Growing Pains in Tech!

Growing pains.  Are they just a temporary issue associated with the expansion of a body (or a business) that we all have to cope with?  Or are they a symptom of something more serious, something that could be problematic or even more painful later in life?  Something that may be hard to treat if left too late?

Pains whilst growing a Tech business are a particular problem.  Before we explore why, let’s start with a few facts about Tech in the UK.

Firstly, the Tech industry continues to grow at a far superior rate than other industries in the UK, with total turnover exceeding £170bn, growth averaging 7% pa (way ahead of the economic average), and total jobs rising to close to 1.7m.  Even more astonishing, the GVA (Gross Value Add) per employee in tech is TWICE that of the average person worker in the wider economy, meaning productivity is very high.

Whilst we’re at it, here’s some more facts for you!  The UK is by far the leader in Tech in Europe, with close to £7bn being invested in UK Tech businesses in 2016 alone, comparing to £2.4bn in France and £1.4bn in Germany.  This has helped encourage a major growth in the number of Tech businesses being started.  We saw a 28% growth in Tech businesses between 2010-2015, twice the rate of new entries in non-digital sectors.  In London alone, which itself accounts for circa 30% of total Tech turnover, 8,700 new Tech businesses are started every year – that’s one every hour!  Thanks to ‘Tech Nation’ for those stats – some brilliant insight being created by them!

Tech in the UK promises to lead our country’s advancement in the coming years and decades.  Not only via the growth in ‘Tech’ businesses themselves, but also via other industries fully embracing advancements in everything from automation to AI, and consequently, driving better and better productivity themselves.  What does this mean for jobs and society as a whole?  We’ll leave that for another article!

So how do new tech businesses compete and succeed in such a congested, tough, fast paced and constantly evolving industry?

You’ll struggle to find any Tech business owner that won’t say it’s a very painful experience.  It’s painful trying to develop the product or service in the first place, making it sufficiently different and better than the multitudes of competitor products out there.  It’s painful trying to secure the large cash injections required to get products to market, and pay for talented individuals to help along the way.  It’s painful trying to attract and retain people in what is lovingly called the ‘war on talent’ – simple demand and supply effects in the Tech labour market that means finding and keeping good people is an increasingly difficult thing to do.  And it’s painful trying to keep up with innovations and advancements across the globe, which, as difficult as it can be to accept, often means that the ‘next best thing in Tech’ launched this year may be out of date next year, meaning the new business itself may also find themselves with a very short life span.

These growing pains are similar across other industries.  They’re nothing new.  Starting a new business is hard, but we hope it will reward our efforts in the long run.  But in Tech, all of these pains are accentuated.  Everything moves so much more quickly.  There are more and more competitors every year.  Labour is skilled and expensive and is operating within a candidate, not client, led recruitment market.  Investors are increasingly directive about how you should manage your business.  Customers are increasingly demanding and inpatient.

What is the common trend?  People.  People help you to develop great products.  People help you to invest wisely in your business.  People help to build a great culture that will attract the best and brightest talent as you grow, and make them want to stay.  People help you to continually innovate and remain ahead of the curve.  People keep you focused and determined.  People are your business.

So, when we talk about growing pains in Tech, we are really talking about issues and risks that arise as the business expands, issues and risks that, maybe with a well thought through people plan, could have been mitigated.  People can and often do make the difference between success and failure. So why wouldn’t we plan people to the same degree as we plan our product or our finances?

Let’s create an example.  Let’s look at a common growth story for a fast growth Tech company.  We’ll call this particular company ‘Awesome.io’.  Awesome.io have developed a highly innovative platform that responds to the needs of multiple industries.  The product stands out against all the competition.  Because of this, investors are attracted, and money starts to flood in.  Fantastic! Awesome.io are going places!!

Awesome.io’s CEO and founder (we’ll call him Jeff) has managed to secure the services of 4 brilliant engineers who have helped to develop the product to a stage where it can be put to market.  This happens.  The brand is great (who wouldn’t like a company called Awesome.io?!) and the marketing plan quickly delivers results.  Jeff has now secured 2 major contacts with national companies and revenue starts to flood in.  Awesome.io is now officially a fast past scale up company.

They need to grow from 5 to 50 people in 12 months to ensure they can deliver on their contracts, and manage new business coming in … and manage the maintenance of the existing product … and think about innovations to their product.  Oh, and they need to keep up the R&D to ensure no competitor suddenly enters the market and disrupts their growth plans.  And now that the money is coming in, and new people for that matter, Jeff needs to think about his support services – how he manages his finances (he can no longer do it all himself on QBO!), how he covers the legalities that are an increasing presence, how he ensures he can get the most from his people and that they’re happy, how he satisfies the demands of his investors.

Jeff is now started to feel isolated and overstretched.  He’s leading the business.  He’s doing the day to day.  He’s doing the BD.  He’s doing the innovation.  He’s making the decisions.  But he doesn’t feel there’s anyone on his wavelength he can trust to offload on and share responsibility with.  He realises he needs support and advice.  And he’s realised that he needs to consider bringing some form of management structure in to his business to lead the growing number of employees he has.  But who, what and how?

There’s more … let’s not forget that he needs to attract and recruit 45 employees in the first place (and he doesn’t want to hand over 15-35% commission to recruitment agencies who aren’t necessarily incentivised to deliver long term solutions for him).  He also needs to look after his new additions, so they want to stay with him long term rather than take up that next attractive offer in a year that pays an extra £15k and is based in a nicer location.  And, finally, he can’t neglect the fact that productivity per person is crucial in Tech given how fast paced things are and how quickly things advance, so he needs to ensure that his people are always developing and raising the bar.

Wow!  That’s a great deal to think about.  But all of those activities are what drive the positive cycle of growth.  Not one of them is dispensable.  So, very quickly, the growth of Awesome.io becomes a very painful and exhausting process.  This in itself could lead to the burnout of Jeff and, as a consequence, the very real possibility that Awesome.io’s brand and credibility start to be damaged as customers receive below par and inconsistent service.

I’m painting a bad picture here.  But it happens.  A lot.  In fact, only 45% of Tech start ups last for 5 years or more.  22% of them fail within the first 2 years.   That’s somewhere close to 6,000 businesses gone.  6,000 dreams broken.  6,000 great ideas/concepts not delivered.

When we look at why some Tech companies stagnate or even fail, it’s often not the product or service that was the issue.  Neither is it the ability to raise cash – there are always people out there willing to invest in a great concept where there is a proven demand.  And with a great product/service comes custom, so sales potential is often not the issue either.  It ultimately comes down to people.  Not having enough skilled people at the right time to fulfil the potential of the business or product.  Not being able to attract and retain great people.  Losing the culture that held the business together in the start-up phases because the founders can no longer spend sufficient time with their people, and they don’t have the calibre of leaders required to hold the culture together.  Not being able to invest sufficient time in innovation and personal development, leading to risks that the product or offer starts to fall behind the competition. Losing key people because they’ve been offered a great new role with more money and loads of benefits elsewhere.  Or losing key people because one too may promises were broken because the founders were too busy or distracted to follow through on their commitments (such as share options, career progression, pay rises, diversity of role, etc.), or maybe didn’t know how.

Ultimately, if you study why a business stagnates, and you ask yourself ‘why’ 5 times to get to the true root cause of why it’s stagnating, you will more often than not find that the root cause is something to do with people.

Therefore, to manage the growing pains more effectively, it’s essential to think about people at all stages and in advance.  What will you need from them?  How will you need people to operate and to communicate and to progress?  Why are you doing what you’re doing and how do you ensure everyone truly feels part of the mission and can play their part?  Why would they want to work for you?  Why will they stay with you?  What are the remedies to your own growing pains and how and when should you administer them?

That’s the thing about growing pains in Tech.  They will happen whether you think they will or not, and you’re better to try to prevent them through effective people planning, rather than try to cure them when they do happen.  Because sometimes when symptoms appear, it’s already too late ….

Martin Shelford, CSO/Director @MangoHR