The organic nature of tech start-ups: Sustain and Extend (Part 5 of 5)

In our series of articles, we have been exploring the ingredients of success for tech start-ups through four critical stages of development.

The final stage – Sustain and Extend – is where an already successful business has an opportunity to extend its products, its market share, its global reach and dominate its environment.

With a fertile and well-nurtured foundation for continued growth and no real blockers to sustain their current success, extend globally or into new markets, the start-up has the opportunity to exponentially grow.

However, achieving market or global leadership often requires a different mindset – and a different leadership culture – to the one that brought an organisation to this point. Choices need to be made to optimise the operating model, funding, mergers and acquisitions, as well as continued focus on its markets to safeguard their adaptability to scale up or down with demand or divert their focus to growing more fruitful opportunities.

Leadership and culture

Reaching the pinnacle and becoming a leader in a sector often requires a shift in ownership and leadership to create the conditions and the culture for continual evolution and improvement – this often happens after new funding rounds, investments, or IPO.

This isn’t about jettisoning core skills and knowledge; it is about recognising that the leadership team may need strengthening, and that different skillsets and mindsets may be required from those that have helped the organisation get this far.

In businesses that struggle with this transition, we often see a diminished appetite among leaders to try new things. This can manifest itself as reduced investment in IT and a reluctance to consider new tools and technologies. The technology that helped the business become successful in the first place often becomes legacy – and so too does the thinking and the culture that surrounds it.

Companies need to ensure they have people in leadership positions who are ready for the next part of their journey – leaders who remain powerful agents for change, never stop looking for opportunities, remain experts in their domain, can lift constraints where others can’t, whilst at the same time remaining frugal and alert to the possibility that market conditions could change.

Ultimately, a key failing of many businesses at this stage of development is complacency, where they fail to adequately prepare for changing market conditions through under-investing in R&D, over-recruiting, allowing both fixed and variable costs to increase sub-optimally, and then struggle to adapt when the market scales up or down.

Acquisition and integration

Regardless of leadership and culture, it is almost impossible for businesses to retain their dominant position organically. Those who thrive at this stage of development have often expanded their offerings and capabilities by acquiring best-in-breed providers of complimentary services.

But it’s not as simple as just recognising what a potential acquisition has to offer from a capabilities perspective – the integration at both a cultural and a technical level has to be right.

What often goes wrong is that the acquisition is too ambitious, or the integration is too complex, requiring too great an investment in management time, money, and organisational resources. The integration becomes a distraction, preventing the business from properly addressing market challenges and opportunities.

Successful businesses will have a clear acquisition strategy with investment criteria and strong due diligence and PMI capabilities that will deliver the target synergies including technical, operational, and commercial. Defining an acceptable integration period before deciding on an acquisition is recommended to focus the effort. Alongside pricing the asset, red flags such as resilience, performance or scalability of both technical and operational capabilities can often be overlooked.

Beyond the technical aspects of integration, it’s equally important to think carefully about whether the organisations are a good cultural fit. Integrating two companies can both enhance or destroy an effective culture and therefore a company’s success if not managed correctly.

Shooting for the stars

Any tech start-up that has reached this final stage of development will have done an awful lot right. What will prevent most of these companies from reaching the stars is the continued drive, ambition, and experience to take a company to the next level.

A leadership culture that has allowed complacency to creep in or that does not have experience at this scale may find market opportunities fast becoming market threats. They will struggle either through reluctance to change or being overwhelmed by the complexity of change at such a scale.

The few who do make it will be those who are always alive to new opportunities, making decisions regarding those opportunities based on a data-driven understanding of market realities in a highly disrupted business world, and knowing where to get the help needed to reap the rewards that their years of cultivating success deserves.

Read additional articles from this series: