The European ScaleUp Monitor 2021 brought to light that the external funding for Europe’s young-fast growing companies severely dried up when COVID hit European shores in 2020, limiting the potential for successful scaling. Dr. Guus Kok (Capgemini Invent) shares with us his PhD-research insights on the strengths of self-supporting business models that make scaleups shine despite the rain.

The entrance of COVID-19 on European soil has significantly impacted European organizations. Some have seen a steep increase in demand, while others have seen demand stop almost instantly. This has led to radical, but at the moment necessary, decisions that are limiting growth, such as hiring stops, and increased difficulties in obtaining the funding needed to grow. Especially young European scaleups have suffered from a strong decrease in investment opportunities, highlighting the importance to build scalable characteristics in their business model. 

From our research, we know that successful persistent high-growth firms (HGFs) build scalable business models that are characterized by the ability to maintain integrated control, allowing the executive board to make the decisions deemed necessary for high-growth.1 A key element to achieve this is building a self-supporting business model, i.e., a business model that can finance its own growth by having a profitable financial model from the very beginning, this has become even more important in the light of recent events. 

Being self-supportive is an important characteristic as it allows a firm to finance its own growth and therefore grow without selling a majority stake to external investors. This allows founders of young scaleups to keep a majority stake themselves, giving them the power to make decisions focused on long-term success without investors pushing for short-term profits. Our findings indicate that this was an important characteristic as it allowed them to make scalable investment decisions, even if it was beneficial from a short-term financial point of view. 

It is important to note that self-supporting does not mean that a scaleup needs to be profitable, it means that the financial model allows the firm to reinvest and finance its own growth. Reinvesting in order to stimulate growth is another important characteristic of the successful persistent HGFs we studied.2

Although external funding can really help stimulate and support high-growth spurts for organizations, building self-supporting business models enables firms to focus on long-term success and persistency rather than short-term profits. Indeed, scaling up requires more than only self-supporting business models*, but recent events have further stressed the importance of the ability to support your own growth with the aim of achieving and sustaining high growth over time, especially in times of uncertainty.  

Dr. Guus Kok (Capgemini Invent) 

PhD in Innovation Management & Growth Strategy 

University of Valencia | Rotterdam School of Management 

References:

1, 2. Kok, G.J.M. 2020. Managing High Growth and Innovation: The role of Business Models and Dynamic Capabilities.