Startup and scale-up are terms that can be easily confused, yet they are concepts that need to be treated differently. A startup is a venture in the early stages of…
Startup and scale-up are terms that can be easily confused, yet they are concepts that need to be treated differently. A startup is a venture in the early stages of offering its product to the right people to get funding and keep growing. On the other hand, the scale-up has already established its product or service in the market and is on its way to accelerating its growth.
Related:Processes For Scaling A Successful Startup
Defining a startup
A startup is a small and recently created company with high innovation, technological potential, and often a unique and innovative product or service. Startups follow a model that aims to be scalable and has the potential for exponential growth. Due to their nature, these companies face high levels of uncertainty and risk while they pursue one goal: to increase their size and revenue quickly, that is, to become scale-ups.
Startups are characterized by the following:
- High levels of risk: a startup generally does not have a well-defined target audience since they are testing their product market fit and the viability of their hypotheses. Among other factors, this explains why startups have a success rate of 30%, estimating that only 1 in 10 startups manage to grow and consolidate.
- Innovative character: This is the essence of startups; these types of businesses are linked to technology and focus on offering new solutions or benefiting from technological advances to reinvent and modernize something already existing.
- They search for external financing: Although their initial costs are usually minimal, in the medium term the profits of a startup can be considerable. Thanks to this accelerated growth, investors or Business Angels are attracted and finance these projects in exchange for shares or participation in the company.
- And bet on accelerated growth: The main objective of a startup is to grow, demonstrating that the idea behind the business is profitable, if they achieve it, they get more assets to scale.
Related: Digital Experience And Startups: Main Focus For Their Customers
What makes a company scale up?
Before becoming scale-ups, they started as startups until they crossed the chasm of growth, which happens after overcoming all the obstacles that usually appear in the path of startups. How does this growth happen? By conquering several stages that imply achieving a market fit and identifying a scalable business model. It should be kept in mind that although starting a startup is not an easy thing to do, and many tend to disappear, being a scale-up has its challenges as well, since it faces different problems, such as: keeping growing while maintaining operational controls.
So, What makes a company scale-up? The scale-up characteristics are the following:
- Strong and scalable business model.
- Clear differentiation and competitive advantage.
- Adequate financial resources.
- Efficient operations and processes.
- Strong leadership and team.
- Adaptability to change.
Differences between startups and scale-ups
As we have said, startups and scale-up are very similar types of companies, but there are fundamental differences between these two.
- Growth rate: Startups focus on rapid growth and scaling their business, while scale-ups concentrate on sustaining and accelerating their growth rate.
- Human talent: When a company is at an early stage it is common for the founders and other employees to have multiple roles and do a bit of everything, this dynamic changes when becoming a Scale-up because at this point of growth, the roles of the team members are reduced and clearly defined. The ideal is to hire specialists for each area to improve the delegation for the proper functioning of the business.
- Funding: Startups often rely on outside funding, such as venture capital or angel investors, to get off the ground. Scale-ups may also seek funding, but they are frequently able to fund their growth through revenue and profits.
- Risk: Startups are inherently risky, typically, trying to disrupt existing markets or create entirely new ones is challenging and uncertain. Scale-ups have already established themselves to some degree, so they have less risk and also, less potential for explosive growth.
- Business model: Startups are still refining their business model and trying to find the most effective way to create revenue. Scale-ups have a more established business model and are focused on scaling and optimizing their operations.
- Product: Startups are generally not sure if their product or service will be profitable, so they keep experimenting until they perfect it. On the other hand, scale-ups have already perfected their product and have demonstrated that it is economically sustainable.
Related:5 Low-Investment And Highly Profitable Businesses
Transitioning from startup to scale-up
How does a startup grow? This is a challenging question to answer since the scaling of a company relies on several factors, yet overall, we can point out that the following aspects as crucial for the growth of a startup:
- Market fit.
- A steady flow of revenue.
- Strong and experienced team
- Significant investment in technology.
- Established and automated systems
- Focus on customer acquisition and retention
Do you think your startup is ready to become a scale-up? No matter what stage it is in, this information can help you in the process.