It’s not only about startups. Yes, they are the starting points of revolutionary ventures that change the world. But what comes next? Many of the projects fail, some transform into regular companies or get acquired. Then there are those that grow in employees and revenues really fast, scaling their business to new markets. We call them scale-ups.
A few weeks ago, an event organized by The Slovak Alliance for the Innovative Economy (SAPIE) took place. Occasion? The launch of a first of its kind report on Slovak scale-up companies. Petra Dzurovčinová, the Executive Manager at SAPIE, and Michal Kardoš, freelance public policy consultant, spent quite a time to interview companies currently scaling their operations or historically successful Slovak scale-ups with track record worth sharing. Then they analyzed, evaluated, and interpreted the data and conclusions in a single paper called The Titans of Tomorrow.
In the upcoming weeks, we are going to bring you the report highlights accompanied by some of the most compelling stories of Slovak scale-ups. We’ll talk about the definition of a scale-up, their role in the new economy, the most interesting data from the report including the best practices and recommendations. We’ll have a look at the business cases of Slovak scale-up companies such as Dedoles, Martinus, Profesia, or Pixel Federation, to name some.
To see the interviews with the executives of companies included in the report in advance, visit SAPIE’s Youtube channel.
For the introduction into the report please welcome Petra Dzurovčinová.
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Just a few weeks ago we have launched the first of its kind Slovak scale-up report The Titans of Tomorrow. Our motivation was to provide insight into fast-growing and successful Internet companies based in Slovakia and servicing the region and the world. We have evaluated existing data from around the world that suggest that a small number of high-growth firms may generate significant social and economic benefits.
One company that grows to 100 employees in five years can better serve its stakeholders (employees, shareholders, and government) than 50 stagnating. We understand that supporting, empowering, and respecting home-grown innovation companies can bring positive impact to sustainable growth, employment and Slovak innovation that can be shared with the world.
Looking at the UK research in the Scale-up Report on UK Economic Growth by Sherry Coutu in 2014 that states when closing the scale-up gap the companies can generate £38 billion additional turnover and create 238 000 jobs in just three years.[1]
That’s very impressive impact given that the way to reach it is with some simple growth-enhancing tools.
Before we dive into more data and information on scale-ups, let’s look at how we define scale-ups. OECD defines scale-up as a high growth firm with average annual growth in employees or turnover greater than 20% per year, over a three year period, and with more than 10 employees at the beginning of the observation period. [2]
Based on the evidence collected for the Scale-up report in the UK, the potential economic impact of successfully raising the number of scale-ups is likely to be substantial. The impact analysis conducted by Deloitte estimates that if the recommendations in this report were implemented in full this might generate between £70 billion and £225 billion of GDP for the UK economy (in 2014 prices) over the period between 2015 and 2034. This is consistent with an additional 45,000 to 150,000 net jobs above baseline in the UK in 2034.[4]
So what is the scale-up gap that can unleash the full potential of the high-growth firms?
It is a set of initiatives driving productivity and increasing economic performance. The goal is to move the trend from smaller, low productivity firms, towards larger firms and increase the long-term competitive advantage by building a strong and vibrant national ecosystem that consists of the co-existence of corporate multinationals, domestic scale-ups, and startups.
UK’s Department for Business, Innovation, and Skills has identified three enablers of business success and the associated market failures: Internal capacity, external environment, and the vision of the business owner.[5] These three failures can be addressed by targeted measures such as mentoring, education, a favorable business environment with measurable and targeted interventions as well as using the role model effect of successful entrepreneurs. Role models help stimulate others to take the entrepreneurial path and to generate the scale necessary for the innovation sector to grow.
Some research from the US suggests that young firms create more jobs than old. The research supports the idea that scaling of younger firms generates economic value through net job creation with weaker evidence of similar impact amongst older firms.[6] However, there are companies in Slovakia that over a longer period of time (sometimes 10-20 years and mostly in the B2B sector) found their market and customers and scaled their operations. One of them is featured in our case studies in the next chapters.
Screenshot From The ReportThe recipe of a successful scale-up has many ingredients. Based on international research and interviews conducted with successful Slovak entrepreneurs that are identified as scale-ups, three key factors are highlighted – experienced entrepreneurship and leadership capacity (entrepreneurial spirit and ability to inspire others), timing, and ability to scale.
Extraordinary value creation is intertwined with growth, and growth itself means developing powerful marketing and sales, building a strong organization with an inclusive company culture and diverse group of people, knowing how to make strategic decisions with limited capital resources, partners, markets, and direction. Growing a successful firm requires dedication, energy, and vision. Through innovative products, services, and business models, scale-ups usually revolutionize industries and bring significant employment opportunities, economic and social value for the local and national economy. Some Slovak scale-ups tried several times before they got the product and market fit right.
Scale-up companies have not only become leaders in their areas but also a significant proof of globally successful Slovak businesses. There are 10871 companies founded between 2000-2016 that are active in the field of the Internet Economy and 253 of them are considered scale-ups based on the OECD definition used in this report. In 2013, 253 scale-ups in the Internet economy generated 1% of the turnover of all active companies in Slovakia.
Scaling doesn’t come easy and companies tackle a variety of issues when they are growing fast. Key barriers can be clustered into these categories:
In the upcoming series of articles we are going to look at the key issues and how did Slovak successful entrepreneurs turn them into opportunities.
[1] The Scale-Up report on UK Economic Growth by Sherry Coutu CBE
[2] For the purpose of this report we have used the OECD definition and expanded it with another criteria of minimum 200 000 turnover at the beginning of the observation period re ecting the fact that this amount approximately equals to salary requirements of minimum 10 employees.
[3] The Scale-Up report on UK Economic Growth by Sherry Coutu CBE
[4] Scale-up Challenge: An Impact Report by Deloitte, november 2014
[5] Scale-up Challenge: An Impact Report by Deloitte, november 2014, page 4
[6] Haltiwanger, Jarmin and Miranda, 2013, Who creates jobs? Small vs. Large vs. Young The Review of Economics and Statistics Volume XCV, Number 2
This article is brought to you in cooperation with SAPIE. To read the next post about the data behind scale-ups, click here.
