scaling business

The Real Challenge Isn’t Starting Up — It’s Scaling Up.

The amount of early-stage activity has exploded. Everywhere I look now, it’s wall-to-wall meet-ups, tech conferences and demo days. Accelerators and incubators are being set up all over the country, and there’s a new breed of globally ambitious founders popping up everywhere.

The whole ecosystem seems to have a newfound confidence that it can now go toe-to-toe with the rest of the world. It’s been fantastic to see.

And while all this early stage activity is pretty incredible, the thing that’s excited me most about coming home is the number of start-ups that are now scaling up.

We seem to have hit an inflection point — and it’s now quite common to see great Aussie and Kiwi start-ups like Canva, Prospa, CultureAmp and 90Seconds break through all the noise in the early stage ecosystem and reach accurate scale.

Scaling is never easy.

But this doesn’t mean that it’s getting easier to scale a company here. The rate at which companies are getting to initial scale in Australia (say $10 million-plus in annualised net revenues) is still growing disproportionately slower than the growth of start-ups overall.

This is partly because it’s getting much easier to launch a company in Australia. Things like open source knowledge, cheap computing and mass global distribution channels have made it easier than ever been to build a product here and get to your first $1 million in revenue.

But this also means that getting to $1 million in revenue is not as strong a predictor of whether a company can reach an accurate scale as it was five years ago. And that’s because scaling is still just bloody hard.

Look at the graduation curves for the number of companies that go on to raise follow-on rounds. You’ll see that a much smaller proportion of Aussie start-ups make it to series A compared to the US or even Europe, and the gap gets even more significant at series C and beyond.

We tend to spend a lot of time talking about how we can get more founders to start companies — but if we’re serious about building the ecosystem, we need to focus more on ways to help narrow this gap for later-stage start-ups as well.

The path from $1m to $10m in revenue

Getting from $1 million to $10 million in annualised revenues is one of the most agonising phases that any software company can go through.

It is a slow and painful journey of discovery. Sure, you’ve hit some initial product/market fit, but now you’ve got to figure out how to sell and build your growth engine.

This is a long, hard slog and founders often feel like they’re wandering in the wilderness for ages. And a lot never make it through — they either burn out or hit a wall. The struggle is real.

The good news? Once you do hit $10 million, your destiny will be in your own hands. There are no guarantees that you’ll go on to become a unicorn — but at this point, you’ll be tough to kill off, and there will usually be at least some options for funding or a path to profitability.

So why is scaling still so challenging in Australia? And how can you maximise your chances of making it through the wilderness?

Money does matter

The usual reason people give for why Australian companies have difficulty scaling is the scarcity of local capital. The traditional wisdom has always been that there are enough local investors around to do seed rounds. Still, then the provincial capital dries up, and you have to bootstrap until you’re big enough for the significant global funds to be interested (usually around $10 million in revenue).

Go back a few years, and I think this was a very valid criticism of the local VC market. It’s why many of Australia’s first-generation start-up successes like Atlassian and CampaignMonitor had to bootstrap themselves to scale.

But today, the situation is changing quickly. More than $1 billion in new VC funds have been raised in the past three years, and several sizeable funds ($200 million-plus) have emerged, which have the capital and the risk appetite to support founders through this scaling stage and beyond.

We’ve also seen international investors like Matrix, Horizons, Tiger Global, Index, Point Nine, Accel, Felicis, Sequoia and Valar showing that they are willing to jump to Australia and invest earlier than global funds have traditionally.

But even if it is easier to find capital, you still need to be cleverly deploying it as you scale. Even with excellent unit economics, you’re unlikely to be at cash flow break even at this point, so growth usually means increasing your burn substantially.

If you’re a software business, think carefully about payment terms and pricing. You’d be amazed how many founders never ask for upfront annual payments or grossly underprice their products.

It’s also worth considering using venture debt to extend your runway during this phase. This is a widespread practice in the US and Europe (I reckon 20 to 30 per cent of the series A/B companies I worked with used it) and is becoming increasingly common in Australia.

Avoid a one-size-fits-all market strategy.

Many of Australia’s most significant global success stories have come from companies selling self-service SaaS with high-volume, high-velocity sales models.

Atlassian showed the world how this was done, and companies like Campaign Monitor and BigCommerce have built big businesses around the same model.

With examples like these, I can understand why many other Aussie software companies try to emulate the model.

But it now seems that many Aussie founders (and some VCs) see this as the only sales model worth having — and will run a mile from anything that isn’t self-service.

Unfortunately, self-service just doesn’t work for everyone. Without a first-mover advantage or some sort of inherent network effect (think Slack or Atlassian), it’s pretty difficult to build long-term competitive differentiation if you’re selling self-service software at low price points.

And if you’re selling to enterprises or at high price points, you will usually need at least some specialist salespeople.

Great CEOs shouldn’t be afraid of hiring sales reps — they have unique skill sets and can transform your company.

Of course, building a sales team comes with unique challenges. If your customers are overseas, you’ll need to start building an international presence faster.

This may mean adopting the “Israeli” model — building a local R&D team but moving the go-to-market team overseas as soon as you have initial signs of product/market fit. It also means you’re going to need to hire a sales team — and eventually a VP of sales.

In my experience, this is one of the most challenging hires to get right (anecdotally, I’d say the success rate is one in three). This is an area where you should lean on investors for help.

Levelling up — hiring the right VPS

business growth

When you’re starting up, you’ve only really got three jobs; build a great team, make a great product and don’t run out of money.

When you start to scale, new functional roles emerge like marketing, sales, support and product management.

I’ve seen many founders get to $1 million in revenue with ease but then hit the wall at $3–5 million — and often it’s because they haven’t hired strong enough VPs to support them in these areas.

But hiring great marketing, sales, support and product VPs in Australia is still challenging. We have phenomenal technical talent, but building a deep bench of these specialist roles in Australia will take time.

The great CEOs I’ve worked with overseas often spend 20 to 30 per cent of their time recruiting for VPs, and will generally interview at least 30 candidates for each VP role.

As an Aussie founder, you’ll need to look harder and further for great talent, so expect to spend more than 30 per cent of your time recruiting. And don’t be afraid to look outside Australia.

Even with the worrying new changes to visa rules, finding the right talent overseas may still be your best option.

Just say no: avoiding crappy investor terms.

To get to an accurate scale, you’ll likely need to attract later-stage investors at some stage.

This may seem a long way off — but you should already be thinking about how to set yourself up for success in these later rounds. This means being very careful about the investor terms you accept early on.

Unfortunately, there seem to be a lot of crappy terms floating around in Australian seed-stage term sheets — and some can do a lot of damage to a company when it tries to scale.

I’ve only been back a short time, but I’ve already seen some terms that I thought had died out long ago.

Things like giant super pro-rata rights (a right to invest a substantial portion of the next round), full ratchet anti-dilution provisions, tranched investments and valuation ratchets that are tied to long-range forecasts.

These terms could cause significant problems for investors since it can impact the future value of their theystake if they were to invest in the company.

In some cases, these terms might even scare later stage investors off before they’ve done any detailed diligence on your business.

Breaking through the wilderness

Despite some of these challenges, the fact is that we’re seeing more great Aussie founders than ever before starting companies and getting to a genuinely global scale.

Each new scale-up helps build Australia’s network of talent, capital and knowledge — which in turn makes it a little bit easier for other founders to break through the wilderness.

It’s an exciting time to scale a global business out of Australia, and I’m looking forward to working with more of them.

Six tips on organically scaling your business

Here are six critical learnings from our growth that can hopefully help your business prosper, too.

1. Client focus! 

And I mean be client-focused. Don’t start charging for every 30-second interval, and if you have a notion of gold, silver and bronze clients – get rid of it! Treat everyone with the same ethics, respect and quality service. We have had so many “BRONZE” clients become “GOLD” clients over the years, and we have been extremely grateful to have stayed a part of their journey, and they have appreciated our support along the way.

2. Build the right team. 

The best way to prepare your business for growth and scale-up is to have individuals around you who are loyal, hardworking and, most importantly, have transferable skills. Individuals willing to take on new skills are invaluable as they help you save costs but still maintain the ability to deliver. Trusted partners also play an instrumental role in your extended team. Successfully scaling a business means you must partner and collaborate with different people at different times. There are so many factors that make up the right team, but your business will NEVER grow without them.

3. Re-invest your profits. 

Build a capability, organic or acquisition, is a crucial enabler to scale up. The balance between “chicken and egg” is critical to growth. Borrowing money is an area of personal choice and comfort, but I’ve never borrowed from a bank or investors to date. Reinvesting money back into the business, especially in those early days, enabled me to grow.

4. Don’t be afraid to lose money, lose business, lose face, lose opportunities.

Starting a business is always risky. Trying to grow a business entails risk.  As my nine-year-old son says, “You accomplish more when you take risks”. Learn from your losses and try to remain fearless in the face of adversity.

5. Never lose your integrity, trust and sincerity. 

People buy from people they trust. Don’t cut corners, and make sure you deliver! Provide a service from a base of integrity, trust and sincerity. Developing and nurturing relationships will lead to organic growth for your business.

6. Be responsive to change. 

Change is the only constant. Your business must adapt. I have a mindset that allows you to think beyond the here and now. It’s a prerequisite to growth. Always have a plan B, C and D, even if it’s built on sand and not concrete. There is an excellent book by Spencer Johnson called “Who Moved My Cheese”, all about how we react to change. Read it!

Scroll to Top