THOMAS AHRENS
How to grow far beyond the startup phase
“Thomas’ knowledge of growth companies has been the basis for how we have built the company since the start of SportAdmin. The book contains so many concrete tips that can have a decisive impact on how quickly you grow.”
Henrik Lehman, Founder and CEO SportAdmin
SCALE UP — SHAPE UP
THOMAS AHRENS
How to grow far beyond the startup phase
Copyright © Thomas Ahrens 2024
Published by Kunskapshuset Förlag, Helsingborg, Sweden, 2024
Kunskapshuset Förlag (The Knowledge Publishers International) is part of Hoi Publishing www.kunskapshusetforlag.se www.hoi.se
info@hoi.se
Design: Mia Fallby, m-Dsign
Printed and bound in Bosnia and Hercegovina by GPS Group, 2024
ISBN: 978-91-89547-19-3
INTRODUCTION
Why have I written Scale-up Shape-up?
There are many companies that could become the next Axis, IKEA, Qlik, Spotify or Tesla if they can just grow beyond the Scale-up phase of 50 employees, but few can achieve this. It requires a way of thinking that I want more people to learn. It’s not rocket science, but it does involve courage and the ability to grow at the right speed and at the right time. It’s like riding a tiger to win a horse race.
This is not a book of theories – it’s a compilation of over 35 years of research and consulting experience with fast-growing companies condensed into a reference handbook that can be used over and over again. This book is written from a Swedish perspective, where being a small country it is vital for companies to go international early on in their development in order to grow long term. It is not only useful for Swedish companies with growth in mind, but for companies in any country.
Those of you who have read several of my books on fast-growing companies may recognise many of the ideas presented here. This handbook summarises and compiles my experience and lessons learned when it comes to what is crucial for getting through the Scale-up phase. So what does that mean?
Scale-up involves wanting to grow past the start-up phase;
hiring, building a sales machine, being able to deliver times 10 the amount you are delivering today.
Shape-up involves having discipline, structure and the energy to build something that lasts for a long time.
When humans are born, we are completely dependent on the care of others. When a wildebeest is born, it must be prepared to stand on its own and join the herd after just a few hours in order to survive.
What does this have to do with business start-ups?
THE START-UP PHASE
There are start-up companies that get established but struggle to thrive. While founders receive substantial support from society to launch their businesses, only a few progress beyond the initial stage of having a handful of employees for several reasons. Too many have joined the prevailing trend of applying for grants and chasing investors rather than focusing on chasing customers. Some are inventors who endlessly alter their ideas until someone else copies it. Others cling to potential customers that never materialise. Some run at half speed for many years, serving as consultants or subcontractors, catering solely to their clients needs and demands. For many, survival becomes the primary goal, as they lack clear ideas beyond merely existing.
I hope your company, like so many others, is not stuck in the startup phase. Here are some of the warning signs:
• You are happy to have a company of 2–10 employees that resemble a tight-knit family sitting around the table. It may offer a fulfilling life with a great community, happy customers and a secure income. However, this may be due to a founder who doesn’t want to be questioned by other people. Perhaps recruitment mistakes have led to resignations.
• You are entirely reliant on a single customer or major supplier, thereby conforming to another company’s priorities. Although this path might seem effortless, it just “keeps going” with no development.
• You might have planned to develop your own products, but customers seek expertise and help with their own projects, leading you to become a consultant. It might seem simple and convenient to have money in hand now, but it results in no products or concepts of your own.
• Technological trap. You remain in the inventor-jockey phase with the ambition to create a fantastic product that will conquer the world or be acquired by one of the big players. Year after year you invest in product development, patent applications, and so forth – a lottery with few winners.
• There were never substantial sales volumes. The market was either absent or offered alternative choices for customers. Someone else was simply faster, bringing an end to your journey. You can’t deliver volume with quality, much like a shooting star that quickly fades away.
THE SCALE-UP PHASE
So what is a Scale-up company? Isn’t it the same as a start-up but larger?
No, start-ups are the newborns – they may grow a bit but ultimately they remain as small businesses.
Scale-ups are those who have passed the start-up phase, who want to and can run early on. Like the rider who chooses to mount a tiger instead of a horse, they strive for success!
They have 10–50 employees but aim even higher. My hope is that you, the reader, fall into this category or aspire to becoming a Scale-up company.
However, this journey is not a “walk in the park”; the Scale-up phase has its own particular trials and tribulations. Transitioning from a company with roughly 10 employees to over 50 is a monu -
mental leap. Or rather many steps that must be taken at the right pace. It is like moving from childhood through adolescence and into adulthood, all at once. The organization is in constant imbalance – some parts are too big, others too small. Daring to imagine having five times the amount of employees while keeping up the pace is an ongoing challenge that requires doing things in the right order. Many new people come on board – and they need to deliver quickly. Competitors start feeling threatened by this faster newcomer and become aggressive. Moreover, rapid growth can breed resentment and envy among peers and colleagues. Having your success dismissed as mere “luck“ time and time again can be disheartening after enduring numerous struggles. Consider Ingemar Stenmark’s response, when a reporter called him lucky: “It’s strange – the more I train, the luckier I get.”
THE JOURNEY IN REVERSE
Transitioning a company from the Scale-up phase after the initial start-up years is a distinctive journey of its own, despite previous success in the start-up phase. What worked well during the start-up phase is often reversed.
Instead of trying many things to obtain customers, it is now time to focus on specific customers, products or services and on building lasting relationships with customers over time. The CEO, who previously made swift decisions alone, will now collaborate with more decision-makers.
Finding new heroes. Firefighters who put out fires are replaced by those who build systems and products that last.
Small, loyal suppliers who don’t want to grow may be replaced by those with greater capacity.
You have a customer base, a functioning service or product line, you have a good team that works together. Despite this, there is a risk that you stop there, that you never reach the 50 employees or more level and become a “real” company. You can’t expand beyond the comfortable 10-employee level for several reasons.
Here are the warning signs:
Lack the Scale-up energy:
• They lack both the will and the capacity to grow rapidly, year after year! They wouldn’t even dream of horse jumping on the back of a tiger to win a race and taking the risk of falling off. They lack the stamina to struggle year after year with demanding customers, continual recruitment, quality concerns and long working hours even before the company establishes a foundation.
• They fail to build the business gradually and at the right time, in order to expand: management, systems, procedures, delivery capacity and other things that are essential for business growth. Or they simply become overwhelmed by trying to do everything that is required all at once.
• The founders either part ways or cannot reach an agreement. No one has taken the lead in fostering growth – the company stagnates or is sold.
Lack the Shape-up ability:
• They continue to innovate and create new products, again and again, never reaching the stage of customer deliveries.
• Don’t even try to reach 10 times higher volumes by moving from small-scale production to industry-level operations. Modulating the software, building systems that can sustain a large customer base. Hiring people who can help the business expand, and gradually phasing out customers and suppliers who cannot grow with the company.
• Neglecting the development of the ‘mundane’ aspects: quality management, performance monitoring, CRM systems …
Therefore, more knowledge and tools are needed to construct companies that successfully make it through the Scale-up phase. Something that I hope many of you will experience. I also hope that you will recognise the unique opportunities and challenges that occur during the Scale-up phase so you can act accordingly.
HOW CAN YOU USE SCALE-UP SHAPE-UP?
Scale-up Shape-up is about individuals who start companies from scratch with the goal of achieving a company of significant scale. Potential fast-movers who quickly learn to stand on their own two feet. It is drawn from my experience of working with over 100 fast-growing Scale-up companies who have successfully gone through the Scale-up phase. Additionally, I’ve spent years running several CEO networks focused on Scale-up development.
As the first step in writing this handbook, I interviewed 15 people with experience of the Scale-up journey. Seven who faced difficulties in the early stages of the Scale-up phase, and five who recently surpassed the Scale-up phase and are aiming for a workforce of 100 employees. Among them are two serial entrepreneurs, three investors, and one coach/advisor specialising in start-ups and Scale-ups.
Scale-up Shape-up is written specifically for those who run or own a Scale-up company that has or will soon have a workforce of more than 10 employees.
It is NOT like the hundreds of pages of American management books that showcase tales of billion-dollar company growth –inspiring and well written, but nowhere near your current situation. Scale-up Shape-up offers practical, straightforward advice that can be easily shared with all your employees. It serves as a bank of experience that you can repeatedly draw from.
Read it as a guide: in each section, I describe common symptoms or warning signs. If you recognise yourself in several points, continue reading that section. Following the symbol “➤”, you will find multiple “what to do” suggestions on how to prevent or resolve the problem identified.
No one needs everything – to avoid becoming overwhelmed, prioritise what is essential or achievable right now. You can always revisit the book again in six months and repeatedly after that. I hope you will find this handbook useful. There’s nothing more satisfying than spotting my books adorned with numerous yellow sticky notes on a CEO’s desk.
Last but not least, it’s important to recognise the value of using analogies and pictures to help you illustrate your point. In this book, I occasionally draw parallels from different sources, like the animal kingdom or the world of sports-car racing to illustrate the situation a Scale-up company may find itself in. Imagine a small, quick animal beating a large, strong one. That’s the feeling I want to illustrate when a Scale-up company wins against the odds against large competitors in their industry. Illustrated on the cover of the book.
A DESIRE FOR LONG-TERM GROWTH
Does every company’s management have the desire to grow? When asked by the press, most of them answer “yes”. However, in reality, only a few actually have the guts and the ability to grow.
Running a high-growth company is an amazing journey. But it does require all key players to agree to take risks, make sacrifices when necessary and do the work involved, not just through words but actions. This section is about founders agreeing to take the journey together … or not. It requires owners to agree on important financial decisions that fuel growth, and it demands that the CEO and management team are prepared for personal growth as the company develops.
ARE THE FOUNDERS ON THE SAME PATH?
There are many reasons for starting a business. These could include making a living, escaping the need to have a boss. Or following a passion or having an amazing technology waiting to
be used. It could also involve solving a problem no one else has seen, saving lives or making a positive impact on society. Being passionate about an idea is common among Scale-up companies, and it often starts with two to three people who share a vision. These strong founding teams embark on the bumpy road together. However, if the founders don’t want to grow or can’t agree on the paths to take, there will be no growth. Even with great technology or a unique solution, growth won’t happen.
What are the warning signs?
Founders who might not have the same level of energy.
• Even if you have a great idea, insufficient energy can lead to slow progress and may hinder the quick start needed to get past the start-up phase. It’s vital that everyone commits 100 %, at least! There is no room for excuses like “I just need to …”. Could be research projects, other commitments or other business ventures. Otherwise, those left carrying the load can quickly lose their momentum.
Same agenda, same objectives?
• A few months/years have passed: the company has surpassed the start-up phase, and the founding team may have added an experienced purchasing manager or a financially strong partner. Do the founders still have the same agenda/objective? A lot may have happened in their lives that may create different views on the development of the company and their role in it:
• Some of them are still passionate about the company and see it as their life’s journey. This is often the person who assumed the role of CEO or who created the product or service.
• Others are scattered in other projects or investments.
• Some may not want to get involved in the company, but are happy to take dividends year after year.
• There is someone who needs the money and wants to make an exit: it could be due to a divorce, other commitments or the dream of buying a house in France.
• The founders disagree on so many things that all energy is spent on internal disagreements. The owners are paralysed by not seeing a solution to the conflict while the company is facing certain bankruptcy. They can’t even agree on a common goal, or agree to a “happy” divorce.
