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Guest Blog: “Fundamental to business success is a credible scaling strategy” – Martin Brennan, SEP

By Business & Finance
28 May 2018
investors financial investment

Achieving high growth isn’t just about investment, it’s also about having a talented management team and a robust infrastructure in place, says Martin Brennan of Scottish Equity Partners (SEP).

Martin Brennan, Scottish Equity Partners, SEP, investment

Martin Brennan

Technology moves forward at an incredibly fast pace, so how can you scale up your business to succeed in an ever-changing environment? Equity investment, taken at the right time and from the right investment partner, can fuel high growth but there are several areas to consider before you proceed. First and foremost, having a high-calibre management team is essential. A proven ability to manage growth in terms of people, systems and financial controls is critical as shortcomings in these areas can derail a business. Secondly, evaluate if you are in the right position for investment. This will involve reviewing the robustness of your business model, your market share and competitive advantage and how much revenue you are making. If these key elements are positive, then your business may be attractive to venture capital investors.

Finding the right investor 

Choose your investment partner wisely. Prospective investors carry out due diligence – assessing the business risks and opportunities. Similarly, you should do your homework on them. Research and reference them with their current portfolio companies and with the wider entrepreneurial ecosystem. Investment isn’t just about money. The right credentials in terms of track record, sector knowledge and growth experience also matter. Consider whether your proposed investors will be able to attract top talent to your business and apply their experience of growth to influence strategy, mitigate risk, help navigate difficult times and, importantly, build shareholder value. Venture capital is a long-term partnership approach (typically 3–7 years) and so evaluating these important factors will ensure you are confident in your choice of funding partner.

Availability of funding

Technology platforms do not come cheap and availability of funding and digital talent can impact how quickly a business can scale. The Tech Nation Survey 2017 of more than 2,700 digital tech founders showed that more than half of them regarded finding employees with strong digital skills as a major challenge to growth. The same report cited access to funding as a significant business challenge for over 40% of businesses.

In Ireland, there would appear to be a healthy availability of funding, especially for businesses at the start-up and early stage. Latest data from Pitchbook reveals that €458 million was invested in Ireland in 2017 and another strong year of venture capital activity is expected. By partnering with entrepreneurs and by sharing risk, venture capital investment plays a vital role in bringing breakthrough ideas and technologies to the market.

What is a scalable business?

There is no single blueprint to scaling but useful lessons can be learnt from the experience of other high-growth companies. Clavis Insights, based in Dublin, is a good example of the impact of a timely equity investment in a tech company. Its leading-edge proprietary technology automates online store monitoring, at scale, for global consumer packaged goods manufacturers including Nestle, P&G and Unilever, and the business reached significant milestones after investment from SEP.

Funding was a vital stepping stone for the company’s international success, helping establish bases in Shanghai, Boston and London, increase revenues and positioning Clavis as one of Europe’s fastest-growing companies and attractive to later-stage investment from US investors.

Sector can also impact business scalability. We have seen in recent years that technology companies with business models based on leading-edge digital technology platforms have been able to scale up exponentially. Digital platforms can enable start-ups to overtake traditional players burdened by a bricks-and-mortar legacy, lack of funding and know-how to become major online players. Digital businesses can achieve a lower cost of customer acquisition and build a global brand quickly and cheaply. A good example of this is SEP-backed travel search business Skyscanner. The travel industry has transformed beyond recognition in recent years and Skyscanner’s digital platform played a significant part in this revolution, changing the way consumers search for and book flights.

Design and execution

Fundamental to business success is a credible scaling strategy. Management need to address skills, governance, management information systems, routes to market and whether it is best to grow organically, via partnerships or strategic acquisitions. Help future proof your business by securing funding ahead of a growth curve to ensure corporate infrastructure, fulfilment and logistics are robust enough to support increased sales.

If overseas markets are important, internationalising the board before internationalising the company can be a shrewd move. Also choose target markets carefully and ensure you have the right product-market fit in each geography. The US can be a natural first target for Irish companies but the Far East may be more lucrative. Skyscanner built a strong presence in Europe and Asia ahead of the US and this strategy put it firmly in the sights of Chinese travel agency Ctrip, triggering its £1.5 billion acquisition of the Edinburgh-based travel search business at the end of 2016.

Scaling does not always have to mean multinational expansion, it may involve dominating a local market or at least capturing a significant domestic market share. Regardless of whether growth is national or international it is important to set measurable targets and milestones that will add maximum value to your business.

Above all else, management and finance will remain critical growth enablers. A business will struggle if it lacks a talented team and sufficient expansion capital. A good investor should be able to attract the right talent to help grow your business – supporting the recruitment of key hires and developing management skills as the company scales. In the case of luxury fashion retailer, SEP worked closely with the founders – actively participating on the company’s board and forging strong relationships with the executive team to develop a succession plan including identifying a new CEO. And the investment itself enabled the transition to a fully-integrated e-commerce business through developments to the technology platform and improved customer experience.

Make your own future

Investment made at the right time in a company’s growth cycle can be a vital catalyst for success – potentially increasing revenues from millions to hundreds of millions. Scaling up creates wealth, drives innovation and supports employment. By ensuring you have the fundamentals in place – a talented team, funding from a supportive and engaged investor, an ambitious yet achievable expansion strategy, a strong technology platform or service and efficient operations, then you have the roadmap for success.

About Martin Brennan

Martin Brennan is a Principal at Scottish Equity Partners, focusing on investments in high-growth software and Internet businesses, and leads SEP’s deal origination across Ireland. SEP has backed some of Europe’s most exciting and successful technology companies including Skyscanner, the global travel search company; luxury fashion retailer; language learning app developer Babbel; car finance specialist Zuto and sports apparel flash sales site SportPursuit.