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The tech community has a pretty significant fixation on the startup, but the scaleup is starting to steal some of that spotlight. It has been convenient to pin the "startup" label on pretty much anything that's launched in the last decade, ends in .ly, has an office in Palo Alto, or hasn’t yet figured out monetization. While the graduation from one to the other is gradual rather than binary, directly comparing one to the other makes it pretty obvious how different they really are.
But what is a scaleup, and what defines it? Is it revenue? Valuation? Profitability? Branded-hoodie-wearing employees?
The real question is, "Has the company started to grow up?"
I think the real question is, "Has the company started to grow up?" The fastest way to figure this out is to take a look at the business focus.
A startup is on the quest to find product-market fit, developing and iterating its product or service, experimenting with customer segmentation and working toward a positive contribution margin.
A scaleup, on the other hand, has already validated its product in a market, and has proven that the unit economics are sustainable. A scaleup's quest is to continue on that upward climb. Think of it this way: Startups invest money to learn, experiment and find validation, all on their quest to uncover a winning formula. Scaleups invest money and accelerate growth once they know that putting in $X will return $Y.
I've learned from experience that the required skill set and focus of a company's leadership shifts dramatically between a company's startup and scaleup phases, and there's no way to move from one to the other without taking this shift into account. Here are a few key examples:
Specializing: In a startup, there’s an early bias towards hiring "full stack" employees that are generalists. They can achieve a lot with a little, and they allow the business to get started and keep growing with a smaller team. As the organization grows, however, one person can no longer "do it all," or do it as well as a specialist. This can spell a tricky time for a business. Shifting generalists to a narrower focus or bringing in a team to sit beneath generalists can be an adjustment, but it's one of the growing pains involved in transitioning from startup to scaleup.
Risk-averting: As a startup, your customer base is small, and you haven't proven your model yet. You aren't worried about messing up a status quo because you haven't settled into one yet. Since you're focused on taking risks that could lead to the perfect "Bingo!" moment, consistency isn't exactly king (or queen). That will shift gradually and increasingly as your customer base grows, and your growing team will require more support from operations, technical and customer service. As a company scales up in size, the previous trial and error allows a more thorough knowledge of what works and what doesn't; however, with that comes a smaller window for experimentation in your business model.
Operationalizing: They don’t always receive the warmest of welcomes in a business, but processes are a necessary evil when you hit a critical size. When a team is small, having set processes can be more of a hinder than a help. It's so much simpler (and more personable) to roll your chair over and ask someone to help you, rather than log into a software program, fill in a job request and submit a ticket to your co-worker without ever making eye contact. However, once you’re bigger, there’s a need to prioritize requests, keep record of activities, track jobs and form some consistency to ensure you're getting the most out of available time and money.
Leading on: Leadership required to helm a startup can be very different from the leadership required by a scaleup. The skills needed to hire, train and mentor can change drastically based on the above three items. I can’t express this more strongly — the leadership required for a startup is entirely different than the leadership for a scaleup. The leadership skills can often evolve with this, and sometimes the leadership expands to also move into more specialized roles. This can often require bringing in a new skill set from outside, with experience running this bigger, more grown-up type of company.
Next time you go to apply the startup label to a company (possibly yours), first consider whether it deserves an upgrade ... and try not to be swayed by the presence of branded hoodies.
David Glickman is the founder and CEO of Ultra Mobile and Primo Connect. Ultra Mobile is a nationwide carrier that delivers innovative, cost-effective mobile voice, text and data services for international communications. Reach him @ultra_mobile.
This article originally appeared on Recode.net.
