Scale-up investments stifled by lack of marketing skills

The UK skills crisis might have hit forecourts, care homes, supermarket shelves and even McDonald’s milkshakes but it seems marketing has now been added to the “at-risk” list, with the dearth of talent being a major factor in preventing start-ups from securing the business investment they need to scale up.

That is according to a new study by ScaleUp Capital, which, as the name suggests, specialises in scale-up investments. It reveals that a lack of talent, overvaluation and slow growth rate are key hurdles to securing financial support in 2021 – meaning nearly three-quarters of companies approached by financial advisors eventually fail to obtain investment and support.

Out of the businesses that did not manage to secure capital in 2021, skills gaps were noted as being a key factor in the failure of these transactions. Nearly one in five (17%) of unsuccessful conversations cited the quality of the management team as a leading factor, and more than three in five (63%) saw a major skills gap in the sales and marketing teams which led to a decision not to invest.

Other reasons behind a lack of investment include the overvaluation of businesses – a major factor for over a third and a contributing factor for over half of unsuccessful transactions – as well as the excessively slow growth rate of businesses – a major factor for 45% of unsuccessful transactions.

According to ScaleUp Capital’s research, these skills gaps arise because founders are often subject matter experts, but the majority have never scaled a business before and therefore lack an understanding of what is needed to successfully grow a business beyond the start-up phase.

In the UK, this is a significant problem – while the country ranks third in the world for start-ups, it is only 13th in the world for scale-ups. Without the correct support, numerous viable small businesses are struggling to make it through the scale-up phase and the UK is missing out on jobs, innovation, and growth as a result.

ScaleUp Capital chief executive Simon Philips commented: “Research by Crunchbase shows that 83% of founders are starting up a business for the first time. They do not have the experience, method, and skills they need to build their businesses and enter the scale-up realm.”

He insists that businesses need to shift from the founder pulling all the levers to being run by a well-rounded management team that can bring the expertise and knowledge needed to successfully scale.

Philips added: “The most acute skills gap lies in sales and marketing. It is one thing for a founder or CEO to drive sales through passion, but it is quite another thing for an experienced sales team to drive scale. We are failing the next generation of tech unicorns if the critical skills gap is left unaddressed.

“More needs to be done from a reskilling and upskilling perspective of a business, as well as a visa and tech support perspective of the Government. Now more than ever, supporting small businesses will be critical as the country looks to boost growth and productivity post-pandemic.”

One start-up which “saw the light” on skills was Digital Theatre, which provides digital platforms for the arts. Founded in 2009, the company produces and licenses high-definition films of stage productions that can be streamed on demand for both consumer and educational purposes.

CEO Neelay Patel explained: “ScaleUp Capital approached us at a challenging time after significant venture capital funds had already been exhausted trying to build out a B2C Netflix-for-theatre.

“The business had no growth, as our marketing and sales function was not reaching the quotas we had projected. The business pivoted to a new direction, with the focus of the turnaround being to build a new B2B sales and marketing team equipped with the skills needed for a successful transition.

“The results have been impressive, with our average annual growth rate increasing dramatically to about 50%.”

IBIS Capital partner Jamie Ritchie commented: “A portion of start-up and scale-up companies just don’t get the resources they need to grow. Functions like sales and marketing are critical to scaling. As a result, many companies with great potential are overlooked and fail to obtain the capital they need to grow quickly and effectively.

“We often see smaller businesses struggle with their ambitious growth plans because they fail to professionalise and develop their sales and marketing capabilities. It is critical that companies with great potential find genuine value-add investment partners who can provide funding as well as offer hands-on support to successfully scale up.”