Startups that scale

Why it matters and how to do it: Lessons from Silicon Valley Comes to the UK 2012

Entrepreneur First

About Silicon Valley Comes to the UK Silicon Valley Comes to the UK would like to thank Entrepreneur First for its assistance in producing this report.

Silicon Valley comes to the UK (SVC2UK) is an annual philanthropic programme founded by entrepreneurs Sherry Coutu and Reid Hoffman, in order to expand the UK’s entrepreneurial and economic capacity. The programme welcomes entrepreneurs who are creating the most disruptive US companies to the UK. These entrepreneurs meet their UK and European counterparts to look at collaborating on business ventures, lead inspiring classes at leading Universities and High Schools and meet with policymakers.

Entrepreneur First exists to making building a high-growth startup the career of choice for the UK’s most talented students. We offer a year-long programme of support and services to recent graduates, including team building, ideation, mentorship, training, and access to funding. Funded by entrepreneurial corporations and supported by leading UK entrepreneurs, EF is a not-for-profit and offers the programme free of charge to top graduates.

ContentsExecutive summary 1

Introduction – why scale? 2

Choose a big enough problem 3

Embed yourself in the right networks 4

Recruit people who have done it before 5

Hire for tomorrow, not today 7

Embrace diversity 9

Nurture company culture and values as you grow 11

Build systems that scale 14

Test continuously to stay close to the customer 16

Take the right kind of money at the right time 18

Conclusion 20

Speaker profiles 21

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Executive summaryThe UK has seen a rapid increase in the number of startups in recent years – but still greatly lags the United States in the number of startups that reach scale. This matters not only for entrepreneurs, but for the economy as a whole: over half of jobs created are created by the small number of companies that succeed in achieving rapid, sustained growth.

Silicon Valley Comes to the UK brings serial entrepreneurs from the US to talk to high-potential, British-based startups and students. Their collective experience, shared over several days of events, represents an extraordinary collection of advice for companies looking to scale.

We have distilled their counsel into nine key recommendations for aspiring scale-up founders:

Choose a big enough problem to give yourself room to grow

Embed yourself in the right networks to benefit from advice and connections of people who will understand the challenges you will face

Recruit people who have done it before because many of the problems encountered while scaling are common across organisations

Hire for tomorrow, not today because in a high-growth organisation your needs will change extremely rapidly

Embrace diversity to broaden the number of problem-solving approaches within your team

Nurture company culture and values as you grow to avoid losing a sense of mission and identity

Build systems that scale – from technical infrastructure and data systems to organisational processes

Test continuously to stay close to the customer – new techniques are needed when you can no longer meet all of your customers individually

Take the right kind of money at the right time and avoid making fundraising an end in itself

These nine steps are not a magic bullet; scaling up is difficult however well you execute. However, by drawing on the advice of experienced entrepreneurs, founders can avoid common pitfalls and maximise their chances.

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Introduction – why scale?Scaling up matters a great deal for the startup founder; it is the source of the bulk of the financial rewards of entrepreneurship. However, it is arguably even more important for the economy as a whole. In the UK, the six percent of businesses that are growing most quickly are responsible for over half the country’s job creation.1

These are the companies that are scaling up – and we need more like them. As Sherry Coutu argued at SVC2UK 2012, the UK is no longer in the position where it needs more startups; it needs more startups that scale. Indeed, the UK now has a similar start-up rate to the US, but has only half the scale-up rate.2 This is the gap we need to close.

High-tech entrepreneurs are well placed to meet this challenge. Research from McKinsey suggests that high-tech companies create 2.6 jobs, on average, for each job that is lost to disruptive innovation.3 Moreover, the same research projects that internet companies will grow from 7.2 percent to 10 percent of UK GDP by 2015.4 The key question, then, is how to scale?

This was the central theme of this year’s Silicon Valley Comes to the UK conference. An extraordinary group of serial entrepreneurs and investors from Silicon Valley and beyond gathered in locations across the UK to pass on their lessons learned for startups seeking to scale.

This report documents and synthesises the advice this group gave over the course of the conference. The scale imperative is the next challenge for the UK’s entrepreneurs. It is hoped this report provides a practical guide for aspiring scale-ups – as well as an inspiration for those just starting out.

1 Nesta, 2009, “The vital 6 percent”2 Entrepreneur First, 2011, “High-impact entrepreneurship and the economy”3 McKinsey Global Institute, 2011, “Internet Matters: High-impact entrepreneurship and the economy”4 McKinsey Global Institute, 2011, “Internet Matters: High-impact entrepreneurship and the economy”

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Choose a big enough problemThe foremost barrier to scale is lack of demand. Before the technical and operational aspects of scaling up ever come into play, an idea must have sufficient potential to become a big company. The SVC2UK entrepreneurs returned to this idea frequently throughout the conference. As Mary Lou Jephson, co-founder of One Laptop Per Child, put it, “The first question is always, is this idea big enough to be worth doing?”.

The next question, perhaps, is how to generate these big ideas. Two themes emerged from the workshops and panel discussions: think global and “own the problem”.

Think global

As Sam Chaudury, co-founder of ClassDojo, pointed out, having a big market matters. In his words:

“We’re living at a time when the internet allows distribution to literally billions of people who previously could never have accessed your product. If you want to scale, make sure you’re offering something a lot of people want.”

One major conclusion from several guests was that increasingly products with the capacity to reach billions are going to be products that solve the problems of the developing world. As Sir Paul Judge noted in his introduction to the SVC2UK Cambridge CEO workshops, Asia will be responsible for 75 percent of global GDP by 2050; companies looking to scale will need to understand these new markets.

Both Mary Lou Jephson and Ramesh Raskar, professor in the MIT Media Lab, reinforced this point. They argued that the biggest problems – and hence the biggest opportunities – are going to come from bringing radical technological innovation to solve problems of people in Africa and Asia. Raskar provided the example of short-sightedness: there are 2.4 billion people in the world who need glasses but don’t have them. A technological solution to that problem will have extraordinary opportunities to scale.

Problem ownership

Mary Lou Jephson noted that this represents a challenge as well as an opportunity for UK (and, indeed, US) entrepreneurs. One important conclusion from multiple SVC2UK panels was the critical role played by “problem ownership”– that is, having a deep understanding of and passion for the problem you are trying to solve – in scaling. As Jephson pointed out, this means that entrepreneurs from the developing world itself have a natural advantage in solving problems they experience: “we’re going to see radical innovation coming from the bottom of the pyramid”.

Problem ownership requires a clear mission. Megan Smith of Google suggested that, “the question to ask is ‘What are you solving for?’. That’s where the really big ideas come from”. She noted that it was Google’s mission – to organise the world’s information – as much as its original idea that had given it the headroom to scale.

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Embed yourself in the right networksNo one can scale a company by themselves. One consequence is that you need the right team and the right people in your organisation; however, just as importantly, you also need the right networks outside your organisation.

The right networks enable building a scalable business throughout the lifecycle of a company. This starts at the very beginning, as the character and ambition of the entrepreneur is formed. As Megan Smith put it, “I was lucky to be around people who started things. That’s how you come to start things yourself”.

Moreover, networks become increasingly important as companies scale. They become the source of customers, suppliers, partners, employees and investors. Speaking at the launch of the Cambridge Cluster Map – a new dataset of the fastest-growing technology companies in Cambridge – serial entrepreneur David Cleevely spoke of the crucial role played by networks. In his words:

“The ecosystem is vital. Successful startup clusters rely on people developing cumulative advantage in particular areas or technologies and benefiting from and building on each other’s success.”

The guests from Silicon Valley, the world’s leading startup cluster, served as a physical symbol of the power of networks. Closer to home, however, it is clear that Cambridge is already a cluster that is enabling startups to scale. The data provided by the Cambridge Cluster Map is striking. Above all, Cambridge has produced eleven billion-dollar technology companies in the last fifteen years, as well as a further fifteen with over $100m of revenue that are growing rapidly.

As data from the map revealed, there are 1,525 high-tech companies in Cambridge, which employ over 50,000 people. The top 50 companies hired almost 6,000 people in the last year alone, representing a 23 percent increase in employment at a time that the UK as a whole struggles with almost eight percent unemployment.

The message of SVC2UK 2012 was clear: locating in a successful cluster is no magic bullet for scale, but it certainly provides a company with additional resources and options that support the scaling up of a high-potential company.

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Recruit people who have done it beforeSpeaking to an audience of entrepreneurial high-school students at the UK Parliament, Angela Lin of YouTube summed up the challenge of scaling up. In her words, “The fundamental purpose of scaling is to answer the question, ‘How do you increase your impact beyond the people you can immediately interact with?’”.

Technology is, of course, part of the answer but, for most of the SVC2UK guests, the most important ingredient is your team.

In particular, a theme that was repeated throughout the conference was the vital importance of hiring people who have scaled a business previously. In Megan Smith’s words, “You simply must do this. There is no substitute”.

This is not a simple prescription for startups to follow. Often, hiring people with experience of scale means changing the dynamic of a team and bringing on employees who may be significantly older and – on paper, at least – better qualified than the founders. As Panni Morshedi of Wonga argued, founders must bite the bullet and do it anyway: “You have to come to terms with the fact that you need to hire grown-ups who have done it before”.

The crucial insight is that, while every startup feels unique to its founders, the challenges it will experience in scaling up are likely to be

common across companies that have grown rapidly. Pattern recognition and the ability to apply proven techniques are therefore vital. As Morshedi put it, “A lot of problems that seem unique or impossible to you will be straightforward to someone who has scaled a business before”.

Of course, hiring people with significant track records is likely to be a disruptive and sometimes uncomfortable experience for both the hirer and the hired. As a company scales, it is likely that it will outgrow some of the founding team and early employees. Kim Polese, serial entrepreneur at Marimba, SpikeSource and ClearStreet, recommends facing this challenge head on:

“You have to recognise and embrace the fact that the team will change. Scaling usually requires some people who have scaled before. This means the founding team is unlikely to be the right team to scale. You need to confront that truth early.”

A common theme in the speakers’ reflections was that many of the challenges that this presents come not from the situation itself, but from an unwillingness to have difficult conversations before the working environment becomes poisoned or bitter. Acting decisively but compassionately is the antidote.

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Just as adapting to the scale-up context can be difficult for the founding team, it may be equally uncomfortable for the experienced hire who is brought in to help the company grow. A scale-up matures quickly, but it is likely to remain “scrappy”, “demanding” and “chaotic” (all words used by SVC2UK panellists) for a long time – and experienced executives who have spent significant in more established contexts may take time to adjust. The key is to hire people who are flexible and who embrace these challenges. As Sheila Lirio Marcelo, founder and CEO of Care.com, put it, “You want people who have scaled a company, but are still able to do their own photocopying!”

Finally, the key to successful integration of experienced hires is genuine respect – rather than mere grudging acceptance. The SVC2UK speakers were unanimous in the emphasis they placed on working with brilliant people to enable scaling up. Mary Lou Jephson perhaps put it best and most bluntly:

“Scale is all about team. Make a list of the best ten people you have ever worked with in any context. Hire them. You must hire people who are better than you.”

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Hire for tomorrow, not todayHire ahead of your needs

A startup that wants to scale has the worry not just about the who of recruiting, but also the how. It’s not enough to hire people who have scaled a business before; you also need to make hiring a core competency of your company.

This is crucial because, by definition, a company that is scaling up is going to be very different in a year’s time from the way it is today. The consequence is that in order to be ready to address the challenges you will face next year, you have to hire people for tomorrow, today.

Sheila Lirio Marcelo, speaking to students in Cambridge, summed up the challenge:

“You need to hire people who can scale. In practice, this means that you have to hire ahead of your needs. You can’t scale yourself, so you need to hire people you trust who can adopt your vision and strategy and execute it.”

The fact that your hires today are likely to – indeed, should – become the leaders of your company, with large numbers of employees working for them, means that you need to hire people not just with past experience but with future potential. As Marcello put it, “Always view your hires as a long-term relationship, not filling a temporary gap”.

This need to ‘live in the future’ is a constant challenge. It means making decisions that would be unusual, perhaps even foolish, in

a company that was growing more slowly. Megan Smith spoke about the way Google had addressed this, noting that at one point the business was growing so quickly that she went on maternity leave and the number of employees doubled in the time she was away. The main concern even then was that Google might not be growing quickly enough; she remembers in the early days Larry Page worrying that the opportunity Google faced was so large that, to meet its full scope in a year’s time, would require even more aggressive hiring right then.

The skillsets for which you hire will change rapidly

Of course, hiring for the future means more than hiring quickly. It also means that the skills and experience that you look for in employees has to change. As Mary Lou Jephson pointed out, it means that you may be looking for people with skills that are quite different from those present in your current organisation. In her words, “Different people are the best people at different stages of the business. That’s not an insult to them; it’s the nature of scaling”.

Megan Smith provided some perspective on how changing needs and skillsets had shaped the hiring process at Google. She said, “At the beginning, you need smart generalists. Eventually you will need to hire specialists, but you should always be hiring for more than just a specific skillset”. In practice, this means taking into account how a new recruit will go on to shape

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the broader company as it scales, as well as how effectively he or she can perform a specific task. Smith noted that Google makes its selection decisions “roughly based 30 percent on ability in the specifics of a role, 30 percent on general smarts, 30 percent on leadership and 10 percent on ‘Googliness’ – that is, cultural fit”.

Always be recruiting

The fact that hiring is both difficult and crucial means that it must be one of the founding CEO’s most important roles. As Panni Morshedi noted, early and senior hires are too critical to delegate to people who do not have a proven track record of excellence in recruiting. In Morshedi’s words, “Remember that some people are brilliant at their day jobs, but are no good at hiring”.

Mistakes made in recruitment can damage a company for years. Equally, however, missed opportunities can hamper a startup’s ability to scale. Sheila Lirio Marcello noted that chance encounters at conferences, meetings and even on planes can be the source of some of the most transformational hires. For this reason, she summarised the hiring philosophy needed in a scale-up as, “Always be recruiting”.

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Embrace diversityIt is not, however, enough to hire brilliant people with experience. You also have to mould those people into a team with complementary skills and approaches. The need to make sure a team gels and operates smoothly can create the temptation to recruit people with homogeneous backgrounds – but this is a temptation that the SVC2UK speakers urged founders to resist.

Hire multi-disciplinary people

Mary Lou Jephson summarised the issue pithily: “Diversity matters because otherwise everyone wants to solve problems in the same way. Everything looks like a nail. To break this, you need to hire multi-disciplinary people.”

A number of speakers noted that hiring people with multi-disciplinary backgrounds can help a scale-up manage the complexity that comes as an organisation moves from being one in which everyone knows everyone else to one where multiple teams with specific functional focuses are at risk of becoming siloed.

Sheila Lirio Marcelo gave one example, arguing that people whose experiences span multiple functions can help manage some of the tensions that arise between different teams as a company scales. In her words, “For

example, it can be a good idea to hire people with product management backgrounds into your marketing team, as they’re more likely to understand the mindsets of the Tech and Product teams and less likely to allow an insular mindset to dominate”.

Hire people from under-represented backgrounds

Megan Smith extended this argument and pointed out that, “you need team diversity, because you need a whole range of ways of solving problems”. Moreover, a good way to ensure a diversity of problem-solving approaches within a team is to recruit excellent people from backgrounds that tend to be underrepresented in your industry.

Smith gave the example of female computer scientists, noting that if only ten percent of people who graduate from computer science degrees are women, those women are not only likely to bring a new perspective to an all-male team, but also to be excellent in multiple dimensions. In her words, “Think about studying in an environment where 90 percent of people are so visibly different from you: people who are good enough and tough enough to pull that off are exactly the people you want on your team”.

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Build multi-disciplinary teams

Embracing diversity goes beyond hiring – it is something you also need to place at the heart of how you build and organise teams. In Adam Nash’s words, “You want multi-disciplinary teams, not just multi-disciplinary people”. He gave the example of LinkedIn’s decision to combine front-end engineers and user experience designers in the same team. This was a move that went against conventional wisdom. Nash noted that, “At the time, it was controversial, but we found it meant that the engineers became more focused on the end goal – making sure users loved the experience”.

This is just one example that illustrates a theme that the speakers returned to multiple times: teams with diverse backgrounds but a clear shared goal are best equipped to help a company scale.

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Nurture company culture and values as you growBuilding great teams that can scale goes beyond hiring the right people. It also requires the founders to nurture a great culture and great values. The bad news is that this becomes much harder as a company scales. The good news is that was one of the most-discussed topics at SVC2UK 2012 and the speakers outlined clear strategies for building a culture for scale.

Values are difficult to maintain as you scale

Multiple elements of company culture were discussed during the SVC2UK panels and workshops, but three values were mentioned by more than one speaker as being particularly difficult to maintain as a startup scales: “delighting the customer”, “owning the problem”, and persistence.

Jason Stoffer, partner at Maveron, noted that “delighting the customer” is something that almost all startups have as a founding value, but is also something that becomes more difficult as you scale and the business becomes more complex. Moreover, Stoffer argued that it is companies that stay closest to their customers as they grow that are most likely to scale effectively.

Christopher Lukezic of AirBNB agreed. “Values often change as a company grows, but it’s hard to see how you can scale without an outward-looking perspective that puts your customers’ needs first”.

For Panni Morshedi of Wonga, one of the hardest cultural problems for a company that is scaling is maintaining a sense of “problem ownership” – that is a culture in which all members of the team feel passion for and have a deep understanding of the problems they are trying to solve. In Morshedi’s words, “At first, it’s easy: everything is everyone’s problem! But it gets harder as you grow and hire. Finding people who will have the mentality that it is their problem is important. You can’t accept excuses or the culture in undermined”.

Persistence was the value most critical to scale identified by Kim Polese. She argued that persistence is “perhaps the most underrated quality for a startup”. Countering the myth of the ‘overnight success’, Polese noted that “most successful companies are actually a series of failures before something works. Only a culture of persistence can get you through those failures”.

How to nurture values

The importance of these values is perhaps intuitively obviously. However, ensuring they remain at the heart of a company that is scaling up is far harder. The speakers suggested four strategies for nurturing the right culture: first, demonstrate what values matter to the company by what you choose to focus on; second, make culture-fit an explicit part of your recruitment process; third, actively dispel

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myths; and fourth, ensure that the CEO and senior leaders role model the culture you want to develop.

Focus transmits culture

Christopher Lukezic summed up the importance of company focus by considering his experience of rapid scaling-up at Airbnb: “Going from 20 to 80 employees is perhaps the most stressful phase for the employees themselves, because you are creating a structure for the first time. Things that used to be automatic, such as embracing the company’s values, now require real work. Values will be extrapolated from what you ask people to focus on”.

The challenge is that transmitting focus throughout a growing company requires different mechanisms from those that work effectively in a startup. In the words of Jose Ferreira, founder of Knewton, “When there are two of you, there’s a good chance you intuitively agree or at least can discuss what is important and worthy of focus. As you scale, that’s no longer possible”. In a larger and growing organisation, you have to communicate what is worthy of focus by making and communicating clear strategic decisions. As Kim Polese said, “focus is demonstrated by saying no to potentially great opportunities. That’s how you build a culture”.

Maintaining and communicating company focus is easier if all employees clearly understand not just their job, but the company’s guiding cause or mission. Sheila Lirio Marcelo pointed out that “organising

people around a cause means that you’ll have to do less management” because people will have a better understanding of the company’s priorities and how to resolve competing demands on their time and resources.

Hire for culture fit

As discussed above, hiring is particularly important in a fast-growing company, because the people you recruit will not only be doing a specific job in the present, but will become the leaders of your company’s future. Consequently, the people you hire are one of the most important mechanisms through which you build a corporate culture.

This can be a major challenge, particularly given the importance of hiring people with experience. Panni Morshedi summed up the risk scale-ups face by noting that “new hires – particularly the people from backgrounds in bigger companies – often won’t understand the dramatic, live-or-die nature of a startup. It will be obvious to you, but not to them”. Part of the solution, according to Sheila Lirio Marcelo is to “find people who share your values, because the people you hire later will learn those values from them”.Another important element is to pay attention to the overall composition of the team, as well as the values of individual members. Megan Smith pointed out that Larry Page always insisted that at least 51 percent of Google employees be engineers, even as Sales was growing in importance. He wanted the culture to be engineering-driven and knew that comes not just from having engineers as leaders, but also by having a critical mass of engineers

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throughout the organisation.

Actively dispel myths

As has been discussed, one of the challenges of scaling is that the company goes from one where everyone knows everyone else – and may even be close friends – to one where this is impossible. This has many consequences, but one of the most important is that it allows rumours and myths to spread. Sheila Lirio Marcelo noted the potentially destructive effect this can have and described the solution she has implemented at care.com: “every April we move people around – that is, we physically change where they sit. This mixes up old timers and new people and breaks down myths that might form”.

Megan Smith reinforced the value of ensuring that team members of different tenures spend time together and discuss how the company works. In her words, “people can easily misinterpret why things happen a certain way. You see people believing there are a whole set of rules that just don’t exist!”

Role model the values you want to see

The SVC2UK speakers agreed that the development of company culture in a scale-up is not a task that can be delegated or outsourced; it is a critical role of the CEO and founding team. As Panni Morshedi put it, “leaders build culture”. Moreover, this does not change as the company grows. As Morshedi said, “Even in a company of 350 people, the team needs to see the CEO walking around the office, demonstrating the company’s core values”.

Jose Ferreira concurred, noting that a CEO needs to remember that his or her actions will be observed, interpreted and acted upon as

much as – or more so than – his or her words. Consequently, according to Ferreira, “the CEO must role model the values and activities that are important. Anything a CEO shows they care about, the company will care about”.

In summary, the founders must choose company values carefully and nurture them as the business scales by placing them at the heart of how the organisation hires and operates.

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Build systems that scaleAnother major challenge that startups face as they grow is that systems and processes – both technical and organisational – are hard to scale. Systems that are sufficient in a small organisation can cease to function when the company is dealing with numbers of employees and users or quantities of data that are several orders of magnitude greater.

Three types of systems in particular were identified as being critical to scale: the company’s technical infrastructure; its data collection, storage and analytics systems; and its organisational rules and norms. Although these systems are very different from each other, they share the common factor that they need to be designed for scale; merely hoping that they will grow with you is not enough.

Technical Infrastructure

Kim Polese argued that it is all too easy to see technical infrastructure as a commodity, when it is in fact a key differentiator, particularly in a fast growing market with multiple competitors. She noted the importance of planning for scale as you build your infrastructure, drawing on the striking example of the race to become the dominant social network in the mid-2000s:

“Remember that one of the critical differences between Facebook and Friendster was infrastructure; Facebook could handle extraordinary growth and Friendster could not” .

Friendster, one of the early online social networks, had many millions of users before Facebook was launched, but rapidly faded in the face of competition from Facebook and MySpace.

Data and analytics

For Sheila Lirio Marcelo, a company’s system for collecting and analysing data is essential to its ability to scale. As a company grows, the founding team’s ability to know what is happening through personal observation diminishes. In place of observation , you require “excellent data systems and dashboards”.

In Marcelo’s words, “if these are not good, you cannot scale, because you simply can’t know what is going on. As you grow, it is critical that you can recognise the bottlenecks in your business from the data”. Moreover, you need an understanding of how the data you see on your dashboards maps to the reality of activity in your company. As Marcelo says, a precondition of scaling up is knowing “what levers you can pull to make change in your key metrics”.

Rules and norms

Megan Smith reminded the audience at SVC2UK that it is not only technical systems that can be challenging to scale: you also need to build what she called “company APIs” – which she defined as organisational rules and norms that allow teams to work quickly and effectively.

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One example Smith cited from Google’s experience was having weekly deal approval meetings for the company’s corporate and business development teams. Having a regular, transparent meeting – rather than multiple ad hoc meetings – allows members of the relevant teams to increase the volume or scale of their activity rapidly without hitting bottlenecks such as the ability to schedule time with the appropriate leaders and stakeholders.

Smith also pointed to the power of basic rules that make people more effective and, crucially, allow the number of interactions between individuals and teams to increase very quickly without introducing bureaucracy or inefficiency. According to Smith, Larry Page’s favourite example is Google’s norms around meetings. Smith noted that at Google “the rule is that if there’s no agenda or no owner, you should leave the meeting. That’s a simple rule that makes the time people spend together as efficient and effective as possible”. Although such rules can seem trivial compared to the technical challenges of scaling infrastructure, successfully embedding them within an organisation is difficult – but pays dividends.

Sheila Lirio Marcelo agreed on the importance of building organisational systems for scale – and added that it is crucial that these systems are flexible and evolve over time. In particular, in a very fast-growing company no single set

of processes will be sufficient for an extended period. Moreover, once an organisation grows beyond a certain number of employees, it is impossible for the founding team to have sufficient visibility to determine the best set of processes for the company as a whole.

The key, therefore, is to ensure that teams understand why processes have evolved the way they have and that they feel able to challenge and modify these where necessary. Marcelo summarised the challenge in saying, “One of the things that happens as you scale is that the people you hire are less likely to feel ownership of the processes and systems with which they work. You need to empower them to think about and question system efficiency. The alternative is that employees become passive recipients of systems that make them ineffective – and that will slow your growth”.

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Test continuously to stay close to the customerFor early stage startups, spending time with your customers and understanding what they need is almost the only thing that matters. However, as you scale, that becomes harder: you have too many customers to spend as much time with them individually and growth brings with it multiple new concerns, from hiring to fundraising. Nevertheless, the SVC2UK speakers pointed out that scale-ups that manage to stay close to their customers are far more likely to succeed – but that different techniques are needed from the face-to-face conversations that might dominate in the earliest stages. Foremost among these techniques is continuous testing.

Testing allows you to scale customer focus…

Jose Ferreira of Knewton praised techniques such as A/B testing, which allow web-based companies to test multiple versions of their sites and user experiences automatically and to use the data to gather customer feedback at scale. In his words, growing a company “requires continuous improvement – your business needs to move as quickly as the customer base – which is why techniques like A/B testing are important”. Ferreira and other speakers noted the wide variety of decisions that can be aided by extensive A/B testing, from relatively minor points of design through to pricing and branding strategy.

More important that any particular decision, however, is developing a culture of testing in order to understand your customers better. Panni Morshedi argued that this is something that is easier to do when a company is still small – particularly before it raises large amounts of investment – because A/B testing and similar techniques are so geared to avoiding waste and resolving uncertainty. Morshedi cautioned strongly against losing this mindset as a company grows: “It can be tempting to cut back on testing as you grow and raise money. Remaining scrappy, though, is a key part of scaling: you have the keep the ethos you had when you were small. Just because you have money doesn’t mean you have enough money not to test!”

… and helps resolve disputes

Sheila Lirio Marcelo drew attention to an additional benefit for A/B testing – that by injecting facts and data into otherwise subjective debates, it can help reduce the role of ego and politics in decision-making. Marcelo argued that this is particularly beneficial when a company has increasingly disparate or compartmentalised Product, Marketing and Engineering teams, between which tensions can emerge as an organisations scales. In Marcelo’s words, “A/B testing brings an element of objectivity, which can help resolve different approaches”.

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Testing is not a magic bullet

Several speakers, however – including strong advocates of A/B testing – cautioned against viewing A/B testing as a panacea. Jose Ferreira noted that vision and intuition remain responsibilities of the founder, no matter how committed you are to testing. You cannot A/B test a startup into existence or a company to scale. A testing culture exists to help a business fine-tune its execution. It cannot in itself make the major strategic decisions that will shape the company. In Ferreira’s words, “scaling is art plus science, not science alone”.

Above all, entrepreneurs should not become a slave to testing. Ferreira likened a company that relies on customer testing alone to a person who eats only junk food: short-term satisfaction is achieved at the cost of long-term unsustainability. For Ferreira, a simple solution is to ensure that major decisions both test well and match your long-term vision.

Jason Stoffer, another proponent of A/B testing, also warned against losing sight of the bigger picture as you adopt a culture of continuous testing. He said, “Before you test another iteration of a button colour or image width, stop and ask yourself, what are the three things that are going to cause widespread adoption of your product? Is what you’re doing right now going to lead to one of these? If not, why are you doing it?”.

The message of the SVC2UK speakers was clear: A/B testing is an essential element of the entrepreneur’s toolkit – but it cannot be an excuse for abdicating responsibility for vision and strategy.

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Take the right kind of money at the right timeRaising capital from external investors is a topic that pre-occupies many entrepreneurs who aspire to scale their businesses and success in doing so is widely celebrated within the startup community and in the technology media. However, while investment is often a critical ingredient for growth, a number of SVC2UK speakers warned founders to avoid seeing funding as the solution to all the challenges of scaling up – and indeed cautioned that raising money from the wrong people or at the wrong time can be damaging for a fast-growing business.

External investment can be the catalyst for scale

Taking on external investment can enable scale at a much faster rate than the organic cash generation of the business would permit. This does not always mean raising money from formal venture capital funds – indeed, as Sherry Coutu pointed out, most high-growth businesses do not – but it is likely that technology startups with aspirations to grow rapidly will need to take on investment from angel investors or similar sources.

Adam Nash discussed the wariness that some entrepreneurs feel about raising money and the dilution of ownership and control that results. He warned that founders “need to be aware that there is a real trade-off between control and financial outcomes”. According to Nash, entrepreneurs must recognise that they “will usually need financing to grow and need a liquidity event [such as being acquired or

a public offering] to realise their success, but both these mean giving up some control”. For Nash, founding teams need to recognise the trade-off, but embrace growth; in his words, “if you’re serious about scale, some loss of control is almost always part of the bargain”.

But beware raising too much (or too little!) money…

However, multiple speakers expressed concern that entrepreneurs may become fixated on fundraising as a goal in itself, rather than as an activity that supports the real growth of the business. In particular, several people concluded that startups should avoid raising more money than they need.

Jose Ferreira said that it worried him to see startups celebrate raising a lot of investment. In his words, “one way of looking at it is that it just means you weren’t able to grow the business organically!” Megan Smith reinforced this viewpoint. She said, “Beware of taking too much money too soon. Scarcity builds clarity”.

The challenge is that the optimal amount of investment is difficult to define. Smith warned that remaining lean “doesn’t mean starve the company: you need enough resources to succeed, which means anticipating needs as well as responding to them”. Adam Nash’s proposed solution to navigating this trade-off is to ensure the startup’s leadership is focused on the purpose of fundraising, rather than the amount. In his words, “It’s important

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that you as the CEO make clear that any financing – up to and including an IPO – is not an end-point or the goal itself, but part of the process of building a great business”. Drawing on his experiences at LinkedIn, he argued that the management team should always communicate internally and externally why the company was raising money and, moreover, should use each funding round as an opportunity to “raise the game” in terms of company culture and aspirations.

… And beware of investors who will send the wrong message

A second challenge the fundraising process presents is finding the right investors. Speakers warned against the temptation – particularly acute when finding investment is difficult – of taking money from anyone who is willing to offer it.

First, taking money from people who have little to offer the business other than cash is to miss out on the great value that an engaged and well-connected venture capital firm or angel can offer. Jose Ferreira argues that domain expertise, network and experience of scaling means that “the power of a genuinely good VC is extraordinary”.

Second, certain types of early investors can cripple a business by the signal that their future behaviour sends to the broader investment community. Charles Cotton points to the problem posed by very early stage “strategic

investors” – that is, large corporations that invest in startups in order to have an option on the technology or other assets of the startup, rather than as a pure financial investment. The danger, in Cotton’s view, is that if a strategic investor takes a stake in a startup at a very early stage, but it becomes clear subsequently that it has no intention of acquiring the startup or making further investment, other investors will take that as a signal that the startup is failing or that its technology is less promising than was once thought.

Jose Ferreira made the same point about institutional investors, such as venture capital funds, providing funding very early in a startup’s lifecycle. Such investors’ business model relies on making follow-on investments in the later funding rounds of successful startups. Given that an institutional investor who invests early will know more about a startup than any future potential investor, Ferreira notes that if they decide not to follow on in future rounds, the signal that is sent to other investors about your likely prospects is very damaging.

Investment, therefore, is both crucial for scale yet fraught with potential hazards. Founders who aspire to scale must select their investors as carefully as they would a co-founder: as with a co-founder, the right choice can propel a company to extraordinary growth; the wrong one can sink it.

ConclusionTaking a startup to scale is extraordinarily difficult. Nevertheless, the conclusion of Silicon Valley Comes to the UK 2012 should be encouraging for UK technology startup founders.

On the one hand, the comparison with scale-up rates in the United States shows that British companies can, should and – indeed – must do better at growing quickly and consistently.

On the other, the advice and counsel offered by the SVC2UK speakers demonstrates that, while the task remains extremely challenging, there are proven techniques and methods that greatly improve the probability of success.

Moreover, as the SVC2UK CEO workshops showed, serial entrepreneurs with experience of scaling companies not only exist, but are able and willing to share their time and expertise with first-time founders. The worldwide networks that are built and reinforced by conferences such as SVC2UK and the increasingly global market for venture capital are a critical resource that British startups must draw on as they seek to grow.

Silicon Valley provides an extraordinary example of what is possible. The task is now for UK-based entrepreneurs to meet the challenge head on and turn their startups into scale-ups.

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Speaker profilesAdam Nash is an entrepreneurial executive with a passion for product and deep experience with mobile and social platforms. He joined Greylock Partners in 2011 as an Executive in Residence, where he advises the leadership teams of the firm’s existing consumer technology companies as well as evaluating new investment opportunities. Prior to joining Greylock, Adam was Vice President of Product Management at LinkedIn. Most recently, Adam led LinkedIn’s Platform & Mobile products, including the launch of LinkedIn’s open developer platform and their highly successful native applications and mobile web experiences.

Angela Lin leads all things on education at YouTube, including content strategy, partnerships and original programming. Her work reaches across the learning spectrum from nursery to higher education and lifelong learning, featuring educational content that ranges from the purely academic to the wildly inspirational.

Christopher Lukezic joined Airbnb as an early employee in summer of 2009 and now acts as the Director of Communications for Airbnb in EMEA where he oversees brand marketing, media relations, and partnerships. Prior to joining Airbnb Christopher spent 5 years as a professional runner and spokesperson for Reebok and Nissan.

Jason Stoffer joined Maveron in 2007 and is now a partner focused on investing in education, e-commerce and web-enabled consumer businesses. He is involved with the firm’s investments in zulily, Altius Education, General Assembly, Julep, Everlane, Live.ly, Gigi Hill and Livemocha. Prior to joining Maveron, Jason served as senior director of strategic operations for Career Education Corp., where he co-founded and led admissions and marketing for IADT Online, a for-profit design school.

Jose Ferreira is the founder and CEO of Knewton, the world’s leading adaptive learning company. Knewton combines big data with psychometrics to continuously and progressively personalize any publisher or school’s online learning courses. In October 2011, Knewton announced a partnership with Pearson to power their complete line of MyLab and Mastering products, currently used by nearly 10 million students.

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Kim Polese is a leading Silicon Valley entrepreneur and technology executive. She is currently Chairman of ClearStreet Inc., a social finance startup focused on helping people eliminate debt and achieve long-term financial health. She also serves as an advisor, board member and investor to several early stage technology companies. Previously, Kim served as CEO of software company SpikeSource Inc., a pioneer in the automation of open source application management which was acquired by software company Black Duck in November 2010. Prior to SpikeSource, Ms. Polese co-founded Marimba Inc., a leader in the first generation of systems-management software for the Internet age, which automated the management of software and computing resources. Ms. Polese served as President, CEO and Chairman of Marimba, leading the company to profitability and a successful public offering. Marimba was acquired by BMC Corporation in 2004.

Dr. Mary Lou Jepsen is the CEO and Founder of the Pixel Qi Corporation, a high tech startup doing things in display technology that many believed were impossible – and delivering them into high volume mass production. She is also a member of Innovation Board of MEDCO, one of the largest pharmacies in the world, serving 65 million people. Previously she co-founded One Laptop per Child and served as its CTO and the chief architect of the $100 laptop. She has also been on the faculty of the MIT Media Lab, was the CTO of Intel’s Display Division and was the CTO and a co-founder of MicroDisplay Corp.

Megan Smith is an entrepreneur, tech evangelist, engineer, social change agent and connector. At Google[x], Megan works on a range of projects including co-creating/hosting SolveForX. For nine years prior she oversaw Google’s New Business Development global team managing early-stage partnerships, pilot explorations, and technology licensing. She led the acquisitions of Keyhole (Google Earth), Where2Tech (Google Maps) and Picasa, and led the Google.org team transition to add Google Crisis Response, GoogleforNonprofits, Earth Outreach/Engine and increased employee engagement.

Panni Morshedi is currently leading all product development at Wonga. She has been with the company since the beginning and has been instrumental in launching Wonga and scaling it to 5 million loans and growing. In addition, Panni was responsible for setting up and implementing the international expansion strategy. Prior to joining Wonga, she was in charge of product development for iModel Music, a global mobile marketing company. Panni was also part of the founding team behind ExchangePath, a CMGI company based in New York.

Ramesh Raskar is an Associate Professor at MIT Media Lab. Ramesh Raskar joined the Media Lab from Mitsubishi Electric Research Laboratories in 2008 as head of the Lab’s Camera Culture research group. His research interests span the fields of computational photography, inverse problems in imaging and human-computer interaction.

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Sam Chaudhary is the co-founder and CEO of ClassDojo. Sam holds a Double First-class degree in economics from Cambridge, and taught high school after graduating. He subsequently worked in the education arm of consultancy firm McKinsey & Co in London, before moving to Palo Alto as part of the inaugural class of the ImagineK12 incubator – the “Y-combinator for education technology”. Sam and his co-founder Liam founded ClassDojo in 2011 to help teachers, parents and students improve classroom behaviour and build positive learning habits and character strengths.

Sheila Lirio Marcelo founded Care.com in 2006 and today, the Company is the largest online care destination in the world. Care.com allows families to connect with millions of caregivers to manage the lifecycle of care challenges families face. Sheila’s introduction to technology started when she was a management consultant at Monitor Company and a teaching fellow at Harvard Business School. Her growing appreciation for the power of technology led her to positions at Internet companies, including VP, Product Management and Marketing at Upromise.com, and VP and General Manager of TheLadders.com.

Sherry Coutu pursues a portfolio of interests which include early stage technology investing, advising and serving on the boards of companies, universities, and charities. A serial entrepreneur now turned investor, her current activities include positions with Cambridge University, Cambridge University Press, Cambridge Assessment, Artfinder, Linkedin, NESTA, Cancer Research UK and others.

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