More than half of startups and venture-stage companies will not grow beyond their current size, and may even decrease in scale, for two key reasons: they lack the right management to steer their growth, and they’ve failed to leverage back-office technology effectively, according to a study from the Rotterdam School of Management at Erasmus University.
For young companies that want to grow, addressing those two areas and having a plan in place are essential first steps, and ones that a private equity firm can support.
Often the founder remains on the management board of an early-stage company, which may also lack an administrator, a formal board of directors and a cohesive growth strategy. But to grow successfully, a venture-stage company needs to have a first-class back office in order to face the inevitable challenges that arise from growing a business, such as the implementation of a new enterprise resource planning or accounting system, or the hiring of high-quality staff, which often means adding a chief financial officer or replacing the existing CFO.
Following a private equity investment, the company should develop a strategic 100-day plan in concert with its board of directors. The plan should outline the business strategy and path to growth, and it should detail how this intersects with an operating plan. It should also put in place governance policies, such as establishing a supervisory board. The plan ought to incorporate new reporting templates and tools, identify key performance indicators, review the product liability, and put in place cybersecurity protocols. It should also include a review of the senior management team, which presents one of the greatest challenges for a company in the long run.
Evaluating a company’s personnel raises a fundamental question: Are the executives capable of growing the business to a stage where it can become a buyout target?
At HPE Growth Capital, the Amsterdam-based private equity firm where I serve as CFO, we not only hire advisers for financial and legal due diligence before we invest, we also hire advisers for human resources due diligence. Our firm specializes in technology companies, and often we see that the CEO-founder is not the right person to take the company to the next level—not everyone can be a Jeff Bezos or Bill Gates. However, a founder can be great fit for another role, such as chief technology officer or chief marketing officer.
ACG’s EuroGrowth 2018 conference in Amsterdam will feature a keynote discussion that will address these issues. HRH Constantijn van Oranje, the envoy of StartupDelta in the Netherlands, will provide his insight during the session.
To learn more about EuroGrowth, hosted on June 19-20 at the Hilton Amsterdam, visit eurogrowth.org.