Climbing to the top
The so-called scaleups are widespread in Brazil and have already reached the global market. The key to their rapid growth lies in the ability to inject innovation into traditional markets by working collaboratively with an ecosystem of potential partners.September-November | 2018
Every startup is born with an expiration date. If the company cannot consolidate its value-creation concept nor attract investors, it is bound to disappear. On the other hand, when everything is going well – interested customers, increasing revenue, growing structure – it is time to change status. A startup that has turned its innovation proposal into a viable product and has begun to form a robust staff while maintaining an accelerated economic and financial growth rate is no longer a startup. It has become a scaleup – a term that defines an organization whose business model has matured and is ready to scale and expand its target markets.
Throughout the world, scaleups represent one of the main drivers of economic development and job creation today. Benefiting from a global convergence environment provided by digital transformation, these companies do not see geographical barriers in the search for new customers. And there is an increasing number of Brazilian representatives in this increasingly competitive arena.
These are companies with less ties, more open to networking and collaboration. When this ability to innovate combines with the strength of big companies, interesting things are born., Jefferson Denti, Deloitte's Consulting partner and expert in digital transformation..
“If the startup has two or three years of experience in the market, it has launched projects in more than one large customer and has a structured management – with executives and legal and financial areas – it has already transitioned to a scaleup” summarizes Jefferson Denti, Deloitte’s Consulting partner.
According to Denti, these are companies with relatively high billings, coming from a consolidated portfolio of customers. “These are companies with a certain experience, which are well organized and whose competence is proven. Scaleups grow rapidly because they have a much faster innovation capability than larger organizations.”
Job creation in the services sector
Othon Almeida, Deloitte’s leading partner in New Business and Innovation, traces a profile of the scaleups that have stood out in the Brazilian economy: “In general these companies rely heavily on digital technology and stand out especially in service sectors such as retail, finance, management, logistics, marketing and health.” According to Othon, the defining moment of transition from startup to scaleup is when the company manages to pool infrastructure and investment capacity to scale its value proposition. “The company has a great idea, but runs into budget and structure constraints. In general, these limitations are overcome with the entry of an external investor that allows the startup to reach a higher degree of maturity.”
Although they have not reached a stage of full maturation yet, scaleups are companies capable of billing tens of millions per year., Othon Almeida, Deloitte's leading partner in New Business and Innovation.
According to the “Entrepreneurship Statistics” study, prepared by the Brazilian Institute of Geography and Statistics (IBGE), companies with this profile amount less than 1% of the total in Brazil, but account for 68% of jobs generated in the country between 2013 and 2015 (period analyzed in the study). “These companies were not immune to the economic crisis of the last few years but in the most acute period of deceleration they were important to prevent the situation from getting even worse” says Guilherme Fowler, professor at Insper and coordinator of a department dedicated to study scaleups. Opportunities for these entrepreneurs are, according to Fowler, scattered across all segments of the economy. “The accelerated growth results from a combination of business model scalability and market conditions. The challenge is the ability of the entrepreneur to adapt the company to this moment of high growth” says the professor.
Scalability without borders
The business’ global expansion potential, multiplied by the use of digital technologies, is one of the defining hallmarks of scaleups. The classic example mentioned in academic studies is Uber. The urban transport company stood out worldwide for its ability to scale its business model, increasing its revenue at a rate much faster than its costs. In activity since 2009, the company operates today in dozens of countries and has already surpassed US$ 50 billion in market value. This ability to act internationally is crucial, as demonstrated by the study “Global Perspectives for Private Companies” , published by Deloitte Insights in December 2017. The report compiles surveys with nearly 1,900 executives of mid-sized and global companies. Of these organizations, 79% have significant revenues from international markets and 27% predict that the percentage of businesses in other countries will increase in 2018.
This is the case of Round Pegs, which was founded in São Paulo in 2016 and has a presence in nine other countries today. The innovation offered by the company to its customers boils down to the concept of “entrepreneurship as a service”: in practice, a platform that helps large companies build internal startups to test new ideas and encourage innovative spirit among employees. The methodology includes monitoring key performance indicators, testing business models and studying potential markets for the innovations in question. “It’s an online service, accessible anywhere in the world and that can be employed by individuals, companies of all sizes or even individuals within companies” says Pedro Donati, founder and CEO of Round Pegs.
After acquiring Brazilian customers such as Itaú Bank and Dasa Laboratories, Round Pegs intends to expand its reach in Europe. The jump was no longer a plan and came to fruition when the company won the 2017 LatAm Edge Awards, an award created in 2016 to identify and promote Latin American startups with potential to become scaleups. The initiative, sponsored by Deloitte, offers the winning company a series of services and consulting services to place it in the European market – including infrastructure, legal support, accounting and prospecting of customers and investors.
“There is a lack of support, both from the Brazilian government and the private sector, so that companies such as Round Pegs can expand internationally” said Sandra Sinicco, CEO of GrupoCASA, the agency that organizes the LatAm Edge Awards. “We have worked to bridge Latin American scaleups and potential customers in the UK and the rest of Europe. The expansion is more organized and the chances of success are greater. It is a learning experience that remains with the company and also positively impacts the ecosystem in Brazil.”
Growing along with the largest ones
Around here, mid-sized companies have been able to scale their businesses by, in practice, proving the viability of their innovations. Founded in 2011, Saad is a branding consultancy with offices in São Paulo and Curitiba whose services include research, strategy, brand experience and internal culture alignment.
When conducting projects with larger companies, such as Sementes Ipiranga (agribusiness) and Vuelo Pharma (medical solutions), the consulting firm not only has won awards and recognitions in the design market, but also helped to leverage its customers’ expansion in their respective segments. And it has been growing with them. “We have had an annual average growth of 27.5% over the last four years” said Lucas Saad, founder of the company. “Our projects are characterized by working in convergence, reinforced by joint creation. They are ‘tailor-made’ business models designed in close proximity to the customers’ needs”, says Saad.
Born from the union of two startups promoted by the Technological Base Companies Incubator of Itajubá (MG), DDMX rose to scaleup level when developing logistics projects for giants such as Petrobras, Gerdau and Usiminas. “Our solutions are available in the cloud and are accessible by any platform. They are real-time information, used to increase fleet productivity, reduce vehicle idleness and automate processes that were previously manual”, explains Rafael Peres Pagan, CEO of DDMX. In Pagan’s view, the association with big names – competitors that dominate their markets – was critical to the rapid growth of their company. “These opportunities have brought maturity to DDMX. It is very gratifying to be recognized by important brands on the national scene.”
Six steps to get to the top
Based on the observation of the scaleups ecosystem in the UK, the study “Scaleup UK: Growing Business, Growing Our Economy”, published by the universities of Cambridge and Oxford, seeks to understand the impact of these companies on the economy and the challenges faced in the search for scalability of their business. Six characteristics are pointed out in the publication as crucial in this journey:
• The will to grow: it seems obvious, but a large number of entrepreneurs fail precisely because they set modest growth targets. One must have ambition;
• Customer focus: smaller companies get closer engagement with their customers and can use this relationship to enhance their value proposition;
• Previous experience: if the company’s leaders accumulate professional experience in other companies that operate in the target segment, the chances of success increase;
• Alliances and partnerships: fundamental to supply deficiencies typical of start-up companies, such as lack of financial resources or personnel;
• Delegation and formalization: even in a lean structure, it is necessary to define roles and responsibilities, avoiding centralization in decision making;
• Innovation: it is critical to bring rapid return and economic growth, especially in the technology area.
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