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Expanding your start up

Chris Evans

Thousands of start-up businesses are launched every year in the UK by entrepreneurs based on exciting and innovative new products, services, ideas and aspirations. But as their companies grow and expand in size and strength, management responsibilities and goals change. Chris Evans talks to experts and senior figures at such companies about how to handle developments

The first days, weeks and months of a new business are often the hardest as people try to put their ideas into practice and persuade others of the benefits of what they’re producing and selling. A huge amount of enthusiasm and ideally other co-founders around who share the passion are key; as is money to get started, which can prove challenging.

“We struggled to get finances at first, approaching several banks for a loan and maxing out on credit cards,” concedes Ed Molyneux, co-founder of Free Agent, providers of accounting software for micro businesses. “When the first customer came on board, we had to work out when the money was coming in, but then as our customer base expanded, revenue increased, and now we’re at 40% growth year-on-year, and have raised about £7m from external finance.”

Owners often find themselves having to do all the work at first, from the creative, development stage through to the finances and marketing of their product/service. “When I started six years ago, it was just the four of us, and I was wearing many hats,” says Andrew Avanessian, Vice President of pre-sales consultancy at Avecto, a cyber-security software provider. “One minute I’d be talking to C-level executives demonstrating the technology to them and how beneficial it was, the next day I’d be working in the office developing a solution for a 50 seat organisation, then I’d be building out the IT infrastructure. It was a case of us rolling up our sleeves and getting involved.”

The first year is all about doing things for the first time – first order, customer, finance target (eg £50,000 revenue), possibly the first employee. Year two is about continuing and making sure the company survives any initial issues and set-backs, then by year three it is likely that the business will survive and is going to be growing faster. This is often when managers start to emerge out of the business as they gravitate to certain roles. Further external appointments of professional managers are also required to do the boring work to ensure the drumbeat of the business is maintained.

“You’re no longer the new kid on the block, you’ve got to deliver consistency, manage governance, staff, suppliers, customers, legal matters etc,” explains Steve Thompson-Martyn, Director at Career Directed Solutions.

Some owners/founders find it hard to relinquish control and delegate responsibilities to managers, only reluctantly allowing their baby to be looked after by others. But others find it really freeing. Their priorities and responsibilities change from hands-on with everything to looking at the bigger picture and longer term objectives.

“It was vital for us to hire managers and other staff who were self-starters, that can see a problem and fix it, rather than need micro-managing and hand-holding,” says Avanessian. “This is not always easy in Manchester where we’re headquartered, so we’ve had to mitigate against this by developing training programmes for those with the right attitude and skill set.”

It can be tough for the managers as well coming into a growing start-up. They are often required to rein in the entrepreneurial spirit a little and perhaps even tell the owners they shouldn’t be doing certain things, which might not go down well and challenge the previous free spirited/flexible approach.
“Some of the people on board from the start could also be seen as change inhibitors, because they’re not capable of moving in the direction the business needs to go as it grows, perhaps even being a cog in the wheel,” adds Thompson-Martyn. “New relationships start to form within the business and externally, including with the banks (all start-ups only get 18 months of free advice from their banks).”

The challenge for managers across all the different divisions as they grow is to ensure all employees are pulling in the same direction, keeping the business in check, while at the same time ensuring there’s an environment where innovation and the desire to challenge is still there. “It is important to keep the entrepreneurial spirit of a growing start-up,” insists Andrew Bell, co-founder of product development studio Mint Digital

There are also several factors to consider if a business chooses to venture into a foreign market for the first time. Managers and owners need to decide if they have the capital and expertise to set up an office in a new country, or if strategic alliances with partners in a territory might be a better idea. It’s also a case of doing research about the target markets, but also balancing the amount of time and effort spent working on conquering these countries. It’s easy to spend 80% of your time on what could only be 20% of revenue in the early years.

“Set clear budgets when expanding into international markets and ensure you have legal frameworks in place because that will let you down more than the business side,” advises James Thompson, a freelance business consultant. “Also companies need to make sure they have professional managers on their team who have had success abroad before. Foreign expansion is not a market for amateurs.”

Outsourcing is another key issue to deal with as the business gets bigger. As product ranges or services increase and expand, it might be a cheaper and more sensible alternative to outsource some of them. But not always. “In our industry (children’s animation programmes), the temptation is to outsource some of the production to the Far East, but we’ve found the quality levels drop. We’ve been building a reputation for producing great programmes, such as Sesame Tree, since we were founded seven years ago, so we’d prefer to try and do them ourselves,” concludes Colin Williams, Creative Director of Sixteen South, who started in advertising, but is now determined to make shows (mostly from his base in Belfast) that everyone in the world can enjoy.

Top tips on expanding your start-up

  • It is vital to have a year of consolidation early on. Profit is sanity, revenue is vanity
  • Businesses must manage cash properly – this is the most common cause of bankruptcy
  • Give recruitment of new staff a lot of thought and time, they will help shape a fledgling business
  • Create budgets (even if you change them), so you don’t spend without structure
  • Retain good advice
  • Always maintain level of governance without strangling the business
  • Balance entrepreneurialism with good leadership and management

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