Our Partners Simon Peet and Simon Hollingsworth, and serial software executive and Chair of the Livingbridge Software Advisory Board Phill Robinson discuss the key inflection points for software companies on their growth journey, the obstacles hindering progress, and how to move past them.
Scaling up a software business is difficult. According to Beauhurst, only 23% of UK start-ups manage to scale-up successfully, while more than half (54.2%) hit a ceiling and stagnate.
Starting a business from scratch is a different undertaking to taking that business into its next growth phase. More often than not founders and management teams recognise that something has to change but aren’t always sure what the next step is.
As a partner that has helped multiple software companies to scale-up successfully, we have gathered a set of reference points that can help fast-growing businesses to anticipate bottlenecks and put processes in place to clear them. We have explored the key inflection points on the growth journey and what entrepreneurs and management teams can do to sustain the development and growth of their businesses.
- Recognising inflection points and understanding why they emerge
For most software companies inflection points track revenue milestones. In our experience businesses have consistently encountered transition points when revenues move through the £0-10m; £10-30m; £30-50m; and £50m-plus benchmarks.
“At each revenue landmark the processes, organisational structures and communication that worked previously have to be reengineered to support a larger, more sophisticated business. And as soon as you move through each of those inflection points the capabilities you are developing in your team have to go up to the next level. For example, between £1-10m, ARR the CEO has usually made the first few sales herself; as the Business transitions from £10-25m there need to be far more robust operational functions, including product, HR, GTM and support” Robinson says.
- Why the sales function is the primary driver of success
Even a company with best-in-class technology will fail to scale if its sales function is not fit for purpose. If a company is to grow at 20% when revenues are £5 million, it only has to add £1m of new business, but if it wants to grow at 20% from £20m, it has to add four times as many new wins.
“You won’t be able to preserve growth if you are trying to run sales out of a black book,” Peet says.
- Support is available and it is important to use it
It is rare to find a growing software business where the management team or founder have all experienced the next stage of the scale-up journey.
We have recently built out a Software Advisory Board of experienced technology executives, who have worked at multiple world class software companies to support our management teams as they grow.
The board brings management teams together with true leaders within their fields of expertise, be that go-to-market, product, technology, customer success or business strategy.
“Of course, nobody wants to make obvious mistakes, but it is not easy to do everything right if you have never done it before,” Hollingsworth says. “Entrepreneurs should not expect to have all the answers. Drawing on the experience of people who have delivered scale-ups previously allows companies to short-cut mistakes and accelerate growth.”
- but don’t be straightjacketed by playbooks
The experience of senior technology executives and investors are invaluable resources, but every business is different and shouldn’t be restricted by previous success stories.
“Some investors will attend board meetings and little else; others will tell you exactly how to run your software company. Some entrepreneurs like to be left alone; others want to follow a detailed, step-by-step template,” Robinson says.
The most successful entrepreneurs have clarity on what support and level of involvement they are looking for and partner with financial backers that are aligned with their requirements.
“We are positioned in the middle of that spectrum,” Peet says. “We have resources and expertise on our platform that we encourage companies to draw on, but we don’t tell management how to run their business.”
A final word
Building a product and creating a brand sit at the heart of any successful business, but these talents are very different to the skills required to scale a company and grow revenues at pace.
For an entrepreneur or management team of a fast growth business, taking a company through the next phase of development can be overwhelming. It is difficult to know where to start and easy to make mistakes.
Partnering with an investor not only comes with capital to support growth, but support and expertise from people who have done the hard yards and can help entrepreneurs to avoid obvious errors and implement the growth levers.
Every business is unique, and scale-up trajectories will vary, but drawing on the collective knowledge of people and organisations that have gone through this before is invaluable.