Kim and Todd Saxton: Make sure our scale-ups have support they need

The excitement in Indiana for starting and supporting new businesses is almost tangible. Notable ratings from Forbes and the Tax Foundation place Indiana among the national leaders for our business and tax climate. Other metrics from the Indiana Chamber, though, recognize some challenges in that fewer Hoosiers are becoming entrepreneurs, and startups rank poorly in terms of how much venture capital is disbursed here. As a result, a bill in the Indiana Legislature would have reduced the fees startups have to pay and decreased other barriers, hopefully making it easier to start a company.

While providing resources and reducing barriers to new startups is important, we should not ignore the needs of scale-up companies. Scale-ups are typically companies five to 10 years after launch who are focused on generating sales growth, often experiencing 20% annual growth or more. To grow, they still need resources, primarily financial and human, while they are developing the standard operating procedures that will build on their success. These high-growth scale-ups are the small- to medium-size companies that account for 50% or more of the job growth in the United States. Think about local companies like ExactTarget (now Salesforce) and Interactive Intelligence (Genesys) as they moved into their growth phases. Scale-ups are a small percentage of startups, but they create significant jobs and wealth.

So, what does it take to successfully scale a new company? You have to create and execute systems to increase both efficiency and effectiveness. Systems get created when companies develop repeatable processes that work. To develop these systems, a company needs to experiment and iterate while having enough volume to be able to detect what works. Many startups spend time identifying use cases and establishing proof of concept. Scale-ups have to sort through these use cases to find the opportunities that create significant growth and then exploit those opportunities. This leaves the important question: How can we help local startups scale, and what key elements need to be in place?

The right leadership team. Not all startup founders have the capability or inclination to scale a company. Founders need to examine their own motivations and determine if they are the right person to move the company forward. They also need to understand who else needs to be on the leadership team. While startup leaders wear many hats, scale-ups have more specialized roles on the leadership team. For example, scaling is likely the time to separate marketing versus sales functions and leadership. They definitely need to work together. But each function plays a different role in a scale-up and requires different skill sets. And scaling a company is itself a unique skill.

Access to capital. Growth funding is imperative for the scaling venture and comes from different sources and in different magnitudes than startups. Having the right team should make it easier to raise capital. But where is the capital in our local ecosystem? Right now, it’s somewhat limited. The IEDC, CICP arms and Elevate Ventures certainly are trying to help with efforts such as venture capital tax credits, pitch competitions and EIR programs. But Indiana still needs more. And even more direct flights to the coasts and growth funding sources would also help, including proactive visits to these hubs promoting select scaling opportunities.

Talent pipeline. Scale-ups can’t grow without additional talent. It’s not just about the leadership and the money. It takes people with a broad range of experiences and training in sales, digital marketing, specialized coding and engineering, and product management. This is an opportunity to both retain and bring talent with these skills to Indiana.

That’s one reason a vibrant local arts and entertainment community is so critical to attract and keep this talent, as regional amenities are crucial. But there need to be more efforts to help grow these skills. Workforce needs go beyond what universities traditionally have offered. Specialized training and experiential learning where students get exposed to hands-on application, like in Kelley Indianapolis’ new co-op program, will certainly help.

Mentoring and networking. Inexperienced and even experienced founders can benefit from lessons learned by others. Running a scale-up is a unique challenge, and founders are often solving problems new to them. Having others to share these problems with and find solutions together is the rationale behind groups like Entrepreneurs Organization and Techpoint’s Indiana Founders Network. But mentoring is not enough. Scale-ups also need connections to customers, partners and other stakeholders. More programs to support these companies would help.

We are hoping here to bring more attention to scale-ups. These are fast-growing young companies, sometimes dubbed gazelles or even unicorns, that have the potential to have a bigger impact on our economy. They need the right resources, which in most cases are different from what those startups need.

We also want to acknowledge that not all startups should aspire to raise venture capital and become scale-ups. Small and self-employed businesses are an essential part of a strong economy, too. Founders should not feel compelled to seek capital if that does not fit with their personal aspirations or the potential of their business. As a venture-friendly state, though, Indiana needs to make sure there are sufficient efforts to support all kinds of ventures, including potential scale-ups.•

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Kim Saxton is a clinical professor of marketing at IU Kelley School of Business Indianapolis. Todd Saxton is an associate professor of strategy and entrepreneurship at IU Kelley School of Business Indianapolis. They are co-authors of “The Titanic Effect: Successfully Navigating the Uncertainties that Sink Most Startups.”