French Startups to EU’s Scaleups: The global playbook for the next generation of Entrepreneurs preparing for the long road

mars 8, 2021

Part I: Vision, Culture & Leadership

by Pascal Laik and Denis Barrier

About the Authors: Pascal Laik is a seasoned technology executive with a 26-year track record of building high-performace teams and explosive international growth for rising scaleups to tech titans such as Oracle. Denis Barrier is the co-founder & CEO of global venture capital Cathay Innovation and was an investor and board member in one of Laik’s companies.

Over the last five years, the French ecosystem has emerged as a rising startup powerhouse in Europe, alongside the UK and Germany. With active government support through Bpifrance, the amount of venture capital funding raised by French startups has been growing steadily — from around €1B in 2014 to €4.7B in 2020. However, France has notoriously struggled to produce meaningful startup exits — both through IPOs or acquisitions.

According to Avolta Partners, the French Tech ecosystem produced 493 exits for €23.7B+ between 2017 to 2019. Yet, a mere 12.5% exceeded €150M and only six were above €1B — most of which from companies over two decades old. For French VC-backed companies founded less than 20 years ago, there has been just 28 exits over €100M over the past 10 years (Pitchbook) — the largest being Teads’ 2017 sale to Altice (€285M), followed by Drivy (a Cathay investment) acquired by Getaround (€268M) and Peopledoc by Ultimate Software (€260M). Compare this to some of Europe’s largest exits from 2018 (e.g., Spotify €50B or Adyen €60B), or rising private companies (e.g., UIpath now valued at $35B).

With all things digital continuing to eat the world, we’re seeing some improvement — take Paris-based Mirakl’s recent $300M round at a $1.5B valuation as one example. But the truth of the matter is that the scale of French startups remains at a factor of 10 (or even 100) below those in the US or China. This is not a reflection of the quality of French startups — we are strong believers in the potential of France as a startup nation, with a large pool of quality engineers, pro-digital government policies and the rise of a new generation of highly driven and visionary entrepreneurs aspiring to make a big impact. Rather, it’s a question of how to to keep a focused and persistent mindset on the big picture, while leveraging the right ecosystems with all the known technicalities.

In this series, we’d like to share learnings from our experience in helping startups everywhere scale and lead — both on the local and global stage. Today, we’ll cover the first steps from creating a meaningful vision, to building a culture that lasts and a balanced leadership. In our next post, we’ll dig deeper into topics such as customer retention, how to build a differentiated product roadmap and industrializing marketing and sales for predictable revenues.

By examining innovation hubs — not just from Silicon Valley but from around the globe, our hope is to share the key patterns of success that will help the new generation of entrepreneurs in France and beyond prepare for the long road.

Starting a Startup has Become Easier — Scaling & Running a Startup is Increasingly Difficult

The cost of starting a startup has reduced dramatically over the last 10 years. Fund availability, know-how captured in hundreds of books as well as extraordinary technical and business tools such as AWS, Cloud Services, Google AdWords, Apple’s App Store, LinkedIn, among many others, have transformed what used to be a capital intensive, highly challenging step into a more accessible starting milestone. Also, new companies can now use a full set of SAS software solutions to pilot all aspects of the company and get reach far beyond what even a sizeable company could have expected only a few years ago.

What becomes harder, is the competition startups face as they grow and finding levers of true replicability. In other words, how do you transform a company with a good product, a solid team, secure funding, decent product market fit and early adopters into an industrialized growth engine? In numbers, this pragmatically means moving from $1–2M to $10M Annual Recurring Revenue (ARR) and growing to hundreds of million ARR.

As Ben Horowitz articulates well in “The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers,” a lot of people talk about how great it is to start a business, but fewer are brutally honest about how hard it is to scale and run one. The true story is that in 99% of cases, even for hugely succesful startups with a seemingly perfect growth trajectory, there’s still a full stream of problems, misses, and suboptimal outcomes until the planets finally align — and even then, things are very far from being perfect.

So, what are the most important factors to successfully scale and run a startup?

There’s no one size fits all to scaling — a matter that’s increasingly more complicated for European companies navigating the diverse needs, cultures and governments throughout the region. But as well-known entrepreneur Caterina Fake says: “Working on the right problems is more important than working hard.”

A Clear Vision: How Are You “Making Stuff People Want”?

It all starts with the vision. While it’s one thing to have good ideas — clearly expressing and articulating a vision that appeals, motivates and inspires, is a completely different matter.

According to Gallup’s recent “State of the American Workplace report”, only 22% of employees believe that their company’s leaders have a clear vision. To paraphrase Y Combinator’s Paul Graham, it’s fundamental to be able to articulate an offering that solves a real problem owned by a clearly identified persona who has budget and urgency, and is unique and successful.

Today, it’s natural to be impressed by great companies such as Airbnb, Netflix, Amazon, and so on. What is even more interesting is looking at the decisions these companies made in their early years to set their trajectory. From Facebook’s “Give everyone the power to share anything with anyone” to Google’s “Organize the world’s information,” the best companies have a clear vision in mind from the start.

In the same train of thought, the best scale-ups deeply understand and adopt the language customers use when describing their needs and their search for a solution. This is what James Currier describes as the “language to market” fit that clearly helps posistion the business with a qualified market view as opposed to a self-centered product perspective.

Cultures that Last: Passionate, Inclusive, Accountable, Customer-Cenric, Creative & Teamwork Oriented

According to Gallup, having a culture that attracts high-talent — including selecting high-talent managers — can lead to 33% higher revenue. However, “The Greatness Gap: The State of Employee Disengagement” report reveals that there is a large number of employees who are unhappy at work, disenchanted with the company’s mission and demotivated by lack of positive feedback from superiors.

Having a sense of purpose ignites employees’ intrinsic motivation. But for workers today, the report indicates that the bigger picture isn’t resonating. In fact, around 60% don’t know their company’s mission or vision and of those that do, 57% don’t find it motivating. This becomes problematic with 47% of active job seekers citing company culture as the driving reason for looking for alternative work.

The most successful scalups live the “culture eats strategy for breakfast” mantra. They learned how culture can be an incredible competitive advantage. They know that the time is now to solidify the feeling of belonging among their employees by defining the company’s identity and core values. This will be key in identifying who will be recruited, retained, promoted, celebrated or on the opposite side, who may not be the best fit.

Successful companies know how to switch from celebrating individual contributors to those who work hard to make other’s successful. These people should be the new heroes. Teamwork is not an option and basing success on individual performance or achievements can de-motivate, breed internal competition and resentment. These companies also understand that good performers aren’t automatically the best candidates for promotion as management is a very different job requiring specific skill sets. They also know how to maintain a feeling of urgency in their teams as they grow and industrialize.

The Balancing Act: Leadership, Governance & Finance

Successful scale-ups know how to implement more structured operations from a governance, systems and decision authority standpoint. KPIs are defined quarterly and progress results reported weekly in a well defined reporting and meeting cadence. They necessarily align variable commissions on achievement of respective groups’ KPIs and SLAs both internally and externally. They are data driven in any decision they make and implement a culture where analyses are documented and backed up with reliable sets of business data.

From a finance standpoint they implement clear budget-based spend tracking. They hand accountability to directors on respective budgets. With KPIs aligned with comp and budget ownership, the best decisions are taken to ensure that each division optimizes spend to achieve goals. Some may believe that nothing should get in the way of growth, but the best scaleups find the right balance between cost control and scale acceleration.

While the above may seem like a recipe, the passion, motivation, inspirational ability and leadership skills of the founder as well as the spirit of the management team — which should act as one cohesive group — is paramount as it will cascade down to the entire organization.

Parting Thoughts: Dream On, Think Big Picture & Plan for the Long Road

The ultimate key to success of a startup lies within the heart of the company and the founder — those who are dedicated to a purpose, a meaningful mission and seeing their vision come to life without concession.

Scaling a startup is no easy feat and the day to day will often feel like an uphill battle. Our hope is that we can help founders by sharing knowledge, trusted methods and practical experiences across borders. Our genuine goal is to help the new generation of entrepreneurs to dream and embark on the startup journey well prepared with the big picture, and the long hard road — with no shortcuts — in mind.

To see the article, please follow this link: https://medium.com/cathay-innovation/french-startups-to-eus-scaleups-the-global-playbook-for-the-next-generation-of-entrepreneurs-73721d97a716