From start-up to scale-up: What does it take?

What do you think of when you hear the term “entrepreneur”? What about “growth entrepreneur”? Do Elon Musk and Tesla come to mind? Travis Kalanick and Garrett Camp of Uber? Jack Ma of Alibaba? 

Forget for a moment the immense scale that these few, highly successful tech giants have achieved. Such cases will always be outliers. Instead, imagine the potential collective impact of companies in developing countries growing from a $50,000 to a $1 million company, or from a $1 million to a $10 million company. Imagine how this could help generate dynamism in the local economy and ultimately increase competitiveness, incomes and jobs.

The reality, however, is that most start-ups fail — about two-thirds, according to most estimates. Furthermore, out of the one-third that do survive, nearly 90 percent won’t grow at all.  So when you picture 100 start-ups, you know that roughly 30 will survive: After two years, 20 or 25 will still exist, but only 5 or 10 will employ more people and generate higher revenues compared to when they started. Research from across the world is showing that this small number of growth-oriented firms accounts for nearly half of all net new job creation.

So how do you get from start-up to scale-up? What’s the “secret” behind the few companies that succeed? How do we increase the proportion of firms that survive and grow, particularly in places where job creation and growth are needed most?

We can start to answer this question by asking whether there is anything unique about the individuals who launch or run companies that grow. For one, growth-oriented entrepreneurs must have the aspiration to grow. You cannot expect that entrepreneurs will take the risk of expanding a company if they have no aspiration to do so. Expanding a company requires significant sacrifice, time and resources that many entrepreneurs cannot — or are not prepared to — invest. Indeed, “personal circumstances” is one of the most cited reasons for discontinuing a start-up project.

If having the right mindset is so critical to entrepreneurial success, are there any factors or traits that make some individuals more likely than others to succeed at starting and scaling a business? The literature is divided on this.

Evidence suggests that mid-career professionals in their late 30s to early 40s are more successful at scaling companies. Individuals with at least seven years of work experience in their sector significantly outperform those who have less experience. Perhaps this could be linked to better access to market information and contacts, maybe more savings and a better credit record that allow them to gain access to resources more easily. Other research points to psychological traits that characterize individuals and teams that drive start-ups to scale, including a higher-than-normal risk appetite, an internal locus of control, and higher-than-average scores for creativity and persistence. Are these psychological traits learned, or are we born with them? Once again, the literature is not quite conclusive.

Beyond the individual or team level, what external or environmental factors enable the growth of these companies? According to the literature, the answer is a complex interplay of factors, such as the availability of human and social capital, positive sociocultural norms, affordable and accessible training, effective policies and regulations, a strong infrastructure, the absence of corruption, and the ability to overcome vested interests.

Networks and concentrations of entrepreneurial activity are also receiving increasing attention, as is the notion of “entrepreneurial ecosystems.” Within this context, there is a debate about how much can be affected at a national level and how much can be done at a sub-national level — usually at the level of a city.

Questions about growth entrepreneurship abound, and research in this field is still nascent. For those of us who work in developing economies, a critical challenge is that current research mainly draws on data and experiences from developed countries. There is reason to believe that the findings from developed economies are not necessarily transferrable, and, at the very least, they should motivate more in-depth research into the impact, characteristics and drivers of growth entrepreneurship in developing countries.

We conducted a preliminary literature review to analyze the state of research on growth entrepreneurship: You can read the full report here. If you know of research that we may have missed, please use the comment field below to bring it to our attention. We would love to know!

Also in motion: an inventory of policy instruments used to promote growth entrepreneurship. We hope to have more to say on that topic in a few months.