Australia’s startup ecosystem now ranks 11th worldwide according to the Global Startup Ecosystem Report. Yet, we regularly observe that once companies move beyond their initial growth phase into what we call the rapid growth phase – the support, information and resources provided to them dwindle.
As a result, CEOs often end up feeling lost and overwhelmed. It’s one of the reasons behind what is called the “missing middle” in Australia’s economy. We have 2.5 million small businesses, defined as companies having 0-19 employees, representing a staggering 97.2 per cent of Australian businesses. This is a stark contrast to the 2.6 per cent of medium businesses with 20-199 employees.
So, how can we help small businesses and startups become part of the mighty middle?
Here are four tips for small businesses ready to scale and grow
- Shift your mindset towards delegation
Founders typically start out bursting with ideas, energy, and ambition, and usually need to wear lots of hats all at once – the innovator, the relationship builder, the financial controller, and so on. As such, founders become used to having everything closely held and within their control.
The challenge comes when they reach the next phase of growth and resist giving up some of these roles, as a new phase of growth warrants a shift in founder mindset and a willingness to effectively delegate responsibilities, and recruit people with expertise in specific areas such as finance, sales or technical functions. At the Centre, we encourage companies to build future organisational charts based on their growth projections to help identify what people and positions a company will need and when.
A plan helps you work backwards by recruiting early or figuring out current team members who could be upskilled to take on leadership roles. The last thing you want is to start recruiting a critical role such as a CFO when you urgently need one – because by then it is typically too late.
- Access capital to fuel growth
Another major step to enable growth is to raise or access the capital needed because growth is a hungry beast. Most Australian businesses rely on their balance sheets to fund growth by reinvesting profits, but that’s typically not fast or scalable enough to match rapid growth. Accessing capital beyond the startup phase is tricky because Australian banks are conservative, compared to those in other countries, for small business lending. While some new financial products are emerging, they often come with high interest rates.
Growth capital is vital, not only to fund operations, but for hiring the people you need to lead and support expansion. Recruiting key executive roles such as a CFO or a CMO is expensive, and the ROI on these hires might take quarters or even years. Businesses need to be diligent about maintaining upfront cash for investments, whether that’s through traditional bank loans, lines of credit, equity partners, or more creative possibilities, such as crowdfunding.
For example, one of the companies I’ve mentored needed growth capital but couldn’t secure it through traditional sources. They decided to opt for equity crowdfunding, raising millions and turning investors into passionate brand advocates. In their pursuit of alternative capital, not only did they find likeminded investors, but they also found ambassadors for the brand.
- Focus on governance and systems
In the early phase of your business, you can be a bit scrappy and survive without elaborate processes and systems. But as companies grow, governance becomes critical, both for regulatory compliance and effective team management. This includes financial controls, HR systems and communication frameworks.
For example, financial controls that worked in the startup phase, such as having a bookkeeper or doing it yourself on Xero, become inadequate for a company generating millions in revenue. In the rapid growth phase, the level of sophistication in your financial systems requires a real step change.
Likewise, during fast growth, how you manage your people effectively from the recruitment phase through to onboarding and performance management requires careful consideration as it becomes more complex.
I often see CEOs fail to prioritise governance and systems, only to find themselves unprepared for critical issues, particularly when seeking capital for growth or building a leadership team.
- Develop a purposeful strategy
In the early days of a company, the founding team operates in test mode –experimenting with customer segments and product offerings to find that magical product-market fit.
To grow beyond the startup phase, the leadership team must commit to a growth strategy based on a deep understanding of the company’s core capabilities, their target customers’ value, and differentiating themselves from competitors. This may require ‘planned abandonment’, a process to let go of products, services and activities that don’t align with your long-term strategy, even if you’re good at them, because they drain resources and attention from the bigger vision.
For example, a company I have advised started out as a residential builder doing a variety of construction types. Over time, they transitioned to focusing almost exclusively on large commercial construction projects and phased out residential projects to focus on enhancing their expertise and capabilities in commercial work. As a result, they are now a thriving business employing 60 team members and hundreds of sub-contractors. Their purposeful planning helped them navigate the rapid growth phase, allowing them to join the ‘missing middle’ of medium sized companies.
Learn how to grow your company
Just as no one is born to know how to drive a car, people don’t instinctively know how to run a business.
Founders and CEOs should continually invest in learning new skills and knowledge as their company enters different growth phases. We know that business owners always have a million balls to juggle, but taking the time to learn from experienced mentors and advisors is vital to for your company to emerge from the initial growth phase and gear up for rapid growth.
It’s in everyone’s interest that SMEs at every stage get the support they need to expand, advance and scale. Larger companies are vital to our economy, and they provide expanded employment opportunities and export potential that benefit the entire country.
If Australia can fill up the “missing middle” with medium-sized companies, we can unlock a whole new level of prosperity for the nation.
By Sarah Curtis-Fawley, growth expert at the Australian Centre for Business Growth
This article was first published by Kochie’s Business Builders