Why relationships are the key to startup growth
UK tech startups and scaleups successfully raised more than $15 billion in 2020, a figure greater than any previous year, according to Tech Nation and the Digital Economy Council.
That’s a remarkable number, particularly in the midst of the Covid-19 pandemic – and speaks to the sheer wealth of entrepreneurial drive and innovation taking place on these shores.
While venture capital investment was aided significantly by some huge rounds raised by companies such as Revolut, itself securing more than $500 million, there are many firms across the spectrum now looking at how best to use this injection of cash to fuel their growth.
VC money is an absolute necessity for the vast majority of startups executing fast-growth strategies but does risk creating a hamster wheel of fundraising which can distract entrepreneurial founders from doing what they’re best at to grow their business.
The choice for startups
For entrepreneurs who head down the path of raising funds, their execution plan post-funding is typically two-fold:
Hire people to achieve the vision. But for business leaders, particularly those starting their first company, it can be difficult to know what the right mix is. Do you focus on salespeople to generate revenue, or product experts to perfect the offering? Either option poses a question around how aggressive you should be in terms of cash burn to facilitate growth.
Double down on marketing to generate leads. This is fundamental to business growth, but the results often take time to materialise – time that few businesses in early-stage growth journeys can afford.
In both of these instances you’re entrusting people who in some cases haven’t had to keep a budget before with a significant amount of funds and hoping they spend it appropriately. There are of course some established guidelines, but ultimately every business is different. What works for one may not work for another.
Keeping the founder focused
Perhaps the biggest issue with what’s become the traditional continual cycle of funding rounds is that the business is taking one of its biggest assets – the founder – and diluting the impact they have on business operations. Going through funding rounds can be a full-time job in itself, meaning focus is inevitably taken away from running the business. This is less of an issue in the United States, for example, where funding rounds are so much bigger, giving the founder more time to dedicate to the business.
The alternative options
The benefits to VC funding are clear. Cash is a tangible asset.
Another pathway to growth is through a startup accelerator. The benefits here predominantly lie in collaboration and being around likeminded people, along with perks such as communal office space, access to mentors and the potential to take part in pitch days. This can be helpful, however too often, companies find themselves on a programme with 50 or more similar firms all vying for attention. The benefits can be intangible and the success rates for most accelerators leave a lot of entrepreneurs disappointed.
Conversely, most VCs will claim to be hands on, but their business model simply isn’t set up for it. Cash comes ahead of adding value in other ways, and the majority can only afford to sustain a relatively small investment team.
What’s missing from all these options is probably the one thing that can fuel growth the fastest and most sustainably. Something that money can’t buy. That’s relationships.
Relationships help bring the right expertise into the firm and open the right doors to land the biggest opportunities. For a lot of startups, the biggest opportunities come in the form of large enterprise sales. However, for a startup business without a proven track-record, extensive client list and established brand, getting a foot in the door can be all but impossible, let alone navigating the tangled web of industries such as financial services, or the public sector.
This is where the UK’s biggest corporates can add tremendous benefit to startup firms. Take Capita as an example here. With over 9,000 clients, 8,000 suppliers and relationships across the vast majority of the biggest companies in the UK (built over 30 years of trading), Capita can provide startups with a vast opportunity that cannot be replicated by any growth strategy offered by a VC or accelerator.
We believe corporates need to up their game and embrace the startup world in new and innovative ways. The enormous contribution startups make to the economy is already undisputable, but the potential that can be unlocked in startups from corporates, if done correctly, can be game-changing.
It doesn’t happen overnight and requires dedicated resource to make it work. In Capita’s case, we allocate strategic startup partners two full-time resources to ensure they benefit from the impact the network can make. But if done correctly, it enables corporates and startups to rapidly scale innovation and revenue.
It is amazing to see the continued success of the UK startup scene, with investment from VC firms sure to swell in years to come. My biggest advice for entrepreneurial founders is not to get sucked in by the lure of big numbers and inflated valuations before the business has had a chance to establish itself. It is easy for a startup to burn through cash, but it is people and relationships that drive sustainable success.
