Spinouts – Scaling Up

26/01/2015

This blog was written for Spinouts UK Quarterly Journal 2015. You can join their distribution list by emailing research@ycf.co.uk

Most spinout companies from universities have the ambition to be companies of scale. If they are to win significant investment at an early stage, they will need to demonstrate that they have a ‘road map’ to enable them to establish a strong position in their chosen market.

However, this ‘road map’ passes through different stages, each of which places different demands on the company founders. Initially, the spinout founders will be immensely relieved to have completed the spinout process itself, with the knotty issues of IP ownership, and the relationship of the academic founders with the university. The next stage is generally one of spending (on prototypes, clinical trials, and other proofs of technology) rather than selling. As a very broad generalisation, academics in spinout companies are more comfortable with the ongoing research and development (which is in many ways similar to their academic work) than in market analysis, recruitment and team building, or the management of premises, financial records, and all the other administrative tasks which are essential to get a startup company on its feet.

The next stage is growth. For all young companies, whether spinouts or not, there are natural barriers to growth. Winning Pitch identifies the most important of these as the emotional cost and the financial cost.

The emotional cost to the individuals involved is usually manifested in self imposed pressure, and in the uncertainty that demands resilience and mental toughness to keep going when the inevitable road blocks are presented.

A scale up company is defined as one that grows its employee or turnover at a rate of 20 per cent per annum over a three-year period, and the financial costs of doing this can rack up very quickly – the cost of recruiting new talent, and of raising finance, professional fees, new premises, IT infrastructure and administrative costs can shoot through the roof. Costs must be controlled and the execution of a growth plan needs to be effectively choreographed – clear roles need to be defined, people need to be accountable for delivering on their tasks. Very rarely can growth be achieved without impacting on profitability.

This is why the majority of the 500,000 of last year’s new startups will never go on to employ one person never mind 10, and also why over 99% of UK firms employ fewer than 50 people. Very often it’s the financial cost of growth that holds individuals back.

What does this mean for academics spinning out a new company from a university?

The main point to recognise is that no one entrepreneur can build a business alone – it takes a team, combining the different skills needed to grow the business. The second point to recognise is that as the team grows, different leadership challenges emerge as the culture of the business evolves. At Winning Pitch we refer to the ‘growth staircase’, with different challenges as the number of staff increases. When the company reaches 7-12 people, the entrepreneur has become an ‘entrepreneurial social worker’. At 25 or more people, the business culture becomes ‘the team vs. the mob’. With 50 or more staff, the business needs to evolve towards a corporate culture, where processes need to be standardised and continually improved, with less scope for individual innovation. Individuals who can take a company through all these stages are rare indeed, and academic entrepreneurs do well to realise that at some stage in the company’s development, the business will be best served if the reins are handed over to others with practical experience of running a large and growing company.


Freedom – A driver for all entrepreneurs

10/12/2012

Why do people set up their own business? – earn loads of cash, pursue a passion, take advantage of a gap in the market place…the reasons are wide-ranging. In the US (particularly on the West Coast) a culture of entrepreneurship and being your own boss is very much the norm. In the UK, what’s the first thing that happens when you say you are going to set up your own business? Your parents are horrified and they go on to tell you that “you have gone mad!” Are you sure you know what you are doing? What about the kids? A fond memory of my late Dad who felt that all those years I studied chemistry at University had been wasted. A concern to Him was that I was about to put in danger the welfare of my family – His grandchildren. Those who care for us, family and friends, are the ones we turn to in times of need – all too often they are protective and want us to pursue the path of least resistance i.e stay employed, play it safe. So taking on the risk of going it alone is not a decision they are going to readily bless.

The words from the ones who care for us can be extremely powerful and in the extreme can hold us back – for many they do! The reality is most people who set up in business are doing it because they want freedom to make their own choices, pursue a dream and make their own decisions. It can be dangerous to listen to those we respect as they can put the brakes on our desire for freedom. Freedom in my view is why entrepreneurs do what they do. They want to make their own decisions – free spirits, difficult to control and unemployable!


Fear

11/07/2011

Fear is a major barrier faced by individuals thinking about setting up their own business, unless it can be overcome, progressing an entrepreneurial dream will be difficult.  Dipping into savings, re mortgaging the family home, personal guarantees, going without holidays or giving up a social life is a step too far for many. A foray into the unknown can be a very daunting experience, this means anyone taking the plunge should think very carefully about what the journey of self employment holds. Expect the unexpected is a phrase that so many business owners will relate to. Growing a company inevitably becomes a rollercoaster ride with no stop off point, you are swept along with the momentum that builds when, staff, customers, suppliers and the day-to-day running all demand your attention. Be prepared and aim to minimize all the risks associated with going it alone.

Given the current economic challenges faced throughout the world, entrepreneurship has now become a hot topic for debate. My advice to anyone going down this path is prepare yourself emotionally, mentally and commercially. Head, heart and wallet must be aligned. Once you get this, the rewards can be massive both in financial terms and from a sense of personal fulfillment.

My research shows that successful businesses don’t happen over night, they are the exception rather than the norm. The reality is there is no fast track to success, normally it takes over 10 years to create a properly functioning company. The journey involves navigating the forks in the road, where taking the wrong turning could have potentially disastrous consequences. Building a successful company is a bit like trying to get to heaven, you have to go through purgatory before you get there! It almost seems mandatory to have experienced two major setbacks before you get to the desired destination.

Whilst fear is a very sound reason for not moving forward with an idea, the reality is that focusing too much on this negative emotion and its associated outputs will hinder the ability to progress. Having said that a bit of fear can be also a powerful antidote to complacency. It’s all about getting the balance right.


Be prepared – Sometimes it can be crap

27/03/2011

I am really encouraged by the new Coalition Governments attitude and approach to enterprise and entrepreneurship. Start up’s are the future, they will create the jobs. But one word of advice is that being your own boss can be demanding and at times take its toll on you personally and potentially your family and dependants – it’s stressful. Most people who know me will appreciate that I am a passionate and proactive ambassador for entrepreneurs who go out there and take a risk. So much of our recovery as an economy depends on individuals with an idea who can take it forward with gusto – generate revenue, profit and create not only a wage for themselves but also for others. It really is not easy.

My advice to anyone who is thinking about, going it alone, is get your HEAD IN GEAR. As long as you are prepared then you will be OK. Being your own boss is great when you are riding the wave of success but the lows can be at best crap – it’s a bit like a rollercoaster. As long as you know this you can be mentally prepared for the journey. The high’s include:

– The feeling of euphoria when you win the new contract

– The pride in creating new jobs and seeing individuals develop

– Recognition from your peers about the difference your business is making

The lows often involve a sense of just wanting to escape to somewhere well out-of-the-way, particularly when you are:

– Worrying about whether you have the cash to pay the wages

– Waiting to hear about a new contract that has cost you a fortune to bid for

– Dealing with people who are making your life really difficult, sometimes people look to you for the    answers but you really don’t have them.

So my advice is get your head sorted, expect the unexpected, accept its going to be full of surprises, ups and downs. When you realise this it’s a great journey. Always maintain the faith in what you set out to do, accept the brutal facts and just keep pushing and pushing till you get to the destination.  Its going to be crap at time but that’s just temporary the highs massively shadow the lows!