Startup Assessment, Startup screening, Investor readiness, Scale up potential due diligence.
Nearly all startups have the ambition to scale up, but this is easier said than done. Scaling up is a very subjective process and depends on various factors including the experience of the team, the business model and the market (B2B vs B2C vs C2C). Legendary research from Startup Genome shows that 74% of fast-growing internet startups fail due to premature scaling, showing that while those in charge may think they are ready, they are not. Either this, or they begin their scaling process too late, meaning they scale only certain disciplines of the organisation. Less experienced management or founding teams often have strengths in particular areas or disciplines within the organisation, typically the product or the industry.
However, these teams also tend to have large blind spot - the unknowns:
So how does an organisation know whether it is ready to scale up or not? And which areas of the company (e.g. HR, product, customer or operations) should be first in line for attention? A startup screening for scaling up is a great way to assess an organisation’s readiness for taking the next step, and therefore its potential for attracting outside investment. A scale-up assessment, such as those offered by Orange Octopus, involves conducting a thorough assessment or screening of a startup to see if it is ready to take its growth to the next level and to highlight the hurdles that can prevent scaling up. This gets the business to the stage where it can start scaling efficiently and potentially start the hunt for outside investment to enable fast growth.
Scale-up potential assessments are often a very revealing process for the businesses that request them, helping businesses to avoid the common pitfalls that startups typically encounter ahead of time, ensuring they avoid these issues and scale faster.
In this blog post we highlight the biggest benefits of having a startup potential scale up assessment carried out and what it can offer an organisation, its team members/founders and investors.
A 360 scale assessment offers an honest appraisal of areas to work on
Probably the key benefit of carrying out a 360 scale-up potential assessment is that a company can get an honest and unfiltered view of exactly where a business will probably succeed and fail, depending on the business and the industry, if nothing changes. Of course, knowing where they need to strengthen is the priority for most business owners, and we cater to this by breaking down the organisation into categories and measuring their performance individually. This will provide the business with insights into which areas are:
Underdeveloped - in need of serious attention, actively hindering short term growth
Improvement needed - working well but needs improvement in order to aid growth
Strong - no immediate measures needed, ready to support the business scale
By doing this, companies are able to quickly see exactly which areas of the business should be the priority in their scaling aims.
Objective, expert opinion: where to improve and what priorities to scale
By using an external company, a startup can be sure that it is getting an objective opinion on its operations from experts in the field. Orange Octopus, for example, has been assessing businesses of various sizes, industries and states of readiness for over five years, so clients can be sure that we will be laser focused on rooting out any potential hurdles that are preventing it from scaling.
There are of course in-house assessments organisations can run, but often those running such assessments from within will hold back on critical observations due to a variety of factors, such as associations or friendships with colleagues, or out of a sense of self-preservation. A self-evaluation also renders comparison with other startups or organisations difficult. Outside organisations like Orange Octopus know what to look for and have no agenda other than to help a business reach its potential.
Besides opening up blind spots, the screening will also provide specific actions per category a business can take that will make immediate, tangible improvements and clear the hurdles that are preventing it from scaling up.
Scaling up at the right pace
Investing in a business is vital to allow growth, whether investment is internal or from outside. There are many examples of misplaced investment, where money is put into areas of a business that don’t stimulate growth when other more growth-critical areas are left neglected. One typical example is within the area of Human Resources. Recruitment, management and on/off boarding is often overlooked and not taken seriously until very late in the growth process. This is a mistake however, because people are one of the biggest intangible assets of an organisation, especially a small one like a startup, and hiring (or more appropriately mis-hiring) as well as retention of the right people can be extremely costly and time consuming if not managed well.
Whether an organisation is looking to re-deploy company funds or it is seeking outside investment, it’s crucial to know where that money will best be spent. Business owners may think that they know where the money will be best used, but without expert, objective analysis there is a good chance they will not deploy their resources adequately. After all, product is king, and developing it can suck up a lot of resources, especially in the early stages, to the detriment of other areas of the company.
Having a birds-eye view of a company is difficult from ground level, which is why a startup screening for scaling-up from an experienced provider like Orange Octopus is vital at least once in the growth process, but ideally on a regular basis, especially for the founders and C-level individuals.
When it comes to attracting outside investment, conducting a startup scale up potential assessment shows potential investors that not only is an organisation serious in its ambitions but that the company is not afraid to make tough decisions in order to allow the business to grow.
Plan for the future - company roadmap
Every business must have a plan and set goals in order to follow it, but a business will not succeed if its owners don’t know where its strengths and weaknesses lie. As alluded to earlier businesses can conduct their own in-house analysis, but this rarely offers honest results and a clear picture.
Even if investment isn’t the object of an investment readiness screening, having one carried out by an independent provider will produce a very clear picture of what disciplines of the business are working well and which are weak, offering clear recommendations in order for the organisation to achieve its goals.
An independent 360 scale-up potential assessment highlights trickles that, given time, could turn into a flood, allowing companies to put plans in place to tackle them before they get out of hand. Ideally these recommendations will be implemented quickly, especially the priority ones, because an assessment is only accurate as long as there are no major changes - if certain troublespots aren’t dealt with in the weeks or months after an assessment is carried out, the situation will likely have deteriorated and the remedial action will have to be more extreme.
Recurring scale-up assessments will provide a great idea of the impact those changes are having, ensuring that the plans put in place are paying off and if any need changing or updating.
“Growth is uncomfortable; you have to embrace the discomfort if you want to expand.”
Jonathan Majors
How a startup assessment works at Orange Octopus
So what does a startup screening for scaling up involve? Of course we can’t speak for all assessors, but at Orange Octopus we have a tried and tested methodology that has served our clients very well over the years.
Our 360 scale-up potential screenings assess the product team, the C-team and the ‘support’ disciplines (e.g. finance, IT, HR) independently. This is because in our experience these sectors of a startup are often neglected due to the focus on product, which can lead to blind spots for business owners and can stifle growth. Without a coordinated strategy across all disciplines, an organisation cannot hope to scale up.
Therefore, we assess organisations in three tranches:
Product/service team
C-team
Support disciplines (marketing and sales, HR, finance, IT, operations etc)
The timing of startup assessment for scaling up is essential, as performing one at the wrong time will mean that the organisation doesn’t reap all the rewards. In our experience, the earlier a scaling assessment is carried out the better.
Our initial assessment involves combining our own research with various questionnaires for the different disciplines on what is already in place (software, processes etc) and the overall scaling potential or readiness. We meet on numerous occasions with the C-team to discuss their views and plans before discussing our findings with them (we typically find that when we encounter a very agile team many smaller issues are resolved instantly just by our presence). At this final meeting we cement any plans that need to be put in place to achieve the company’s objectives.
What results is a ‘scale up potential assessment report’ which, as we outlined earlier in this piece, results in three indications of readiness - ‘underdeveloped’, ‘improvement needed’ and ‘strong’ per discipline and a company as a whole. This is carried out across five categories, with each category also being given a description of its strengths, hurdles, and suggested actions.
“Sales matters just as much as product.”
Peter Thiel
Be proactive rather than a ‘firefighter’: prepare for the next stage in all areas
As demonstrated, there are clearly huge benefits to a business undertaking a startup assessment, and in truth, any company looking to solicit for outside investment should have one done as a matter of course. No company can hope to expand to new horizons if it doesn’t know how its constituent parts will cope with expansion, and being able to see the hurdles that can prevent scaling from an independent, expert point of view is priceless.
Orange Octopus offers scale-up assessments for startups in the pre-seed, seed and series A phase looking to scale. We also cater for angel investors or venture builders looking to put their money behind a new project, drawing on our many years of experience to provide detailed information on the scale-up potential of the company in question.
To find out how an Orange Octopus scale-up assessment could make a difference to your investment or business, check out our website for case studies and for details on how to contact us.Finally, a scale-up assessment allows business owners and leaders to be proactive rather than reactive in the future. Going through a 360 scale-up potential screening should teach the leaders in an organisation not only how to spot a department or process that is causing a hurdle to progress but to actively assess how those same departments and processes can be improved and streamlined.
A reactive business owner is, in many respects, a firefighter, tackling issues when they emerge in order to try and return to the status quo. A proactive business owner however is always looking for ways to improve performance, including seeking outside investment, in order to grow the startup and bring it to the next phase.
A reactive business owner is highly unlikely to enlist the services of growth specialists because they are not interested in it - as long as things are ticking along and they can put out the small fires that develop, then they’re happy. This, of course, leads to a complete absence of insight into the wider operation of the company, leaving small trickles to turn into floods that are either ignored or left to drown the business.
Carrying out a startup screening for scaling-up however allows businesses to stay on top of the strengths and weaknesses in the company, leveraging those strengths in order to raise the overall bar. Being a proactive owner gives your company the best chance not just of survival but continued growth, and a startup assessment can play an important part in such a plan.