Per Tim Westergrenfounder of Pandora, when you decide to start a startup you need to be “prepared for a long and often uncertain journey” because “good results are not obtained easily”. And in fact, in the face of so many initiatives launched, there are still few new businesses that manage to make the leap and reach the level of unicorns (new businesses reaching valuations of one billion dollars or more). Just think that between 2010 and 2017, just 850 startups in Europe were valued at more than $100 million. Moreover, among these, less than one in ten managed to make the further leap towards a valuation of at least one billion dollars quickly and, in particular, in less than four years.
In this regard, a study by McKinseytitled “Hard choices, How Europe’s fastest-growing Start-ups Become Unicorns”tried to investigate what they are the best practices adopted by the fastest growing new European companies, involving founders, top executives and board members of 100 European start-ups in the development phase. The results? Almost all of the scale-ups involved agree that one needs to be found balance between growth, efficiency and the ability to protect its market position. Even if 40% of companies struggle to find a balance in this sense.
Deciding what to focus on depends on the drivers driving the core business corporate and which divide the scale-ups into three groups: those that focus on the network effect (social media, communication platforms and other advertising-based activities) and focus on the growth of users to increase the value proposition; those that focus on solutions and products; finally, those that work on a scale and with marginal infrastructural costs focus on the operational efficiency of platforms (such as scale-ups in the e-commerce sector).
About growth and efficiency, the report warns, not being aggressive enough can prove to be a fatal mistake. As one of the executives interviewed points out: “We have made decisions that have limited growth to achieve profitability, but this has not proved to be a winning choice, considering that our competitors have grown faster than us, attracting more funds and more investors” .
Another best practice that emerges from the survey concerns the need to pursue expansion in terms of product portfolio before geographic expansion. In fact, the ability to expand the product and service portfolio is seen as very important as an opportunity to open up to unexpected customer segments or increase the spending of existing customers. Furthermore, when you decide to look beyond domestic borders, you need to think more in terms of effective accessibility than mere market size. For this, it is the suggestion, it is necessary not to be tempted by the most promising/wider markets, but to move towards the more known, accessible, familiar and close ones to reduce the level of difficulty to face.
For startups that decide to expand through acquisitions of other companies, the advice is instead of guide the choice by favoring the realities for their products, people and intellectual property, overshadowing the value that their presence on other markets is thought to have. This is because, explains the report, acquiring to launch into a new market leads to failure five times more than targeted acquisitions based on the value of products, people and intellectual property. Finally, don’t be afraid to make changes to your leadership team. One in five of all leaders surveyed say their biggest mistake was not replacing people in the wrong roles sooner.