A World Economic Forum report claims start-ups throughout the world are more similar than they are different, identifying eight key growth strategies for early-stage companies.
The 380-page report, a study of 380,000 companies in 10 countries, offers a highly detailed look at why and how companies start-up, the challenges they face, and the keys to successful growth.
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The purpose of the report was to provide insight into how to successfully foster entrepreneurship, with the ultimate goal of improving economic growth, prosperity and quality of life.
The report highlights eight key growth strategies for early-stage companies:
- ‘Wave’ ventures
- A new product in a new category
- A new product in an existing category
- A redesign of the business value chain
- The research or discovery of knowledge
- The roll-up or aggregation of existing players
- Governmental, regulatory or political change
- Idea transfer or transplant.
“The ‘wave strategy’ reflects the incredible dynamic forces that can come out of the early-stage company sector,” the report says.
“Companies like Microsoft, Genetech, Google and Facebook not only have their own rapid growth, but also stimulate a broader ecosystem of related companies.”
The report says another important growth strategy, from a global entrepreneurship perspective, is the idea transfer/transplant strategy.
“Many successful idea transplant ventures engage in substantive adaptation of the idea developed in a different geography as part of their growth strategy,” it says.
“This new strategy framework adds more structure to the seemingly large amount of diversity in the stream of new ventures that start in many countries.”
The WEF’s findings show that a successful start-up will typically grow for two years and then shrink over the next, describing the process as “a ladders and snakes growth path”.
One of the successful strategies it advocates for overcoming this is to “take lessons from the down years to build a stronger engine for future growth”.
It also says putting in place strong management systems is of high importance, arguing that failing to systematically adopt such systems when high growth is occurring is a “self-inflicted wound”.
The report also reveals the top 1% of the world’s start-up companies create 40% of the jobs created by all start-ups, with the report urging governments to view start-ups as a key to economic expansion.
A handful of Australian start-ups are profiled in the report, including tech company Atlassian and Andrew Forrest’s Fortescue Metals Group.
Atlassian is a software company that makes software collaboration and development tools to help teams deliver products faster and cleaner.
Co-founders Scott Farquhar and Mike Cannon-Brookes were only 22 when they started the company in 2002 with US$10,000 on a credit card.
However, the company was profitable from the outset, with sales tripling in its first few years to US$15 million. With growth rates above 30% in 2010, Atlassian is on track to exceed sales of US$100 million in 2010-2011.
Cannon-Brooke says developing the company’s second product early on proved to be a major growth accelerator for the company.
“We had a successful first product and a very small team… The idea to start a second product was not immediately received well internally. But it forced us to think much more about the business we wanted to be,” he says.
“That was the turning point that stopped us from being a one-trick pony, which probably would have seen us sold to another company, rather than being a viable company with a portfolio of products.”
According to Farquhar, a venture capital investment in July 2010 enabled the business to achieve its goal of becoming a long-lasting company.
“We don’t want something that we’re going to flip and sell. To do that you need to eventually diversify your capital base,” he says.