Growth at all costs. Not so fast! There are alternative playbooks 

Growth at all costs and ‘go big or go home’ were often heard in Silicon Valley over the past two decades where the deep pockets of venture capital firms encouraged fast growth above all else. As a result, ‘up and to the right’ is the way scale-ups like to portray themselves on charts. From my work taking early and mid-career professionals to the startup hotbed, it appears that this is still how entrepreneurship is seen from inside the Bay Area bubble.

According to consultancy Mind The Bridge, Silicon Valley hosts 7,894 scale-ups. These are startups that have started to gain market traction and notched up significant growth over the past three years. Though many outside are now questioning this mantra, when I see companies improving the world, or at least improving how we do business, I’m thankful they are scaling so fast. A case in point is Moderna, which developed a COVID-19 vaccine in under a year; thank goodness they were able to do what they did! And let’s hope that fellow biotechs Biogen and Eisai can do the same for Alzheimer’s Disease.

Less sexy, and certainly less known to the public, are two scale-ups that I had the privilege of meeting with recently: Odoo, a software provider, and Flexport, a global logistics technology platform. One needed 13 years to discover the right business model but has grown 55% year-on-year now for the past ten years. The other has grown to $3.3 billion in revenue over 10 years.Just as there is not a single way for a startup to survive, there are different playbooks for scale-ups.The underlying characteristics of the founders are probably fairly similar, as I wrote about in a previous article, but how they go about it can be drastically different.

We could look at dozens of different scale-up stories, but I chose these because they’re less in the public eye, and also because they’re so different from each other. B2C scale-ups like Airbnb and Uber get the headlines, but the behind-the-scenes-soon-to-be-very-large stories may have a bigger impact on our lives and the economy.

Slowing global economic growth, rising interest rates, an energy crisis in Europe, and fears about tensions between the US and China are prompting tech companies – many of whom rapidly expanded their headcounts during the pandemic – to retrench. As of mid-October 2022, more than 44,000 US tech workers have been laid off, according to a Crunchbase News tally. Tesla is cutting roughly 10% of its salaried staff, while tech giants Apple, Meta, and Amazon have announced plans to slow hiring. As investors grow more cautious and rein in their largesse, many startup founders are finding that funding is drying up, impacting their scaling plans.

Odoo and Flexport, however, appear unscathed by the global economic turbulence for the time being. At the time of writing, Odoo has 536 job openings all over the world and Flexport is advertising 286 new positions. Retrenching they are not. So how did they get to this position?

Playbook #1: Go after the small fish

Odoo, founded by Belgian entrepreneur Fabien Pinckaers, is an open-source suite of business management software apps including CRM, e-commerce, billing, accounting, manufacturing, warehouse, project management, and inventory management. Founded in 2005, they’ve grown to 2,400 employees, seven million users and 36,000 apps (third-party apps, built by the community, even individuals), making them the world’s largest business app store.

They have a major presence in Silicon Valley, but unlike the vast majority of their neighbors they have grown organically, having raised the piddling sum of $14 million in their early days, then suddenly another €180 million in 2021. As of June 2022 they were valued at €3.2 billion. Compare that to payments processing startup Stripe, which raised $2.2 billion from 39 investors, and is valued at $95 billion, or the $400 million raked in by visual collaboration platform Miro at a $17 billion valuation in January this year.That’s compared to just $14 million raised in the first years by Odoo, a choice that many venture capitalists would like to have challenged. The founder purposely chose to take this route, in effect growing his company with sales revenue, while keeping as much equity as possible for himself and his team (who still control 65% of the shares).

Odoo certainly benefitted from the fact they were born after the birth of the internet, an advantage that competitors like SAP (founded in 1972) and Oracle (1977) did not have. Starting as a digital native is, in effect, like working with a blank sheet of paper. Since they didn’t carry the technology debt that their competitors had, Odoo was able to design the product that their customers needed and wanted. Odoo also deliberately chose to develop its software in-house rather than acquire, avoiding the need to patch together different systems and technologies.

Another advantage is that they have always targeted small-to-medium sized businesses.The advantage isn’t just that the big players typically ignore these companies.The real advantage comes from the necessity for Odoo to be nimble and understand the needs of these smaller players. Targeting large customers might have caused them to acquire the ponderous habits of these players. As Fabrice Henrion, Odoo’s director for the Americas and employee #19, told me, “If you start by selling to big companies, you take on the characteristics of big companies. Slow, cumbersome, bureaucratic, stratified… and then it becomes very hard for you to sell to smaller companies that require speed from their vendors and products. Having started off selling to SMEs, we remain nimble and humble. Our employees have the autonomy necessary to fulfill client needs.”

Many of the startups and scale-ups that approach me for advice make two automatic assumptions: first, chase after name-brand customers immediately, and second, get venture capital as quickly as possible, and as much of it as possible. Yes, certainly well-known names will create confidence for future customers, but at what cost to the startup? The long tail of small and medium-sized clients ignored by SAP or unable to afford Oracle may be a better path. And, picking up on classic disruptive innovation theory from American academic Clay Christensen, coming from the bottom with minimum features (Odoo founder Pinckaers first called his company TinyERP), and creating a product for customers whose businesses seriously depend on you, may create a more committed client base.

Playbook #2: Raise a ton of money, early

Flexport, founded in 2013 by Ryan Petersen to automate paper customs forms, focuses on freight forwarding and customs brokerage. Peterson initially followed the more traditional, aggressive growth strategy. In 2015 he reported that Flexport had increased revenue by 25% every month in the 30 months since its founding. The company also raked in funds from big name investors, raising $2.3 billion in total – including $1 billion from Japan’s SoftBank in 2019.

We sometimes say that timing is everything, and certainly Flexport has had its share of luck, as logistics has become a competitive advantage for companies who have flocked to its one-stop software that gives customers greater visibility over their shipments. Also, like Odoo, they are internet natives and didn’t have any technology debt to repay. This, and a few other things (like container prices exploding!), have helped them increase revenues from $2 million in their first year to $3.3 billion in 2021 (with a profit!), with a forecast of $5 billion in 2022.

Going beyond luck, and the ability to raise a lot of money, Petersen’s careful choice of Flexport’s earliest employees fueled their scaling. I still remember meeting Ben Braverman several years ago and knowing immediately that this was one of the most brilliant salesmen I’d ever met; at the same time realizing that the freight-forwarding business required oversight, Petersen hired a head of compliance. Both hires took place ahead of building the tech team, highlighting how the company prioritized doing things right over rough and ready growth that needed to be retroactively fixed.

The company fixed a specific need in the market, finding product-market fit almost immediately. Competitors such as UPS Supply Chain Solutions are working hard to catch up, but it has the baggage of more than 100 years of success. Another competitor, XPO Logistics, with 2021 revenues of almost $13 billion, has grown principally through acquisitions.

Flexport, meanwhile, has continued to learn. Perhaps realizing that the capital markets had changed, and therefore Flexport’s growth game had to change, in June 2022 Petersen announced that the new CEO of Flexport would be Dave Clark. Clark spent 23 years at Amazon, experiencing its growth from internet bookseller to retail behemoth, and was responsible for building Amazon’s logistics business. In parallel, Darcie Henry joined from Amazon, where she’d worked closely with Clark to massively expand the workforce. What we may be seeing is the classic, and necessary, transition from the Wild West fast-growth of the founder to the more careful growth of experienced professionals.

Playing the scale-up game in different ways

With market conditions shifting and easy money drying up, investors are now more focused on profitability. Many startups could take a leaf out of the playbooks of Odoo and Flexport, which decided to play the scale-up game in different ways.

Odoo gained its advantage by nimbly helping small businesses compete more effectively against their giant competitors, taking the necessary time to find product-market fit, and avoiding huge infusions of capital until they’d created a valuable company (and could thus retain control).

Flexport reduced friction in the global supply chain, making them indispensable for many customers, and brought the freight-forwarding industry into modern times, giving their customers more data than they’d ever had about their shipments. This required raising a lot of money early, and so far they have 124 investors.

These two companies played the scale-up game in different ways. The Silicon Valley model has worked well, but don’t assume that you and your venture must follow the same path.