Scale up or startup: what’s the difference?
Within the tech ecosystem, there is a lot of jargon that you’re going to want to understand. From venture capital and seeding to startups and scale ups, there is so much to absorb, so let’s dive in and understand a fundamental difference in tech lexicon.
We’ve started to understand what a startup is and what a startup mindset can do for your business, but scale ups are on the rise, and it’s essential to identify them (especially if you’re not sure when you transition into this new phase).
What is a Scale Up?
A scale up is a company with a validated product within a marketplace. In other words, it is a high-growth company that has entered into a new phase of business within its environment.
These types of companies will deal with new challenges and opportunities while aiming for exponential growth. This phase of business requires intense support and infrastructure and requires a dedicated understanding of internal capabilities.
4 Characteristics of Scale Ups
There are distinct differences between startups and scale ups. While startups have a higher appetite for risk and innovation, scale ups have to mitigate their risk-taking while still working fast and innovating.
In general, startups tend to explore new methods and process regularly because there is usually less to lose in taking these risks. Scale ups, however, need to adapt to a different operating model and tend to have more established processes in place. There are many more factors that differentiate startups from scale ups, but here are four characteristics that will help you identify a high growth company.
1. Reduced appetite for risk
Companies tend to reduce their risk appetite as they grow. During the early phases of a startup, you can change branding, product features and other factors quickly and without much process because it needs to happen ASAP.
If you start changing branding or features without following a process, you risk scaring investors, customers and team members, which would impact your overall growth. Therefore scale ups tend to be less agile than startups. However, this doesn’t make them slow to innovate; it just requires more calculated decision making.
2. Different Stages of Funding
As companies enter into a different phase of growth, they will also go through further funding rounds. Startups usually start with either no funding, seed money or occasionally have a Series A supporting them.
When a startup enters into the second round of funding, it usually indicates that it has grown. The best way to identify if a startup should be classified as a scale up is if the company can provide potential investors more than an MVP which means they can offer a strong team and market opportunities to expand.
3. Specialised Teams
You will see in startups that team members often take on numerous roles within the company, but as the company grows, the demand for specialised skill sets also grows. Scale ups will, therefore, invest in creating departments with specific roles. The idea is to create a focused approach for each facet of the business to ensure that the enhanced delegation empowers growth.
4. Product-market Fit
Arguably the most crucial difference is the product-market fit of scale ups compared to startups. Scale ups have usually reached the stage where they have proved their assumptions about their product and its viability. They can therefore confidently assess their margins, ROI and projections.
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