When many people think about the future of work, they look to the start-up scene for clues. Where they really should be focusing is the scale-ups. These are the companies that are creating jobs and shaping local economies and where many of us will be working in the future. And they require far more attention from our leaders than they're getting.
Although scaled-up middle-market firms with annual revenue between $10 million and $1 billion represent less than 1 percent of U.S. firms, they employ 28 percent of the private-sector workforce nationwide, according to research by Dun & Bradstreet and American Express.
The reality is similar in many developed economies around the globe. In Canada only 1 percent of companies reach the 100- to 499-employee mark, but they had the strongest revenue growth of all size businesses from 2001 to 2013, with a 43 percent uptick, according to the Business Development Bank of Canada.
The former Polartec textile manufacturing plant in Lawrence, Massachusetts, where incubator CI Works has signed a five-year lease. CI Works focuses on connecting younger firms to mature manufacturing companies and scale-ups. The 90,000-square-foot space could accommodate as many as 60 companies and about 200 workers.
"Companies are like humans," said Claude Martel, founder and president of Inno-Centre, a leading Canadian accelerator that advises more than 300 companies a year. "They go through a natural life cycle. If they grow, it is because they are competitive. They represent tomorrow's economy."
Consider companies such as Airbnb, DropBox and WeWork. Airbnb, founded in 2008, now has more than 4,000 employees. DropBox, launched in 2007, now has about 1,900 employees. And WeWork, which came on the scene in 2010, now employs about 4,500 people. Cities that want to make sure their residents have ample job options in the future should be focused on nurturing scale-ups. This requires a different approach than sparking start-ups.
For leaders who want to turn start-ups to scale-ups, here is what is necessary.
Start-up leaders need to move beyond the visionary stage, especially with hiring decisions.
The primary task for many founding entrepreneurs is selling others on their vision so they can raise start-up capital, the lifeblood of any start-up. However, if a start-up is going to become a scale-up, the leadership team will need to change its mindset and focus on a new tasks.
One is operations. A start-up can often get away with handling functions, such as hiring and new product development, informally. In contrast, leaders of scale-ups will need to identify the four to six critical functions that need to be created to grow the company in an organized way. They may, for instance, need to add an HR department or formalize R&D. To make the most of the resources available to do this, leaders typically need to know how to set priorities and establish the one or two areas that are most pressing first. Most often, functions such as operations, sales and customer experience may have to get set up right away.
"Leaders may need to get coaching to learn how to build the right lineup and change it mid-game if necessary. That means not only thinking strategically but tactically as well — or what I call "stractically.""
Leaders also need to prioritize team building. Start-ups may need to bring in experienced executives to lead their core functions. If you are at $2 million to $3 million in sales, your CFO may be someone who came on board when the company was very small and function more like a comptroller than a traditional CFO. Similarly, the company may not have someone with the HR experience needed to scale up. "You are not equipped to do what you should do in order to grow," Martel said.