to fend off competition in the initial years, unless a company holds on to a very strong USP, it is likely to be overtaken by other newer entrants sooner or later.
Another important metric is the North Star metric, which determines which factors are essential for a company’s growth. For example, for social media platforms such as Facebook or TikTok, daily active users could be seen as a North Star metric, as the company needs to keep growing.
So the scaleup CEO not only identifies these key USPs and North Star metrics amongst others, but also comes up with a thorough and sustainable roadmap of how to get to particular goals, and in what timeframe.
ADVERTISEMENTThis involves taking the original product or service of the business and figuring out how to launch it to millions of customers, or how to increase its mass appeal, amongst others.
Scaleup CEOs also have more experience dealing with the unique challenges a growing company might face, such as during the initial public offering (IPO) time. This may also include shareholder issues, and maintaining the delicate balance between short-term shareholder returns and long-term growth.
Furthermore, a larger company is also more subject to public scrutiny, with several issues such as mass employee redundancy, the direction of the business and other public relations matters needing to be dealt with much more sensitively. As such, more experienced CEOs may be better at navigating these aspects too.
Another key reason scaleups bring in new CEOs is so that they can discern which opportunities are actually worth pursuing further and which may need to be refused or revisited later.
This is often a diametric shift from the startup mentality, where most founder CEOs would welcome as many opportunities as possible and would be willing to try out several different things.
ADVERTISEMENTHowever, as a larger company, there is often much more to lose and many more factors, such as more employees and capital invested, to think of before making a decision.
Scaleups of a certain size also need to be very confident in their identity and the direction that they have chosen, in order to be taken seriously. As such, a scaleup CEO may sometimes have to make tough decisions and stick to their guns regarding where the company is heading and what will help it get there, despite adverse criticism.
