Plugdin: 5 key blockers to business growth

Plugdin: 5 key blockers to business growth

Failing to look outwards, lack of innovation, overlooking international opportunities… Entrepreneurs and experts offer strategies to address classic barriers to scaling a tech business.

Growth blocker 1: Failing to keep evolving your offering

In tech, if you don’t evolve your product, you’ll struggle even to stand still, let alone grow. There’s a constant need to update and innovate – not just for the benefit of gaining new customers but for the retention of existing ones too. Customers expect product updates, enhanced functionality and new faster ways of doing things as standard with your new releases. They expect you to keep on top of the evolutionary curve as a matter of course.

Nurturing a culture of forward-thinking innovation without losing focus on current client delivery is a classic scaling challenge.

‘In businesses I’ve been involved in, we’ve always been very focused as a board on the need for medium-term product roadmaps,’ says Paul Morris, Head of Growth Advisory at BDO. ‘We’d want the business to be looking ahead a minimum of 2-3 years, with a view to where the product needs to be heading, how much that will cost in R&D, and whether we currently have the resources and skillset internally to get us there.’

Even for smaller tech businesses, he says, the role of CTO is fundamentally important here. ‘CTOs can be quite expensive – a c£150k salary can feel like a lot in a sub £1m-profit business. But then again, if you don’t have the most up-to-date product – it doesn’t matter how good your marketing or your cost control or your pipeline is, because it just won’t sell.

‘The CTO is generally someone who spends most of their time looking outwards – understanding the trends, reading all the reports, going to conferences and seminars – someone with not just one eye but ideally both eyes on the future. I think getting the businesses to look ahead across that 2-3 year period, and thinking about costing and resourcing it properly, is one of the most valuable perspectives that an investor can bring to a tech business.’

The best product roadmaps are done in conjunction with a group of trusted clients, says Paul. ‘You can’t just develop the roadmap in isolation – you do it with feelers out to the external world and in dialogue with customers. Invite them to be part of the next iteration, make them feel valued and involved –in return for the time, effort and vital user feedback they provide, you give them the benefits of the next release for nothing or at a significant discount.’

Scaling up the business – growing existing customers and looking to innovate at the same time – means careful resourcing and management. It’s very hard in a scaling business for one team to do both, so a common approach is to divide the roles.

‘You have to create partially separate teams,’ says Anne de Kerckhove, CEO of sales acceleration software provider Freespee, a company currently poised for hyper-growth. ‘One is obsessing about current delivery, while another team is looking at the roadmap, and passionate about pushing boundaries.

‘The two teams can co-locate, and you can transfer skills between them, but you have to be understood that they are very different mindsets. Sometimes when you’re looking at the roadmap your job is just to spend a day thinking, for example, because that’s what you have to do to be innovative.’

Once one innovative iteration beds in, of course, the business should already have its eyes fixed firmly on the next one. ‘You’ve got to be in rolling beta agile mode,’ says Paul. ‘What’s needed is a perpetual motion of innovating and roadmapping,’ says Paul. ‘Always be thinking 2-3 years ahead.

‘Driving revenue isn’t always conducive to trying stuff out or uncovering new avenues of opportunity,’ agrees Jon Cornwell of Newsflare, which helps people to monetise their videos. ‘In new or rapidly changing markets, you need to be innovating constantly, testing out if clients’ needs and opinions are shifting, and looking at how you’re pivoting and innovating to meet those shifts.’

Board sponsorship of innovation is important for Newsflare too. ‘We put product KPIs into the board agenda, so that discussions are not just fixated on financials like sales, costs and profit. We’re also looking at underlying indicators of market response before that translates into revenue e.g. the take-up of a particular product feature by a particular segment of our customer base – something that demonstrates a sense of appetite for something that could be worth developing even if the revenue isn’t there yet.’

"‘No single element is responsible for the customer alone – it’s the whole organisation’s ability to identify and remove any friction from the buying process for a customer that determines the rate of growth and ultimate success of any business.’."

Growth blocker 2: Lack of a strategic financial director

A good finance leader in a fast-growth tech business needs to be much more than just an accountant. ‘Too often, entrepreneurs think that the role of the FD is just to count the cash and manage the payroll,’ says Paul Morris.

‘The right FD will create value, not just protect it,’ he says. ‘They can develop KPIs covering sales as well as finance, calculate the real profitability of individual customer relationships, taking account of support and admin costs. They can support invest-seeking efforts, and take on wider responsibilities such as HR, compliance and legal.’

In fast-growth tech, the FD should be looking hard at how the business can scale. ‘Where services are bundled together, you need to be smarter about how you price everything, to secure bigger profits. This only works if you have a grown-up CFO, who has an intimate understanding of the profitability of your customers – not just at a gross level but at a net level.

Growth is about being ruthless – profit matters more than revenue when you’re trying to expand, and a good CFO will work out what each of your customers are really worth to you, he says.

‘A good CFO plays a massive role in calculating the true profitability in a growing business. For example, tech businesses can sometimes be dazzled by working with a client with a big brand name and big revenue number.

‘But when the FD gets the business to work out the support costs, you could find a client with good gross revenue but a very expensive support line that’s not been properly costed. It can turn out that customers the business was intent on keeping weren’t profitable because they were so hard to support.’

See Paul’s full blog post, 5 ways investing in your Finance Director will help create value.

Growth blocker 3: Being too internally focused

Another behaviour that can result in an early-stage tech business stalling is when the management team becomes so immersed in its own activities and issues that they fail to keep an eye out on the rest of the market.

‘The tech space is so dynamic that you have to maintain an awareness at all times of the broader market,’ says Paul Morris. ‘You need to be always asking questions like: What are the competition doing? What are their pricing strategies? What are our customers saying and who else are they talking to?’  

To address this issue, the CEO needs to create time and space to be gathering and reflecting on this type of information on a regular basis. ‘On boards I’ve been on, we’ve always insisted on this element of external focus in presentations,’ says Paul. ‘Too often businesses think that a survey like this is just about customer satisfaction. But it needs to reference competitors, pricing, the marketplace.’

That external perspective could also come in the shape of a chair or non-executive director. ‘Someone who comes from the industry, and knows people can provide that invaluable input and can help you ensure that you are not building product or pursuing strategy which you think is good but doesn’t work in marketplace.’

Another manifestation of internally-focused thinking is what’s called ‘the start-up sphere of self-congratulation’ by Rich Wilson, CMO of Relative Insight, a scale-up tech business which helps brands understand and resonate better with audiences by comparing and analysing language.

‘In the tech industry, there’s this phenomenon where tech start-ups go to conferences and win awards voted for by other tech start-ups and think they’re doing really well,’ he says. ‘It’s great we have a supportive community, and awards and funding announcements are nice validations. But that’s not the win. Getting sales and building the business, scaling growth and demonstrating repeatable revenue – that’s the win.’

Growth blocker 4: Lack of an effective sales engine 

Young tech businesses looking to scale face significant challenges when it comes to building a sales function. For one thing, the business may have been built on 1-2 key relationships owned by the entrepreneur or co-owner. That can’t scale, of course, but in tech there can be a lot of complexity around selling products, and sourcing appropriate talent is a perennial challenge.  

‘A classic error is to get in people who are used to a more commiditised sell. In this space, it can be much more of a consultative sell, that requires a lot of knowledge and experience’ says Paul Morris. ‘You need to educate prospects, understands their pain points. What you’re selling is critical to customer, so they need to trust you.’

A related issue is failing to understand that the sales function is not one role but several. ‘As you build a business, in the first phase it’s all hunting,’ says Paul Morris. ‘But if you don’t want to miss a growth opportunity, you’ll need a separate team who are more account-focused – there to land and expand customers.  

‘Without these account-facing farmers, churn rates are likely to be high, as hunters are not incentivised to retain customers. So you need to develop a team who are rewarded for developing and retaining existing customers. Selling more to existing clients is easier because you already have their trust.’

Phil Guest, who advises early-stage tech businesses on building sales teams and edits The Art of Sales newsletter takes the idea of segmenting sales roles further. ‘Too many businesses think one person can segment, prospect, cold-call, pitch, propose, close, on-board and repeat sell a customer,’ he says. He also advocates a culture where everyone contributes to the sales effort.

‘It constantly amazes me the way some people consider sales the responsibility of a certain team or person,’ he says. ‘What they fail to understand is that selling is a joint effort involving everyone in the business. It’s the coming together of engineering, product, operations, marketing and sales that determines accumulated value generated by a business.

‘No single element is responsible for the customer alone – it’s the whole organisation’s ability to identify and remove any friction from the buying process for a customer that determines the rate of growth and ultimate success of any business.’

‘Building the sales function is such a tough problem to solve,’ agrees Rich Wilson. ‘One of the challenges with salespeople is that they are of course naturally very good at selling themselves, so it can take a while to discern if they are really a good fit for the business. But when you find someone who has the experience and commercial instincts and can translate what the tech can do into value for the client’s business – that’s hugely valuable.’

Rich cautions against trying to build a sales team too early. ‘It’s easy to hire quickly and pat yourself on the back and say, Yay! We’ve got a salesperson – we’re at that stage! I’ve seen companies hire far too early when the infrastructure isn’t there, the messaging isn’t sorted out, there’s no lead generation mechanism in place. In our case, we’ve worked out our revenue model, we’re hitting our growth targets, and we know who our customers really are now. At this point of relative maturity, it’s easier to recognise the right hire, and easier for them to be successful too.’

Growth blocker 5: Not considering international expansion sooner

‘Lots of businesses can be very UK-focused, but tech is a global market opportunity,’ says Paul Morris. ‘There is a risk you might saturate the UK market quickly, and if you didn’t consider expanding overseas because it seemed too risky or laborious, you could end up hitting a ceiling.’

A key way to address this gap is to consider getting an investor on board, who can help you minimise the risks, assess the opportunities, and both manage and underwrite the process.

‘People shy away from overseas sometimes because they perceive it as too difficult,’ says Paul. ‘But it can actually be relatively straightforward. Tech by definition is often geographically unbounded, software can be sold by webinar demo, and support can be deployed remotely too.’

If your company is likely to have an international destiny in order to reach its potential, it’s vital to get there sooner rather than later, advises Tom Salvat, founder and ceo of Concured, an AI-powered content strategy platform.

‘It comes down to what you’re trying to build, and where your potential exit is, if you are a venture-backed business like Concured. We build our tech in Montreal because we found that was the best place to find the great AI talent we need at a great price point. But we have an office and growing presence in the US because we realised quickly that’s the biggest market for us, that’s where the highest volume of buyers of our solutions are, but also that’s where any potential buyer of the business will be.

‘So expand to your biggest market and the destination of your buyer (if you’re ultimately looking for one) – and do that sooner rather than later. Have your commercial team where your market is too – the sooner you go there, the sooner you’ll be learning about your biggest opportunity. I wish we’d gone to the US sooner, because learning all about how to sell what we do in Europe doesn't translate directly to the US, and we had to re-learn everything.’