Given the unprecedented economic climate, founders and business leaders are coming under increasing strain as they try to keep their businesses afloat – according to the Small Business Administration, 50% of SME’s fail by year five. However, when reviewing the landscape of the start-up sector, it seems that reaching a significant point of growth and scale is not the issue for founders as more than 50% of start-ups that have raised $1m go on to gain funding that is series A or later. It is maintaining growth that proves challenging; but why is this growth stunted? Landmark national research from accountancy and consulting advisory, Theta Global Advisors, has unveiled that 34% of British business leaders cite a dire lack of support which is negatively affecting the day-to-day running of their company.
A lack of sufficient second tier management can be the difference between a business that scales successfully and one that falls flat. This sentiment was echoed in the research, finding that 21% of British business owners state their business started successfully, but is now struggling to achieve growth. When the founder – the one who is meant to be launching the business forward – is spending all their time engulfed in overheads and managerial duties, the possibility of their passion diminishing will likely increase. It’s crucial for businesses to have a tiered organisation in which tasks can be delegated to the trusted second tier in order for the founder to maintain momentum while scaling.
A study from the Centre for Enterprise and Economic Development Research (CEEDR) found that fast growing businesses were more likely to have used external assistance and significantly more likely to scale successfully, indicating the importance of using external support as an essential resource. Despite the documented benefits of seeking external support, the Journal of Political Economy published a paper finding that entrepreneurs who have the opportunity to grow their business to the next level, often choose not to. The study asserts that this is for a simple reason, rather than having to delegate responsibility, founders often prefer to remain in total control.
Furthermore, the impending economic recession is expected to influence start-ups’ access to fundraising over the next few years. This is due to the fact that institutional investors providing funding will simply be less willing to supply new funds – it is therefore important to enlist the help of a financial advisor with experience to help weather the storm. Figures from the last recession confirm this global trend as fundraising worldwide decreased by roughly 25% in 2007 according to the OECD.
Chris Biggs, CEO and founder of Theta Global Advisors, comments on the importance of seeking out trusted second-tier support for scaling businesses:
“I think the main issue we’re seeing is founders creating a business because they’ve got an idea and a passion for a concept – which is what they are good at doing. But when that business grows to the point where so much of their time is spent managing the back office, they’ll find themselves burnt out with no time to focus on the strategic or ideas side of the business. I think to be able to scale up – for any size business – second-tier management is key.
“Also, whether businesses outsource things or not (different sized businesses want to do different things), the whole point is that there’s no point being a founder and trying to grow the business through spending most of their time on overhead activity, effectively neglecting strategy, ideas, and concepts. If business owners are fighting fires and trying to manage their team, funding and investments, they will find themselves burnt out. It’s key to either outsource the distractions or bring in people on the second-tier management level – a CEO or COO type of role, who can then free up some time.
“I think CEOs should be the ones actually growing the strategic side of the business, if you’ve got a product, they should be the ones selling the product, if you’ve got a service, they should be the ones expanding, growing, and selling that service, but they shouldn’t be the ones worrying about how the back-office accounting goes. If you’re a founder, then you need to get the team around you, outsource or a mixture of both, to free up your time to do the stuff you need to do to grow the business.”
