Research from Sage suggests that one critical ingredient in the success of many fast-growing scale-up businesses across Europe is their embrace of new technology. So what are the specific technology solutions that can help start-ups become scale-ups, and support scale-ups to continue growing at an accelerated rate?
Powering scale-ups with technology
Scale-up businesses are adopting new tools and technologies at pace, but what are the specific solutions that will help them to seize opportunity and manage risk in order to optimise growth?
By David Prosser
What does it take to transform from start-up to scale-up business? It’s a move that entrepreneurs often struggle with but navigating it successfully will unlock exciting new growth opportunities and increased profitability. And new research from Sage shows that businesses that have made the leap almost all share one characteristic: they have enthusiastically embraced digital tools and technologies.
There are certainly some high hurdles to clear. The OECD defines a scale-up business as one that has achieved average annualised growth rate in terms of revenues or headcount of at least 20% over three consecutive years, starting from a base of at least 10 employees. No wonder scale-ups are in short supply; in the UK, for example, just 12,000 businesses meet that test, even though the country is home to 5 million small and medium-sized enterprises.
The good news is that Europe’s scale-ups are outperforming. Sage’s research reveals these businesses are growing almost twice as quickly as the OECD’s 20% threshold. And critically, it is technology that is powering this: 91% of scale-ups taking part in Sage’s research say digital tools are critical to their success; one-third are already using artificial intelligence (AI), and the most digitally mature firms are growing 32% faster than others.
“Digitalisation is the backbone of modern scale-ups,” argues Derk Bleeker, Sage’s chief commercial officer. “From managing cash flow and operations to driving international expansion and sustainability goals, digital adoption determines how effectively a company can scale.”
Managing operational success at scale
What does that mean in practice? Importantly, businesses don’t have to be in the technology sector itself to succeed; while tech businesses do feature prominently in Europe’s scale-up landscape, scale-ups from many other sectors are leveraging digital tools to power their growth.
“Critically, scale-ups are building technology stacks that support their operational flow,” explains Marvin Fletcher Rogers, principal consultant and head of business development at Sage.
When a business is still small, it’s relatively straightforward to manage everything it needs to do through manual processes and face-to-face interactions between small numbers of staff. But that becomes impractical as the business grows and the demands of everything from managing suppliers to delivering good customer service start to multiply. Businesses quickly reach a point where this becomes a barrier to growth, warns Fletcher Rogers. “You can’t afford for your costs and inefficiencies to overwhelm you,” he says.
Enterprise resource planning (ERP) systems are therefore a foundational tool for scale-ups. They provide the digital infrastructure required to manage every aspect of growth by integrating all the core functions of the business. Notably, in Sage’s research, 95% of European scaleups have implemented ERP systems; these are delivering benefits ranging from dramatic efficiency improvements to improved cash flow management.
Importantly, these tools can also feed into other technology solutions that scale-ups are embracing, including Sage’s accounting platform. “What you end-up with is a very accurate and real-time read-out of both the operational and financial context of your business,” says Fletcher Rogers. “It gives you a measure of what’s working and what’s not in the business – both internally, but also with customers.”
This data also provides the raw material that scale-up businesses require to make good use of AI. The best AI tools will help businesses to make much more accurate forecasts – with a much broader range of scenarios – and to optimise operations in a far more granular way. But they require good-quality data to produce good results.
AI is also helping scale-up businesses to drive growth through customer acquisition and retention. It can help them to personalise customer service to a much greater degree, to identify markets and segments for expansion, and then to deliver bespoke messaging in those areas. “It’s about informing growth with much greater precision,” Fletcher Rogers adds.
Towards business model change
The next step for a growing number of businesses is to rethink how their business can put technology to work in its value proposition. Again, that doesn’t have to mean becoming a technology business – rather, it’s about using technology to create richer products and services for customers, and therefore to drive growth.
Companies such as Rolls-Royce are pioneers in this regard. The civil engineering company once manufactured engines for one-off sale; today, it still builds engines but increasingly sells a much broader maintenance and support package – effectively delivering customers a certain number of operational hours over an extended period, extending its revenue stream. That has meant investing in technologies such as the internet of things, sensors and customer portals, as well as in AI, to deliver on its new type of promise to customers.
Rohit Kedia, CEO of the digital engineering company Xoriant, believes there is scope for businesses in every sector of the economy to follow this path. “Every business should now be on a journey to become software-defined,” he says. And critically, he thinks growing businesses at an early stage of development have a key advantage over the incumbent enterprises in their industries. “The most successful businesses to have embraced the software-defined idea are almost always new entrants to a sector,” Kedia says. “They’re not burdened by trying to build something new while running their legacy business; their leaders aren’t suddenly being asked to make a complete shift of mindset.”
Accountants embrace tech too
One final important point is that tech-savvy scale-ups will want to work with advisers that have made similar investments in digital tools. New research from Thomson Reuters makes interesting reading in this regard: it shows that 39% of accountants have already begun using AI technologies, with the UK leading the way on 54%.
This can help drive advances on both sides, argues Elizabeth Beastrom, president of tax and accounting professionals at Thomson Reuters. “Tax and accounting professionals understand that AI will have a seismic impact on the industry; our research shows professionals expect to save 240 hours annually through AI, she says. “Enthusiasm from accountants themselves appears to be accelerating organisations’ adoption of AI tools.”
