Scale-up Growing Pains — Supercharge Growth With Infrastructure
Is it harder to start a company or scale one?Insights + resources
A Rocket ship
It’s no secret that the UK start-up scene has been explosive in recent years, with the technology sector forming a significant portion of this growth. Based on research conducted by RSM, the UK saw a 60% rise in the number of new technology companies in 2017. Growing 2.6 times faster than UK GDP, the technology sector represents a significant source of growth in an otherwise stagnant economy.
However, while the number of newly incorporated companies is growing rapidly, the majority of these companies fail to achieve scalability; or simply chose not to. In fact, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. To assess why this might be, it’s important to look at why so many more startups have been created in recent years.
With an abundance of accelerators, incubators, innovation centres and coworking spaces, startups have access to a significant degree of support and cost-effective solutions. There are government schemes in the UK offering between £25,000 and £10 million to startups. Accelerators and coworking spaces also tackle one of the greatest costs that founders would face when starting up; setting up an office. The availability of flexible coworking spaces has enabled a low-commitment, low-cost solution for startups.
This solution is such a popular choice for so many startups that it has encouraged significant growth in coworking spaces in the UK. A record 2.5m sq ft of lettings were signed for flexible workspaces in London, amounting to more than 21% of all commercial office leases in the city. Likely due to the rapid growth of the tech industry in the UK, London has become the global capital for coworking, followed by New York. So, the growth in startups is largely supported by the growth of coworking spaces and vice versa.
Despite a growing abundance of solutions for startups, there are far fewer solutions for scale-ups. The Council for Entrepreneurial Development found the transition from startup to scale-up to be a key challenge for tech companies. This challenge has largely been credited to a lack of space, despite the rapid increase in coworking facilities. Tie this in with the other challenges such as finding talent, balancing finance and raising capital; it begins to become clear why many founders are disincentivised from scaling their business beyond a certain point.
While coworking spaces and accelerators are a great solution for startups, they typically provide solutions for companies with 1–15 employees. Once companies grow beyond this, it becomes much harder to find the same solutions and support that startups can expect. According to the 2018 Annual Scaleup Review, 63% of scaling companies find access to infrastructure to be a barrier to their continued growth.
A key problem for scale-ups is that growth can be unpredictable. While scale-ups may be able to find and afford workspace, they will likely have to sign a longer lease, typically upwards of 5 years. This will require the company to either predict it’s growth and rent a larger workspace with the hopes of growing into it or commit to additional rental agreements with each team expansion. Should the company expand slower than expected, a 5-year commitment to an oversized workspace can be a serious blow to a company’s cash flow. Not only are scale-ups often short for cash, but they are also likely to be too focused on building their businesses to spend time seeking, purchasing and managing a property independently.
So, is traditional coworking the solution for scale-ups and larger corporations? Well, that will likely depend on the company’s size. At the startup stage, sharing a workspace can be beneficial as networking opportunities are often more valuable for smaller companies. Furthermore, being surrounded by other founders can be hugely motivational to small teams. However, as a company grows, they will still want flexibility, without having a shared workspace; or reliability without committing to a lease. While early-stage scale-ups might still be happy to share workspaces with other companies and may still value networking opportunities, as the company continues to grow, the team’s needs will change.
For larger companies, having dedicated meeting rooms will be essential. Sharing workspace with other scale-ups can also make it difficult to establish the company’s culture, and maintain it as the company grows. So while scale-ups benefit from the flexibility of a coworking space, they would rather have a private workspace, although they would still value the opportunity to network elsewhere. While this seems like a difficult problem to tackle, Techspace is dedicated to providing the benefits of a flexible workspace to technology companies as they scale-up.
As we are a scaling company ourselves, Techspace has an advantage in empathising with the problems facing scale-ups. Offering a range of products, from fixed desks to entire floors, we are able to accommodate members during the scale-up phase, the hardest stage of development. By enabling members to design their own space and add their branding to the wall, we have a clear understanding of scale-ups who are seeking a private, customisable space, without sacrificing flexibility or the ability to network with like-minded tech companies who experience the same scaling problems. Offering our members the privacy of their own workspace and access to a curated network of like-minded teams, allows companies to enjoy the best of both worlds.
Techspace members include Business Insider and Samsara, companies that would be too large or fast growing to use other workspace providers. These members can relax knowing that if they need more workspace space, this can quickly be provided; should the member need to downsize, this too would be a quick turnaround. This allows companies at later stages of development to benefit from the flexibility and low commitment of a coworking space, without losing the freedom and privacy of renting a property independently.
With a new location opening in Shoreditch, we will be furthering our commitment to supporting scale-up technology companies by helping them overcome the infrastructure problem.
Techspace Shoreditch South opens in February 2019. To learn more about our new location, head to techspace.co