What do Cara Delevigne, Ryan Gosling and The Duchess of Cambridge have in common with online crafting communities business LoveCrafts?
Well, the four share a love of knitting and crochet – crafting activities that rank as the world’s most popular hobby, generating annual global supplies sales of $100bn and helping LoveCrafts grow from a start-up to global player in just four years.
There is no single blueprint for scaling, but useful lessons can be learned from journeys like that of LoveCrafts for which we, Scottish Equity Partners (SEP), led a £26m investment round into in April.
Using our background and experience in identifying fast-growth potential businesses, here are six lessons you can use to help scale your business…
1. Learn how to manage rapid growth
Investors conduct due diligence to determine whether a company has the essential ingredients required to scale successfully – first and foremost, they look for a high-calibre management team.
Teams which have a robust strategic and analytical approach, plus relevant experience, are more likely to expand successfully. The ability to achieve annual sales growth while successfully managing other parts of the business, including recruiting new talent, managing a workforce, and building an engaged social media community, are crucial.
Management shortcomings can derail a business, so a proven ability to manage growth in terms of people, systems and financial controls is critical.
2. Go digital
LoveCrafts, with a combination of content, commerce and community, is building a digital marketplace – a category that has seen a surge in venture funding as firms like Deliveroo use cutting-edge digital technology platforms to create disruptive business models.
Digital platforms can enable start-ups to overtake traditional players, who are typically burdened by a bricks and mortar legacy and lack funding and know-how, to become major online players.
Digital businesses can achieve a lower cost of customer acquisition and build a global brand more quickly and less expensively.
3. Build a talented team
Technology platforms do not come cheap so access to funding and digital talent can impact how quickly your business can scale.
Britain’s upcoming exit from the EU has created uncertainty over future employment of foreign nationals, who currently account for 31% of employees in digital technology companies in London and the South-East.
The Tech Nation 2017 survey of more than 2,700 digital tech founders showed that more than half of business owners regard finding employees with strong digital skills as a major challenge to growth. In short, a business will struggle if it lacks a talented team.
4. Secure funding to support your growth
The same report cited access to funding as a significant challenge for over 40% of businesses. This reiterates research from the business schools of Oxford and Cambridge universities identifying management and finance as the two most important growth-enablers.
It’s best to secure investment ahead of a growth curve so that your software platforms, fulfilment and logistics are robust enough to support increased sales.
5. Plot an expansion strategy
A credible scaling strategy is fundamental and you should be able to address skills, governance, management information systems, and routes to market. Also consider whether it is best to grow your business organically, via partnerships or via acquisition.
If reaching overseas markets will benefit your business, internationalising the board before internationalising your company can be a shrewd move. And as well as board members, choose your target markets carefully.
For example, travel search business Skyscanner built a strong presence in Europe and Asia ahead of the US; a strategy which put it firmly in the sights of Chinese travel agency Ctrip who acquired the company for over £1bn in 2016.
6. Set yourself targets
Scaling does not always mean multinational expansion; it may involve capturing a bigger domestic market share, acquisition or joint ventures. What’s important is to set measurable targets and milestones that will add maximum value to your business.
And consider the bigger picture: scaling up creates wealth, drives innovation and investment and supports employment. A Deloitte and Nesta study predicted that if the number of scale-ups in the UK grew by 1% it would result in the creation of 150,000 new jobs and add £225bn to UK GDP by 2034.
Growing a business is challenging. Using LoveCrafts as an analogy, you need to knit together a talented team, funding from a supportive and engaged investor, an ambitious but achievable expansion strategy, a strong technology platform or service and efficient operations and then you’ll have a pattern for success.
Stuart Paterson is a partner at Scottish Equity Partners (SEP). For more advice like this, read other guides from SEP’s blog series:
- How to know if your business is ready for VC funding
- What can a VC deliver besides money?
- How to choose board members for your business
- Lifting the lid on VC due diligence for start-ups and small businesses