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Some interesting thoughts on what it takes to scale and grow a $100m+ business. This is a write up up of some of the key learnings from last year's Silicon Valley Comes to the UK visit.

Some interesting thoughts on what it takes to scale and grow a $100m+ business. This is a write up up of some of the key learnings from last year's Silicon Valley Comes to the UK visit.

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    Svc2 uk scale report Svc2 uk scale report Document Transcript

    • Startups that scaleWhy it matters and how to do it:Lessons from Silicon Valley Comes to the UK 2012Entrepreneur First
    • About Silicon Valley Comes tothe UKSilicon Valley Comes to the UK would like to thank Entrepreneur First for its assistance inproducing this report.Silicon Valley comes to the UK (SVC2UK) is an annual philanthropic programme founded byentrepreneurs Sherry Coutu and Reid Hoffman, in order to expand the UK’s entrepreneurialand economic capacity.The programme welcomes entrepreneurs who are creating themost disruptive US companies to the UK.These entrepreneurs meet their UK and Europeancounterparts to look at collaborating on business ventures, lead inspiring classes at leadingUniversities and High Schools and meet with policymakers.Entrepreneur First exists to making building a high-growth startup the career of choicefor the UK’s most talented students.We offer a year-long programme of support andservices to recent graduates, including team building, ideation, mentorship, training, andaccess to funding. Funded by entrepreneurial corporations and supported by leadingUK entrepreneurs, EF is a not-for-profit and offers the programme free of charge to topgraduates.
    • ContentsExecutive summary 1Introduction – why scale? 2Choose a big enough problem 3Embed yourself in the right networks 4Recruit people who have done it before 5Hire for tomorrow, not today 7Embrace diversity 9Nurture company culture and values as you grow 11Build systems that scale 14Test continuously to stay close to the customer 16Take the right kind of money at the right time 18Conclusion 20Speaker profiles 21
    • 1Executive summaryThe UK has seen a rapid increase in the number of startups in recent years – but still greatly lagsthe United States in the number of startups that reach scale.This matters not only for entrepreneurs,but for the economy as a whole: over half of jobs created are created by the small number ofcompanies that succeed in achieving rapid, sustained growth.Silicon Valley Comes to the UK brings serial entrepreneurs from the US to talk to high-potential,British-based startups and students.Their collective experience, shared over several days of events,represents an extraordinary collection of advice for companies looking to scale.We have distilled their counsel into nine key recommendations for aspiring scale-up founders: Choose a big enough problem to give yourself room to grow Embed yourself in the right networks to benefit from advice and connections of people who willunderstand the challenges you will face Recruit people who have done it before because many of the problems encountered whilescaling are common across organisations Hire for tomorrow, not today because in a high-growth organisation your needs will changeextremely rapidly Embrace diversity to broaden the number of problem-solving approaches within your team Nurture company culture and values as you grow to avoid losing a sense of mission and identity Build systems that scale – from technical infrastructure and data systems to organisationalprocesses Test continuously to stay close to the customer – new techniques are needed when you can nolonger meet all of your customers individually Take the right kind of money at the right time and avoid making fundraising an end in itselfThese nine steps are not a magic bullet; scaling up is difficult however well you execute. However,by drawing on the advice of experienced entrepreneurs, founders can avoid common pitfalls andmaximise their chances.
    • 2Introduction – why scale?Scaling up matters a great deal for the startup founder; it is the source of the bulk of the financialrewards of entrepreneurship. However, it is arguably even more important for the economy as awhole. In the UK, the six percent of businesses that are growing most quickly are responsible for overhalf the country’s job creation.1These are the companies that are scaling up – and we need more like them.As Sherry Coutuargued at SVC2UK 2012, the UK is no longer in the position where it needs more startups; it needsmore startups that scale. Indeed, the UK now has a similar start-up rate to the US, but has only halfthe scale-up rate.2This is the gap we need to close.High-tech entrepreneurs are well placed to meet this challenge. Research from McKinseysuggests that high-tech companies create 2.6 jobs, on average, for each job that is lost todisruptive innovation.3Moreover, the same research projects that internet companies will growfrom 7.2 percent to 10 percent of UK GDP by 2015.4The key question, then, is how to scale?This was the central theme of this year’s Silicon Valley Comes to the UK conference.An extraordinarygroup of serial entrepreneurs and investors from Silicon Valley and beyond gathered in locationsacross the UK to pass on their lessons learned for startups seeking to scale.This report documents and synthesises the advice this group gave over the course of theconference.The scale imperative is the next challenge for the UK’s entrepreneurs. It is hoped thisreport provides a practical guide for aspiring scale-ups – as well as an inspiration for those juststarting out.1Nesta, 2009,“The vital 6 percent”2Entrepreneur First, 2011,“High-impact entrepreneurship and the economy”3McKinsey Global Institute, 2011,“Internet Matters: High-impact entrepreneurship and the economy”4McKinsey Global Institute, 2011,“Internet Matters: High-impact entrepreneurship and the economy”
    • 3Choose a big enough problemThe foremost barrier to scale is lack of demand.Before the technical and operational aspectsof scaling up ever come into play, an ideamust have sufficient potential to become a bigcompany.The SVC2UK entrepreneurs returned tothis idea frequently throughout the conference.As Mary Lou Jephson, co-founder of One LaptopPer Child, put it,“The first question is always, is thisidea big enough to be worth doing?”.The next question, perhaps, is how to generatethese big ideas.Two themes emerged from theworkshops and panel discussions: think globaland “own the problem”.Think globalAs Sam Chaudury, co-founder of ClassDojo,pointed out, having a big market matters. Inhis words:“We’re living at a time when the internet allowsdistribution to literally billions of people whopreviously could never have accessed yourproduct. If you want to scale, make sure you’reoffering something a lot of people want.”One major conclusion from several guests wasthat increasingly products with the capacityto reach billions are going to be products thatsolve the problems of the developing world.AsSir Paul Judge noted in his introduction to theSVC2UK Cambridge CEO workshops,Asia willbe responsible for 75 percent of global GDP by2050; companies looking to scale will need tounderstand these new markets.Both Mary Lou Jephson and Ramesh Raskar,professor in the MIT Media Lab, reinforced thispoint.They argued that the biggest problems –and hence the biggest opportunities – are goingto come from bringing radical technologicalinnovation to solve problems of people in Africaand Asia. Raskar provided the example of short-sightedness: there are 2.4 billion people in theworld who need glasses but don’t have them.Atechnological solution to that problem will haveextraordinary opportunities to scale.Problem ownershipMary Lou Jephson noted that this representsa challenge as well as an opportunity for UK(and, indeed, US) entrepreneurs. One importantconclusion from multiple SVC2UK panels wasthe critical role played by “problem ownership”–that is, having a deep understanding of andpassion for the problem you are trying to solve –in scaling.As Jephson pointed out, this meansthat entrepreneurs from the developing worlditself have a natural advantage in solvingproblems they experience:“we’re going to seeradical innovation coming from the bottom ofthe pyramid”.Problem ownership requires a clear mission.Megan Smith of Google suggested that,“thequestion to ask is ‘What are you solving for?’.That’s where the really big ideas come from”.She noted that it was Google’s mission – toorganise the world’s information – as much asits original idea that had given it the headroomto scale.
    • 4Embed yourself in theright networksNo one can scale a company by themselves.One consequence is that you need the rightteam and the right people in your organisation;however, just as importantly, you also need theright networks outside your organisation.The right networks enable building a scalablebusiness throughout the lifecycle of a company.This starts at the very beginning, as thecharacter and ambition of the entrepreneur isformed.As Megan Smith put it,“I was lucky to bearound people who started things.That’s howyou come to start things yourself”.Moreover, networks become increasinglyimportant as companies scale.They becomethe source of customers, suppliers, partners,employees and investors. Speaking at thelaunch of the Cambridge Cluster Map – anew dataset of the fastest-growing technologycompanies in Cambridge – serial entrepreneurDavid Cleevely spoke of the crucial role playedby networks. In his words:“The ecosystem is vital. Successful startupclusters rely on people developing cumulativeadvantage in particular areas or technologiesand benefiting from and building on eachother’s success.”The guests from Silicon Valley, the world’sleading startup cluster, served as a physicalsymbol of the power of networks. Closer tohome, however, it is clear that Cambridge isalready a cluster that is enabling startups toscale.The data provided by the CambridgeCluster Map is striking.Above all, Cambridgehas produced eleven billion-dollar technologycompanies in the last fifteen years, as well as afurther fifteen with over $100m of revenue thatare growing rapidly.As data from the map revealed, there are1,525 high-tech companies in Cambridge,which employ over 50,000 people.The top50 companies hired almost 6,000 people inthe last year alone, representing a 23 percentincrease in employment at a time that the UKas a whole struggles with almost eight percentunemployment.The message of SVC2UK 2012 was clear:locating in a successful cluster is no magicbullet for scale, but it certainly provides acompany with additional resources andoptions that support the scaling up of ahigh-potential company.
    • 5Recruit people who havedone it beforeSpeaking to an audience of entrepreneurialhigh-school students at the UK Parliament,Angela Lin of YouTube summed up thechallenge of scaling up. In her words,“Thefundamental purpose of scaling is to answerthe question,‘How do you increase your impactbeyond the people you can immediatelyinteract with?’”.Technology is, of course, part of the answerbut, for most of the SVC2UK guests, the mostimportant ingredient is your team.In particular, a theme that was repeatedthroughout the conference was the vitalimportance of hiring people who have scaleda business previously. In Megan Smith’s words,“You simply must do this.There is no substitute”.This is not a simple prescription for startupsto follow. Often, hiring people with experienceof scale means changing the dynamic ofa team and bringing on employees whomay be significantly older and – on paper, atleast – better qualified than the founders.AsPanni Morshedi of Wonga argued, foundersmust bite the bullet and do it anyway:“You haveto come to terms with the fact that you need tohire grown-ups who have done it before”.The crucial insight is that, while every startupfeels unique to its founders, the challenges itwill experience in scaling up are likely to becommon across companies that have grownrapidly. Pattern recognition and the ability toapply proven techniques are therefore vital.As Morshedi put it,“A lot of problems thatseem unique or impossible to you will bestraightforward to someone who has scaled abusiness before”.Of course, hiring people with significanttrack records is likely to be a disruptive andsometimes uncomfortable experience for boththe hirer and the hired.As a company scales, itis likely that it will outgrow some of the foundingteam and early employees. Kim Polese, serialentrepreneur at Marimba, SpikeSource andClearStreet, recommends facing this challengehead on:“You have to recognise and embrace the factthat the team will change. Scaling usuallyrequires some people who have scaled before.This means the founding team is unlikely to bethe right team to scale.You need to confrontthat truth early.”A common theme in the speakers’ reflectionswas that many of the challenges that thispresents come not from the situation itself,but from an unwillingness to have difficultconversations before the working environmentbecomes poisoned or bitter.Acting decisivelybut compassionately is the antidote.
    • 6Just as adapting to the scale-up context canbe difficult for the founding team, it may beequally uncomfortable for the experienced hirewho is brought in to help the company grow.A scale-up matures quickly, but it is likely toremain “scrappy”,“demanding” and “chaotic”(all words used by SVC2UK panellists) for a longtime – and experienced executives who havespent significant in more established contextsmay take time to adjust.The key is to hire peoplewho are flexible and who embrace thesechallenges.As Sheila Lirio Marcelo, founder andCEO of Care.com, put it,“You want people whohave scaled a company, but are still able to dotheir own photocopying!”Finally, the key to successful integration ofexperienced hires is genuine respect – ratherthan mere grudging acceptance.The SVC2UKspeakers were unanimous in the emphasisthey placed on working with brilliant people toenable scaling up. Mary Lou Jephson perhapsput it best and most bluntly:“Scale is all about team. Make a list of the bestten people you have ever worked with in anycontext. Hire them.You must hire people whoare better than you.”
    • 7Hire for tomorrow, not todayHire ahead of your needsA startup that wants to scale has the worry notjust about the who of recruiting, but also the how.It’s not enough to hire people who have scaled abusiness before; you also need to make hiring acore competency of your company.This is crucial because, by definition, a companythat is scaling up is going to be very differentin a year’s time from the way it is today.Theconsequence is that in order to be ready toaddress the challenges you will face next year,you have to hire people for tomorrow, today.Sheila Lirio Marcelo, speaking to students inCambridge, summed up the challenge:“You need to hire people who can scale. Inpractice, this means that you have to hireahead of your needs.You can’t scale yourself,so you need to hire people you trust who canadopt your vision and strategy and execute it.”The fact that your hires today are likely to –indeed, should – become the leaders of yourcompany, with large numbers of employeesworking for them, means that you need to hirepeople not just with past experience but withfuture potential.As Marcello put it,“Always viewyour hires as a long-term relationship, not fillinga temporary gap”.This need to ‘live in the future’ is a constantchallenge. It means making decisions thatwould be unusual, perhaps even foolish, ina company that was growing more slowly.Megan Smith spoke about the way Googlehad addressed this, noting that at one pointthe business was growing so quickly that shewent on maternity leave and the numberof employees doubled in the time she wasaway.The main concern even then was thatGoogle might not be growing quickly enough;she remembers in the early days Larry Pageworrying that the opportunity Google facedwas so large that, to meet its full scopein a year’s time, would require even moreaggressive hiring right then.The skillsets for which you hire willchange rapidlyOf course, hiring for the future means more thanhiring quickly. It also means that the skills andexperience that you look for in employees hasto change.As Mary Lou Jephson pointed out, itmeans that you may be looking for people withskills that are quite different from those present inyour current organisation. In her words,“Differentpeople are the best people at different stages ofthe business.That’s not an insult to them; it’s thenature of scaling”.Megan Smith provided some perspective onhow changing needs and skillsets had shapedthe hiring process at Google. She said,“At thebeginning, you need smart generalists. Eventuallyyou will need to hire specialists, but you shouldalways be hiring for more than just a specificskillset”. In practice, this means taking intoaccount how a new recruit will go on to shape
    • 8the broader company as it scales, as well ashow effectively he or she can perform a specifictask. Smith noted that Google makes its selectiondecisions “roughly based 30 percent on abilityin the specifics of a role, 30 percent on generalsmarts, 30 percent on leadership and 10 percenton ‘Googliness’ – that is, cultural fit”.Always be recruitingThe fact that hiring is both difficult and crucialmeans that it must be one of the founding CEO’smost important roles.As Panni Morshedi noted,early and senior hires are too critical to delegateto people who do not have a proven trackrecord of excellence in recruiting. In Morshedi’swords,“Remember that some people are brilliantat their day jobs, but are no good at hiring”.Mistakes made in recruitment can damage acompany for years. Equally, however, missedopportunities can hamper a startup’s ability toscale. Sheila Lirio Marcello noted that chanceencounters at conferences, meetings and evenon planes can be the source of some of themost transformational hires. For this reason, shesummarised the hiring philosophy needed in ascale-up as,“Always be recruiting”.
    • 9Embrace diversityIt is not, however, enough to hire brilliant peoplewith experience.You also have to mould thosepeople into a team with complementary skillsand approaches.The need to make sure a teamgels and operates smoothly can create thetemptation to recruit people with homogeneousbackgrounds – but this is a temptation that theSVC2UK speakers urged founders to resist.Hire multi-disciplinary peopleMary Lou Jephson summarised the issue pithily:“Diversity matters because otherwise everyonewants to solve problems in the same way.Everything looks like a nail.To break this, youneed to hire multi-disciplinary people.”A number of speakers noted that hiring peoplewith multi-disciplinary backgrounds can help ascale-up manage the complexity that comesas an organisation moves from being one inwhich everyone knows everyone else to onewhere multiple teams with specific functionalfocuses are at risk of becoming siloed.Sheila Lirio Marcelo gave one example,arguing that people whose experiences spanmultiple functions can help manage someof the tensions that arise between differentteams as a company scales. In her words,“Forexample, it can be a good idea to hire peoplewith product management backgrounds intoyour marketing team, as they’re more likelyto understand the mindsets of the Tech andProduct teams and less likely to allow an insularmindset to dominate”.Hire people from under-representedbackgroundsMegan Smith extended this argument andpointed out that,“you need team diversity,because you need a whole range of waysof solving problems”. Moreover, a goodway to ensure a diversity of problem-solvingapproaches within a team is to recruit excellentpeople from backgrounds that tend to beunderrepresented in your industry.Smith gave the example of female computerscientists, noting that if only ten percent ofpeople who graduate from computer sciencedegrees are women, those women are notonly likely to bring a new perspective to an all-male team, but also to be excellent in multipledimensions. In her words,“Think about studyingin an environment where 90 percent of peopleare so visibly different from you: people who aregood enough and tough enough to pull that offare exactly the people you want on your team”.
    • 10Build multi-disciplinary teamsEmbracing diversity goes beyond hiring – it issomething you also need to place at the heartof how you build and organise teams. In AdamNash’s words,“You want multi-disciplinary teams,not just multi-disciplinary people”. He gave theexample of LinkedIn’s decision to combine front-end engineers and user experience designersin the same team.This was a move that wentagainst conventional wisdom. Nash noted that,“At the time, it was controversial, but we foundit meant that the engineers became morefocused on the end goal – making sure usersloved the experience”.This is just one example that illustrates a themethat the speakers returned to multiple times:teams with diverse backgrounds but a clearshared goal are best equipped to help acompany scale.
    • 11Nurture company cultureand values as you growBuilding great teams that can scale goesbeyond hiring the right people. It also requiresthe founders to nurture a great culture and greatvalues.The bad news is that this becomes muchharder as a company scales.The good newsis that was one of the most-discussed topics atSVC2UK 2012 and the speakers outlined clearstrategies for building a culture for scale.Values are difficult to maintain as you scaleMultiple elements of company culture werediscussed during the SVC2UK panels andworkshops, but three values were mentionedby more than one speaker as beingparticularly difficult to maintain as a startupscales:“delighting the customer”,“owning theproblem”, and persistence.Jason Stoffer, partner at Maveron, notedthat “delighting the customer” is somethingthat almost all startups have as a foundingvalue, but is also something that becomesmore difficult as you scale and the businessbecomes more complex. Moreover, Stofferargued that it is companies that stay closestto their customers as they grow that are mostlikely to scale effectively.Christopher Lukezic of AirBNB agreed.“Valuesoften change as a company grows, but it’shard to see how you can scale without anoutward-looking perspective that puts yourcustomers’ needs first”.For Panni Morshedi of Wonga, one of thehardest cultural problems for a company thatis scaling is maintaining a sense of “problemownership” – that is a culture in which allmembers of the team feel passion for andhave a deep understanding of the problemsthey are trying to solve. In Morshedi’s words,“Atfirst, it’s easy: everything is everyone’s problem!But it gets harder as you grow and hire. Findingpeople who will have the mentality that it istheir problem is important.You can’t acceptexcuses or the culture in undermined”.Persistence was the value most critical toscale identified by Kim Polese. She argued thatpersistence is “perhaps the most underratedquality for a startup”. Countering the mythof the ‘overnight success’, Polese noted that“most successful companies are actually aseries of failures before something works. Onlya culture of persistence can get you throughthose failures”.How to nurture valuesThe importance of these values is perhapsintuitively obviously. However, ensuring theyremain at the heart of a company thatis scaling up is far harder.The speakerssuggested four strategies for nurturing the rightculture: first, demonstrate what values matterto the company by what you choose to focuson; second, make culture-fit an explicit part ofyour recruitment process; third, actively dispel
    • 12myths; and fourth, ensure that the CEO andsenior leaders role model the culture you wantto develop.Focus transmits cultureChristopher Lukezic summed up theimportance of company focus by consideringhis experience of rapid scaling-up at Airbnb:“Going from 20 to 80 employees is perhapsthe most stressful phase for the employeesthemselves, because you are creating astructure for the first time.Things that used to beautomatic, such as embracing the company’svalues, now require real work.Values will beextrapolated from what you ask people tofocus on”.The challenge is that transmitting focusthroughout a growing company requiresdifferent mechanisms from those that workeffectively in a startup. In the words of JoseFerreira, founder of Knewton,“When thereare two of you, there’s a good chance youintuitively agree or at least can discusswhat is important and worthy of focus.Asyou scale, that’s no longer possible”. In alarger and growing organisation, you haveto communicate what is worthy of focus bymaking and communicating clear strategicdecisions.As Kim Polese said,“focus isdemonstrated by saying no to potentially greatopportunities.That’s how you build a culture”.Maintaining and communicating companyfocus is easier if all employees clearlyunderstand not just their job, but thecompany’s guiding cause or mission. SheilaLirio Marcelo pointed out that “organisingpeople around a cause means that you’ll haveto do less management” because people willhave a better understanding of the company’spriorities and how to resolve competingdemands on their time and resources.Hire for culture fitAs discussed above, hiring is particularlyimportant in a fast-growing company,because the people you recruit will not onlybe doing a specific job in the present, but willbecome the leaders of your company’s future.Consequently, the people you hire are oneof the most important mechanisms throughwhich you build a corporate culture.This can be a major challenge, particularlygiven the importance of hiring people withexperience. Panni Morshedi summed up therisk scale-ups face by noting that “new hires –particularly the people from backgrounds inbigger companies – often won’t understandthe dramatic, live-or-die nature of a startup. Itwill be obvious to you, but not to them”. Part ofthe solution, according to Sheila Lirio Marcelo isto “find people who share your values, becausethe people you hire later will learn those valuesfrom them”.Another important element is to pay attentionto the overall composition of the team, as wellas the values of individual members. MeganSmith pointed out that Larry Page alwaysinsisted that at least 51 percent of Googleemployees be engineers, even as Sales wasgrowing in importance. He wanted the cultureto be engineering-driven and knew that comesnot just from having engineers as leaders, butalso by having a critical mass of engineers
    • 13throughout the organisation.Actively dispel mythsAs has been discussed, one of the challengesof scaling is that the company goes from onewhere everyone knows everyone else – andmay even be close friends – to one where thisis impossible.This has many consequences,but one of the most important is that it allowsrumours and myths to spread. Sheila LirioMarcelo noted the potentially destructive effectthis can have and described the solution shehas implemented at care.com:“every April wemove people around – that is, we physicallychange where they sit.This mixes up old timersand new people and breaks down myths thatmight form”.Megan Smith reinforced the value of ensuringthat team members of different tenures spendtime together and discuss how the companyworks. In her words,“people can easilymisinterpret why things happen a certain way.You see people believing there are a whole setof rules that just don’t exist!”Role model the values you want to seeThe SVC2UK speakers agreed that thedevelopment of company culture in a scale-up is not a task that can be delegated oroutsourced; it is a critical role of the CEO andfounding team.As Panni Morshedi put it,“leadersbuild culture”. Moreover, this does not changeas the company grows.As Morshedi said,“Evenin a company of 350 people, the team needsto see the CEO walking around the office,demonstrating the company’s core values”.Jose Ferreira concurred, noting that a CEOneeds to remember that his or her actions willbe observed, interpreted and acted upon asmuch as – or more so than – his or her words.Consequently, according to Ferreira,“the CEOmust role model the values and activities thatare important.Anything a CEO shows they careabout, the company will care about”.In summary, the founders must choose companyvalues carefully and nurture them as thebusiness scales by placing them at the heart ofhow the organisation hires and operates.
    • 14Build systems that scaleAnother major challenge that startups face asthey grow is that systems and processes – bothtechnical and organisational – are hard to scale.Systems that are sufficient in a small organisationcan cease to function when the company isdealing with numbers of employees and usersor quantities of data that are several orders ofmagnitude greater.Three types of systems in particular wereidentified as being critical to scale: thecompany’s technical infrastructure; its datacollection, storage and analytics systems; and itsorganisational rules and norms.Although thesesystems are very different from each other, theyshare the common factor that they need to bedesigned for scale; merely hoping that they willgrow with you is not enough.Technical InfrastructureKim Polese argued that it is all too easy to seetechnical infrastructure as a commodity, whenit is in fact a key differentiator, particularly in afast growing market with multiple competitors.She noted the importance of planning forscale as you build your infrastructure, drawingon the striking example of the race to becomethe dominant social network in the mid-2000s:“Remember that one of the critical differencesbetween Facebook and Friendster wasinfrastructure; Facebook could handleextraordinary growth and Friendster could not” .Friendster, one of the early online social networks,had many millions of users before Facebookwas launched, but rapidly faded in the face ofcompetition from Facebook and MySpace.Data and analyticsFor Sheila Lirio Marcelo, a company’s systemfor collecting and analysing data is essentialto its ability to scale.As a company grows,the founding team’s ability to know what ishappening through personal observationdiminishes. In place of observation , you require“excellent data systems and dashboards”.In Marcelo’s words,“if these are not good, youcannot scale, because you simply can’t knowwhat is going on.As you grow, it is critical thatyou can recognise the bottlenecks in yourbusiness from the data”. Moreover, you needan understanding of how the data you seeon your dashboards maps to the reality ofactivity in your company.As Marcelo says, aprecondition of scaling up is knowing “whatlevers you can pull to make change in yourkey metrics”.Rules and normsMegan Smith reminded the audience atSVC2UK that it is not only technical systemsthat can be challenging to scale: you alsoneed to build what she called “company APIs”– which she defined as organisational rulesand norms that allow teams to work quicklyand effectively.
    • 15One example Smith cited from Google’sexperience was having weekly deal approvalmeetings for the company’s corporate andbusiness development teams. Having a regular,transparent meeting – rather than multiple adhoc meetings – allows members of the relevantteams to increase the volume or scale of theiractivity rapidly without hitting bottleneckssuch as the ability to schedule time with theappropriate leaders and stakeholders.Smith also pointed to the power of basicrules that make people more effective and,crucially, allow the number of interactionsbetween individuals and teams to increasevery quickly without introducing bureaucracyor inefficiency.According to Smith, Larry Page’sfavourite example is Google’s norms aroundmeetings. Smith noted that at Google “the ruleis that if there’s no agenda or no owner, youshould leave the meeting.That’s a simple rulethat makes the time people spend together asefficient and effective as possible”.Althoughsuch rules can seem trivial compared to thetechnical challenges of scaling infrastructure,successfully embedding them within anorganisation is difficult – but pays dividends.Sheila Lirio Marcelo agreed on the importanceof building organisational systems for scale –and added that it is crucial that these systemsare flexible and evolve over time. In particular,in a very fast-growing company no single setof processes will be sufficient for an extendedperiod. Moreover, once an organisation growsbeyond a certain number of employees, itis impossible for the founding team to havesufficient visibility to determine the best set ofprocesses for the company as a whole.The key, therefore, is to ensure that teamsunderstand why processes have evolvedthe way they have and that they feel able tochallenge and modify these where necessary.Marcelo summarised the challenge in saying,“One of the things that happens as you scaleis that the people you hire are less likely to feelownership of the processes and systems withwhich they work.You need to empower themto think about and question system efficiency.The alternative is that employees becomepassive recipients of systems that make themineffective – and that will slow your growth”.
    • 16Test continuously to stay close tothe customerFor early stage startups, spending time with yourcustomers and understanding what they needis almost the only thing that matters. However,as you scale, that becomes harder: you havetoo many customers to spend as much timewith them individually and growth brings with itmultiple new concerns, from hiring to fundraising.Nevertheless, the SVC2UK speakers pointed outthat scale-ups that manage to stay close to theircustomers are far more likely to succeed – butthat different techniques are needed from theface-to-face conversations that might dominatein the earliest stages. Foremost among thesetechniques is continuous testing.Testing allows you to scale customer focus…Jose Ferreira of Knewton praised techniquessuch as A/B testing, which allow web-basedcompanies to test multiple versions of theirsites and user experiences automatically andto use the data to gather customer feedbackat scale. In his words, growing a company“requires continuous improvement – yourbusiness needs to move as quickly as thecustomer base – which is why techniques likeA/B testing are important”. Ferreira and otherspeakers noted the wide variety of decisionsthat can be aided by extensive A/B testing,from relatively minor points of design throughto pricing and branding strategy.More important that any particular decision,however, is developing a culture of testing inorder to understand your customers better.Panni Morshedi argued that this is somethingthat is easier to do when a company is stillsmall – particularly before it raises largeamounts of investment – because A/B testingand similar techniques are so geared toavoiding waste and resolving uncertainty.Morshedi cautioned strongly against losingthis mindset as a company grows:“It can betempting to cut back on testing as you growand raise money. Remaining scrappy, though,is a key part of scaling: you have the keepthe ethos you had when you were small. Justbecause you have money doesn’t mean youhave enough money not to test!”… and helps resolve disputesSheila Lirio Marcelo drew attention to anadditional benefit for A/B testing – that byinjecting facts and data into otherwise subjectivedebates, it can help reduce the role of ego andpolitics in decision-making. Marcelo argued thatthis is particularly beneficial when a companyhas increasingly disparate or compartmentalisedProduct, Marketing and Engineering teams,between which tensions can emerge as anorganisations scales. In Marcelo’s words,“A/Btesting brings an element of objectivity, whichcan help resolve different approaches”.
    • 17Testing is not a magic bulletSeveral speakers, however – including strongadvocates of A/B testing – cautioned againstviewing A/B testing as a panacea. JoseFerreira noted that vision and intuition remainresponsibilities of the founder, no matter howcommitted you are to testing.You cannot A/Btest a startup into existence or a company toscale.A testing culture exists to help a businessfine-tune its execution. It cannot in itself makethe major strategic decisions that will shapethe company. In Ferreira’s words,“scaling is artplus science, not science alone”.Above all, entrepreneurs should not becomea slave to testing. Ferreira likened a companythat relies on customer testing alone to aperson who eats only junk food: short-termsatisfaction is achieved at the cost of long-termunsustainability. For Ferreira, a simple solutionis to ensure that major decisions both test welland match your long-term vision.Jason Stoffer, another proponent of A/B testing,also warned against losing sight of the biggerpicture as you adopt a culture of continuoustesting. He said,“Before you test anotheriteration of a button colour or image width,stop and ask yourself, what are the three thingsthat are going to cause widespread adoptionof your product? Is what you’re doing right nowgoing to lead to one of these? If not, why areyou doing it?”.The message of the SVC2UK speakers wasclear: A/B testing is an essential element ofthe entrepreneur’s toolkit – but it cannot be anexcuse for abdicating responsibility for visionand strategy.
    • 18Take the right kind of moneyat the right timeRaising capital from external investors is a topicthat pre-occupies many entrepreneurs who aspireto scale their businesses and success in doing sois widely celebrated within the startup communityand in the technology media.However,whileinvestment is often a critical ingredient for growth,a number of SVC2UK speakers warned foundersto avoid seeing funding as the solution to all thechallenges of scaling up – and indeed cautionedthat raising money from the wrong people orat the wrong time can be damaging for a fast-growing business.External investment can be the catalystfor scaleTaking on external investment can enablescale at a much faster rate than the organiccash generation of the business would permit.This does not always mean raising moneyfrom formal venture capital funds – indeed,as Sherry Coutu pointed out, most high-growth businesses do not – but it is likely thattechnology startups with aspirations to growrapidly will need to take on investment fromangel investors or similar sources.Adam Nash discussed the wariness that someentrepreneurs feel about raising money andthe dilution of ownership and control thatresults. He warned that founders “need to beaware that there is a real trade-off betweencontrol and financial outcomes”.According toNash, entrepreneurs must recognise that they“will usually need financing to grow and needa liquidity event [such as being acquired ora public offering] to realise their success, butboth these mean giving up some control”. ForNash, founding teams need to recognise thetrade-off, but embrace growth; in his words,“ifyou’re serious about scale, some loss of controlis almost always part of the bargain”.But beware raising too much (or too little!)money…However, multiple speakers expressed concernthat entrepreneurs may become fixated onfundraising as a goal in itself, rather than asan activity that supports the real growth ofthe business. In particular, several peopleconcluded that startups should avoid raisingmore money than they need.Jose Ferreira said that it worried him to seestartups celebrate raising a lot of investment.In his words,“one way of looking at it is thatit just means you weren’t able to grow thebusiness organically!” Megan Smith reinforcedthis viewpoint. She said,“Beware of taking toomuch money too soon. Scarcity builds clarity”.The challenge is that the optimal amount ofinvestment is difficult to define. Smith warnedthat remaining lean “doesn’t mean starvethe company: you need enough resources tosucceed, which means anticipating needsas well as responding to them”.Adam Nash’sproposed solution to navigating this trade-off is to ensure the startup’s leadership isfocused on the purpose of fundraising, ratherthan the amount. In his words,“It’s important
    • 19that you as the CEO make clear that anyfinancing – up to and including an IPO – isnot an end-point or the goal itself, but partof the process of building a great business”.Drawing on his experiences at LinkedIn, heargued that the management team shouldalways communicate internally and externallywhy the company was raising money and,moreover, should use each funding round asan opportunity to “raise the game” in terms ofcompany culture and aspirations.… And beware of investors who will send thewrong messageA second challenge the fundraising processpresents is finding the right investors. Speakerswarned against the temptation – particularlyacute when finding investment is difficult – oftaking money from anyone who is willing tooffer it.First, taking money from people who have littleto offer the business other than cash is to missout on the great value that an engaged andwell-connected venture capital firm or angelcan offer. Jose Ferreira argues that domainexpertise, network and experience of scalingmeans that “the power of a genuinely goodVC is extraordinary”.Second, certain types of early investors cancripple a business by the signal that their futurebehaviour sends to the broader investmentcommunity. Charles Cotton points to theproblem posed by very early stage “strategicinvestors” – that is, large corporations thatinvest in startups in order to have an option onthe technology or other assets of the startup,rather than as a pure financial investment.Thedanger, in Cotton’s view, is that if a strategicinvestor takes a stake in a startup at a veryearly stage, but it becomes clear subsequentlythat it has no intention of acquiring the startupor making further investment, other investorswill take that as a signal that the startup isfailing or that its technology is less promisingthan was once thought.Jose Ferreira made the same point aboutinstitutional investors, such as venture capitalfunds, providing funding very early in astartup’s lifecycle. Such investors’ businessmodel relies on making follow-on investmentsin the later funding rounds of successfulstartups. Given that an institutional investorwho invests early will know more about astartup than any future potential investor,Ferreira notes that if they decide not to followon in future rounds, the signal that is sent toother investors about your likely prospects isvery damaging.Investment, therefore, is both crucial for scaleyet fraught with potential hazards. Founderswho aspire to scale must select their investorsas carefully as they would a co-founder: aswith a co-founder, the right choice can propela company to extraordinary growth; the wrongone can sink it.
    • ConclusionTaking a startup to scale is extraordinarily difficult. Nevertheless, the conclusion of Silicon ValleyComes to the UK 2012 should be encouraging for UK technology startup founders.On the one hand, the comparison with scale-up rates in the United States shows that Britishcompanies can, should and – indeed – must do better at growing quickly and consistently.On the other, the advice and counsel offered by the SVC2UK speakers demonstrates that, while thetask remains extremely challenging, there are proven techniques and methods that greatly improvethe probability of success.Moreover, as the SVC2UK CEO workshops showed, serial entrepreneurs with experience of scalingcompanies not only exist, but are able and willing to share their time and expertise with first-timefounders.The worldwide networks that are built and reinforced by conferences such as SVC2UK andthe increasingly global market for venture capital are a critical resource that British startups mustdraw on as they seek to grow.Silicon Valley provides an extraordinary example of what is possible.The task is now for UK-basedentrepreneurs to meet the challenge head on and turn their startups into scale-ups.20
    • 21Speaker profilesAdam Nash is an entrepreneurial executive with a passion for product and deep experience withmobile and social platforms. He joined Greylock Partners in 2011 as an Executive in Residence,where he advises the leadership teams of the firm’s existing consumer technology companiesas well as evaluating new investment opportunities. Prior to joining Greylock,Adam was VicePresident of Product Management at LinkedIn. Most recently,Adam led LinkedIn’s Platform &Mobile products, including the launch of LinkedIn’s open developer platform and their highlysuccessful native applications and mobile web experiences.Angela Lin leads all things on education at YouTube, including content strategy, partnershipsand original programming. Her work reaches across the learning spectrum from nursery to highereducation and lifelong learning, featuring educational content that ranges from the purelyacademic to the wildly inspirational.Christopher Lukezic joined Airbnb as an early employee in summer of 2009 and now acts asthe Director of Communications for Airbnb in EMEA where he oversees brand marketing, mediarelations, and partnerships. Prior to joining Airbnb Christopher spent 5 years as a professionalrunner and spokesperson for Reebok and Nissan.Jason Stoffer joined Maveron in 2007 and is now a partner focused on investing in education,e-commerce and web-enabled consumer businesses. He is involved with the firm’s investments inzulily,Altius Education, General Assembly, Julep, Everlane, Live.ly, Gigi Hill and Livemocha. Prior tojoining Maveron, Jason served as senior director of strategic operations for Career Education Corp.,where he co-founded and led admissions and marketing for IADT Online, a for-profit design school.Jose Ferreira is the founder and CEO of Knewton, the world’s leading adaptive learningcompany. Knewton combines big data with psychometrics to continuously and progressivelypersonalize any publisher or school’s online learning courses. In October 2011, Knewtonannounced a partnership with Pearson to power their complete line of MyLab and Masteringproducts, currently used by nearly 10 million students.
    • 22Kim Polese is a leading Silicon Valley entrepreneur and technology executive. She is currentlyChairman of ClearStreet Inc., a social finance startup focused on helping people eliminatedebt and achieve long-term financial health. She also serves as an advisor, board memberand investor to several early stage technology companies. Previously, Kim served as CEO ofsoftware company SpikeSource Inc., a pioneer in the automation of open source applicationmanagement which was acquired by software company Black Duck in November 2010. Priorto SpikeSource, Ms. Polese co-founded Marimba Inc., a leader in the first generation of systems-management software for the Internet age, which automated the management of software andcomputing resources. Ms. Polese served as President, CEO and Chairman of Marimba, leadingthe company to profitability and a successful public offering. Marimba was acquired by BMCCorporation in 2004.Dr. Mary Lou Jepsen is the CEO and Founder of the Pixel Qi Corporation, a high tech startup doingthings in display technology that many believed were impossible – and delivering them into highvolume mass production. She is also a member of Innovation Board of MEDCO, one of the largestpharmacies in the world, serving 65 million people. Previously she co-founded One Laptop perChild and served as its CTO and the chief architect of the $100 laptop. She has also been on thefaculty of the MIT Media Lab, was the CTO of Intel’s Display Division and was the CTO and a co-founder of MicroDisplay Corp.Megan Smith is an entrepreneur, tech evangelist, engineer, social change agent and connector.At Google[x], Megan works on a range of projects including co-creating/hosting SolveForX. Fornine years prior she oversaw Google’s New Business Development global team managing early-stage partnerships, pilot explorations, and technology licensing. She led the acquisitions of Keyhole(Google Earth),Where2Tech (Google Maps) and Picasa, and led the Google.org team transitionto add Google Crisis Response, GoogleforNonprofits, Earth Outreach/Engine and increasedemployee engagement.Panni Morshedi is currently leading all product development at Wonga. She has been with thecompany since the beginning and has been instrumental in launching Wonga and scaling it to 5million loans and growing. In addition, Panni was responsible for setting up and implementing theinternational expansion strategy. Prior to joining Wonga, she was in charge of product developmentfor iModel Music, a global mobile marketing company. Panni was also part of the founding teambehind ExchangePath, a CMGI company based in New York.Ramesh Raskar is an Associate Professor at MIT Media Lab. Ramesh Raskar joined the Media Labfrom Mitsubishi Electric Research Laboratories in 2008 as head of the Lab’s Camera Culture researchgroup. His research interests span the fields of computational photography, inverse problems inimaging and human-computer interaction.
    • 23Sam Chaudhary is the co-founder and CEO of ClassDojo. Sam holds a Double First-class degreein economics from Cambridge, and taught high school after graduating. He subsequentlyworked in the education arm of consultancy firm McKinsey & Co in London, before movingto Palo Alto as part of the inaugural class of the ImagineK12 incubator – the “Y-combinatorfor education technology”. Sam and his co-founder Liam founded ClassDojo in 2011 to helpteachers, parents and students improve classroom behaviour and build positive learning habitsand character strengths.Sheila Lirio Marcelo founded Care.com in 2006 and today, the Company is the largest online caredestination in the world. Care.com allows families to connect with millions of caregivers to managethe lifecycle of care challenges families face. Sheila’s introduction to technology started when shewas a management consultant at Monitor Company and a teaching fellow at Harvard BusinessSchool. Her growing appreciation for the power of technology led her to positions at Internetcompanies, including VP, Product Management and Marketing at Upromise.com, and VP andGeneral Manager of TheLadders.com.Sherry Coutu pursues a portfolio of interests which include early stage technology investing,advising and serving on the boards of companies, universities, and charities.A serial entrepreneurnow turned investor, her current activities include positions with Cambridge University, CambridgeUniversity Press, Cambridge Assessment,Artfinder, Linkedin, NESTA, Cancer Research UK and others.
    • 24Designed by Visual Media Europe 2013