Successful strategies for scaling a business
Scottish Equity Partners dispenses ‘purls’ of wisdom on achieving scale following its latest investment in rapidly-expanding online crafts community pioneer LoveCrafts.
What do Cara Delevigne, Ryan Gosling and The Duchess of Cambridge have in common with LoveCrafts, an online crafting communities business that has scaled from start-up to high-growth global player in just four years? They share a love of knitting and crochet – crafting activities that rank as the world’s most popular hobby, generating annual global supplies sales of $100 billion.
There is no single blueprint for scaling but useful lessons can be learned from journeys like that of LoveCrafts. It stormed into the top three in the 2016 league table of the UK’s 100 fastest-growing technology companies, posting annual sales growth of 215% over three years and building a rapidly-expanding global customer base. No mean achievement for the co-founders (Edward Griffiths, Cherry Freeman and Nigel Whiteoaks) who described themselves as ‘three dreamers, with some yarn and a desk in Central London’ when they started in 2012.
In April SEP led a £26 million investment into LoveCrafts enabling it to scale further.
What is a scalable business?
Investors conduct due diligence to determine whether a company has the essential ingredients required to scale successfully – first and foremost a high calibre management team. The LoveCrafts team have a robust strategic and analytical approach plus experience in building and managing digital businesses. Over the last three years they’ve achieved impressive annual sales growth while also recruiting new talent and managing a workforce of 150, amassing a downloadable library of 100,000 patterns and building a vibrant and engaged social media community.
A proven ability to manage growth in terms of people, systems and financial controls is critical as management shortcomings can derail a business.
Sector can also impact scalability. LoveCrafts possesses a potent combination of content, commerce and community. It is building a digital marketplace – a category that has seen a surge in venture funding as firms like Deliveroo use leading-edge digital technology platforms to create disruptive business models.
Digital platforms can enable start-ups to overtake traditional players burdened by a bricks and mortar legacy and lacking 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 cheaply.
Talent and money
Technology platforms do not come cheap however and access to funding and digital talent can impact how quickly a business can scale. The Tech Nation 2017 survey of more than 2,700 digital tech founders showed that more than half regard finding employees with strong digital skills as a major challenge to growth. Brexit has created uncertainty over future employment of foreign nationals who account for 31% of employees in digital technology companies in London and the southeast alone.
The same report cited access to funding as a significant business challenge for over 40% of businesses. This reiterates research from The Business Schools of Oxford and Cambridge University identifying management and finance as the two most important growth enablers. A business will struggle if it lacks a talented team and sufficient expansion capital.
Design and execution
A credible scaling strategy is fundamental. Address skills, governance, management information systems, routes to market and whether it is best to grow organically, via partnerships or via acquisition. And secure investment ahead of a growth curve so that software platforms, fulfilment and logistics are robust enough to support increased sales.
If overseas markets are important internationalising the board before internationalising a company can be a shrewd move. Choose target markets carefully, for example travel search business Skyscanner built a strong presence in Europe and Asia ahead of the US. This strategy put it firmly in the sights of Chinese travel agency Ctrip who acquired the company for over £1 billion in 2016.
Knit your own future
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 150,000 new jobs and add £225 billion to UK GDP by 2034.
Growing a business is challenging. 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 – then you have a pattern for success.
by Stuart Paterson, Partner Scottish Equity Partners