The terms scaleup and startup are related to each other, but they are not the same thing. Next, we'll tell you what a scaleup is, its characteristics and how it differs from a startup.
What is a Scaleup?
We will start by defining what a startup is, and then go into depth about what a scaleup is, since a scaleup is still an advanced version of a startup or a very rapidly growing startup.
A startup is an emerging company that usually has a high technological component and great growth possibilities with an innovative idea that stands out from the solutions currently in the market.
For his part, in the words of Steven Carpenter (3 times CEO with 3 IPOs: E*TRADE, Dropbox, Cornerstone OnDemand), scaleups are those companies that started out as startups but have successfully overcome the “product/market fit” stage in conjunction with the “business model fit”... which in simple terms means that you are able to increase your customer acquisition rate and at the same time you are able to reduce your acquisition costs. This is just the opposite of what happens when a startup grows prematurely... a very common mistake that results in the company's failure, which tries to scale up when it has the illusion of having achieved the desired “product/market fit”, only to find that its acquisition costs only grow to make the product commercially unfeasible, to the extent that, for various reasons, there are no more customers for that product other than early adopters.
Types of Scaleups
Scaleup Spain Network classifies scaleups according to 3 categories according to their growth:
1. Scaler: High-impact technology business with an average turnover of 1 million Euros in the last three years.
2. Growth: Those that generated an average turnover of more than 10 million Euros in the last three years.
3. Rocket: Disruptive businesses that have had an average turnover of more than 50 million Euros in the last three years.
What's the difference between a startup and a scaleup?
According to a Deloitte report, the chances of a startup becoming a scaleup are around 0.5%, or in other words, Only 1 in 200 startups manage to become scaleup. When comparing startups and scaleups, it's important to understand the nuances between them. Some of the most significant differences between them are:
Funding phase
The two types of companies are at different stages of funding. A startup is usually in the initial funding phase or has undergone Series A funding or at most B. Funding usually comes from friends and family, incubators or accelerators, crowdfunding, Business Angels, or even VCs that invest in early stages. Funding is usually used to develop a business idea, acquire initial customers or create and test an MVP.
On the other hand, when a company is in the scaleup phase, it has usually had access to capital from national and international VCs that specialize in Growth stages and Series B onwards, and use it to support the development of highly specialized sales, operations and infrastructure structures.
Product Market Fit
The two types of companies are at different stages of funding. A startup is usually in the initial funding phase or has undergone Series A funding or at most B. Funding usually comes from friends and family, incubators or accelerators, crowdfunding, Business Angels, or even VCs that invest in early stages. Funding is usually used to develop a business idea, acquire initial customers or create and test an MVP.
On the other hand, when a company is in the scaleup phase, it has usually had access to capital from national and international VCs that specialize in Growth stages and Series B onwards, and use it to support the development of highly specialized sales, operations and infrastructure structures.
Roles of team members
During the early stages of a startup, it's common for team members to take on several different roles. Most companies hire people with a specific skill set for a specific role, but they also expect those people to take on other challenges as they arise. They are multifunctional and multitasking people, since by definition startups are organizations that pursue opportunities with scarce resources.
When a company begins to grow, it is essential to focus on the functions of the team and assign specialists to each department. By specializing tasks, scaleups can grow more effectively and efficiently. This is another difference between startups and scaleups, startups prioritize profiles with high energy, work capacity and multifaceted, even if they lack in-depth knowledge in specific subjects, and scaleups are highly specialized profiles with several years of experience in very specific fields.
Risk aversion
A startup with a product or solution in the MVP phase, without traction and with a small customer base is a very high-risk company by definition. You have less to lose if everything goes wrong and more to gain if it works out.
On the other hand, scaleups have already discounted risks, they usually have the support of important external investors, an established and specialized management team, and a product or service that has already proven to be highly adequate to what the market is demanding. Therefore, she will tend to be more conservative in her decisions since she has a lot to lose and little to gain if she makes decisions in a hasty way.
Relevant data on scaleups in Spain
In Spain there are currently between 350 and 400 scaleups (Startups Observatory), most of them spread between Barcelona and Madrid.
According to the Scaleups in the Spanish Economy Report (Scaleup Spain Network, 2021) in 2020, scaleups generated 324,000 employees, 28% more than in 2019, despite the pandemic. The sector with the highest bill is Mobility&Logistics, followed by Business&Productivy and Retail. The companies that are in these sectors are the ones that generate the most employment.
Another important fact is that, despite the fact that 45% of the capital of Spanish scaleups comes from Spanish investors, in the long term these companies tend to access a higher proportion of capital from abroad.
You can find more information about Spanish scaleups, in the Scaleup Spain report in the Next link.
To conclude the article, we leave you with a sentence from Daniel Isenberg, Harvard professor of entrepreneurship: “Without growth, there is no true entrepreneurship; it is the growth of companies, not their creation, that gives entrepreneurship its unique contribution to employment, taxes and wealth”. A phrase that makes us reflect on the importance of growth in modern economies.
