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Deep pockets, high expectations – why tech scale-ups revise their growth strategies

From disruptive shock to unexpected boom 

Early 2020, with the beginning of the COVID-19 pandemic, the world as we knew it changed, and uncertainty skyrocketed. For many businesses no-one could foresee the degree of economic impact. Would clients cease business engagements? Would capital buffers be sufficient? Could organizations maintain their workforce and hold up supply chains?

Yet, within months, the gloom changed into a historic boom period for tech firms. Young scale-ups received record levels of funding from stimulus packages and investor capital. Equity flooded the market, and tech firms like AirBNB used the momentum to list on the stock exchange. And whilst a rocky start of 2022 on the financial markets brought new uncertainty, we still see a pattern of new challenges occurring at scale-ups on their path to long term growth.

Why having deep pockets is no cure-all for growing pains 

Hyper growth strategy scale-ups

The market is currently awash with investment equity, and the availability of capital results in the entrance of new competitors on the investment market. Whereas investment historically originated from niche venture capital firms in Silicon Valley, now angel investors, hedge funds, family offices and even ex-employees cashing in on their stock-options at start-ups are lining up to back promising tech firms. The global fall of interest rates has also pushed investors to riskier but higher return markets than before. Both European tech firms and software product companies have seen record funding last year.* 

For young tech scale-ups, receiving investment comes with expectations. Investors expect alluring returns, if not in the short term, then definitely in a few years’ time. And returns are typically realized from market capitalization by the scale-up. Hence, the keyword to both scale-ups and backing investors becomes GROWTH. And with growing ambitions rise growing challenges. 

Often, these challenges manifest in particular bottlenecks, for example: 

  • Technology and business organizations cannot align on a strategic product vision, as the organization works hard to realize its next growth with its clients. New markets, new client bases and new products mean new regulatory and customer requirements for the company’s products. Sales is pushing for growth, but the organization is over-engineered, and platforms on which the product is built need to be adapted to support changing demands. Whereas technical debt can often be accepted during the start-up phase of a business, during the scale-up phase it typically makes scaling much harder if not outright impossible. 
  • ‘Operations is spinning out of control’, as organizational and technological choices originating from an experimental and frugal start-up phase are not eligible to scale the organization further. It is not uncommon to find teams managing vital processes by keeping track of manually updated Excel files, or overshoot in creating difficult process controls. Whereas organizational manoeuvrability ideally links to simplicity, the opposite situation is often what organizations find themselves in. 
  • As the organization needs to scale fast and be product oriented, automating many processes becomes a sound means for efficiency and focus. This paves the way to the DevOps way of working. However, teams can find themselves challenged to shift to DevOps way of working, as they lack knowledge, maturity, or guidance. A scaling organization means more teams and people to realize growth, and with additional people come changing responsibilities. DevOps requires that both complimentary T-shaped profiles be present in teams and taking an ownership mindset. On the technical side, it also requires an agile business and technical architecture and engineering platforms to allow teams to act autonomously and take ownership of what they produce and how it’s run. 

From Xebia’s perspective as a Consultancy partner, we see a clear alteration of the questions we get from our scale-up clients. Whereas previously we were often asked to help with specific, mostly technical problems, the challenges of many scale-ups now became much more complex. And, in addition to complexity, organizations are often so far entangled in growth ambitions, that solutions are no longer that simple. As always, there is little time for introspection. Our default approach is taking an integrated holistic perspective, embracing different aspects of the challenge like business context, strategy, team, and technology. This way, we can understand the full scope of the challenge and identify where we can deliver value quickly and realize a future-proof set-up. 

We choose a broad view and take different aspects of the organization into consideration, e.g. 

  • Product Vision and Leadership,
  • Business and Technical Architecture,
  • Team Topologies and Domain-Driven-Design,
  • Site Reliability Engineering,
  • Operating Model, and Engineering Platforms. 

Our 360-degree approach and in specific the assessments we perform with our clients now help large tech investors and their scale-up companies to identify risks, and opportunities to their ambitious growth targets. Xebia helps them with insights and implementation. With these results, our clients can take very specific measures to change their technological and organizational model to enable further scaling. 

Hyper growth scale up

Ramp up your growth ambitions with confidence 

Growth means change, and change can be daunting. We see that it is tough to find and hire the right people, new colleagues with the right knowledge to support organizational evolution. Speed and agility remain success factors to outgrow competition, but they cannot come at the cost of quality, reliability, and security. 

Over the last 22 months of a global pandemic, we have learned that we are able to adapt better and quicker than we ever thought. There may be speed bumps or hurdles on the way. But if we want to succeed to grow as people and as businesses, we must keep on seizing opportunities and embrace the learnings we gain along the path.

*Source: The Economist 

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