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How a startup becomes a scale-up

All successful companies start as an idea, but at some point, that idea has to generate sales if the business is to succeed.

“People come up with an idea and start a business but in a lot of cases don’t have the business background to drive the company through to profits,” says Cliff Reynolds, co-director of GLIDE.

Companies that are able to make the leap from startup to scale-up find the right support along the way.

Jim Walborn of Banyan TechnologyWhen Jim Walborn and Lance Healy started a commercial construction materials distributorship in 2001, it wasn’t with the idea of becoming technology entrepreneurs. But as their young company developed processes to better manage freight logistics and connections, the pair began to see the potential for software that could help other companies do the same.

They took their idea for Banyan Technology to GLIDE, Lorain County Community College’s technology incubator, with the idea of growing it into its own business.

“When we first moved to Lorain County, we took that leap of faith from an entrepreneurial standpoint,” Walborn says. “A big reason why we moved here was because of what LCCC and GLIDE provided in terms of support for a tech startup.”

After relocating to the Great Lakes Technology Park on the LCCC campus, Banyan Technology’s staff learned important lessons that helped them bridge the gap from idea to commercialization to growth. These lessons have transformed the company into a successful freight management software and solutions provider.

Find good advisors

It’s a lesson any tech entrepreneur needs to learn early – discover people who have gone down similar roads and learn from them. Mentorship is crucial because there are so many potential pitfalls in going from a startup to a growth company.

“GLIDE exists, in part, to help take some of the learning curve out of the entrepreneurial life cycle,” Walborn says. “You learn from fellow business owners who have been where you want to go.”

By focusing on the business development process, the GLIDE team helped the company bring clarity and understanding to the business, developing a strong foundation for growth.

GLIDE’s Reynolds says that without that strong foundation and a well-defined sense of direction, a young company may not make it past the startup phase.

“Our job is to take a great idea that an entrepreneur has and give him or her the tools to fashion it into a business plan,” he says. “We take someone who might have a great idea for a product or concept, but might not have the business background, and help them connect with mentors and other relevant support.

“Initially, mentors are experienced people the founders trust,” Reynolds says. “But as you get bigger, creating a formal board of directors that meets on a regular basis and provides the management with strategic input becomes important.”

As Banyan progressed, Walborn and Healy formed a formal board of directors, whose membership has changed over time as the company scaled and its needs changed.

“When we look at a board, we are looking for those people who could help govern and guide,” Walborn says. “At the end of the day, Lance and I have a great vision of what we want to take Banyan to, but how do you complement that with other industry experts or businesspeople who are very good at what they do, from either a finance standpoint or experience in an industry? How do you make that gel together to strengthen the backbone of the company?”

Fund the business

Cliff Reynolds of GLIDEFunding is the biggest issue for any company going from startup to scale-up mode, Reynolds says.

“Because young companies carry a high risk for investors, obtaining cash requires constant effort,” he says.

It sounds like a cliché, but cash is the lifeblood of any growth company.

“You need to know what your cash needs will be as your business advances,” says Russell Donda, an Entrepreneur-in-Residence at GLIDE. “What does your cash position look like in the next month, the next quarter, the next year? Plan for any shortfalls by raising the money that you’ll need ahead of time.”

While that has to be done from the start, it can become even more of an issue as you grow, Donda says.

“As you are adding people, adding overhead, you’ve got a bigger nut to crack every month. You have to understand clearly and early where your shortfalls are and plan for those.”

Through its network, GLIDE provides access to a number of potential funding sources. For a young Banyan Technology, that meant securing a $350,000 early stage commitment from JumpStart, a Northeast Ohio nonprofit focused on accelerating the success of entrepreneurs.

“With GLIDE’s guidance, we became a JumpStart portfolio company,” Walborn says. “The two organizations accelerated our growth not just through financial investment but through the investment of knowledge that they’ve passed on as we’ve grown.”

Banyan Technology used that early money to improve its computer infrastructure and ramp up its hiring of computer programmers. As it was doing that, it was reducing its risk.

“As companies accomplish development milestones, they become less risky, and when commercial launch -- and then increased revenue -- occur, investment risk becomes even less, and more investment opportunities become available,” Reynolds says.

For Banyan Technology, that opportunity came from River SaaS Capital, a debt fund that specializes in lending to Software-as-a Service companies. It provided $2 million in nondilutive capital that not only simplifies Banyan Technology’s debt structure but fuels accelerated growth by paying for much-needed sales and marketing resources.

“Lance and I were the two sales guys,” Walborn says. “Lance and I are not the sales guys any more. We put together a sales team and we are putting together a marketing team so we can create the market awareness to help drive sales.”

Wendy Jarchow, chief investment officer of River SaaS Capital, says her firm is eager to fund scaling companies and work with them to continue their growth.

“Companies like Banyan are getting traction, they have a solid customer base, they are growing and need capital so they can focus on sales and marketing so they can scale their businesses,” Jarchow says. “River SaaS is not just a financing partner. We can bring to bear some operational experience and we can help portfolio companies with introductions to new networks.”

Hire and develop talent

As young companies begin to scale up, it becomes increasingly important to find the right talent.

“You are only as good as the people you hire, so it’s important to find qualified people,” GLIDE’s Donda says. “The companies that I’ve worked with that brought in good people have rocketed to the next stage.”

For Banyan Technology, being on LCCC’s campus gave it ready access to high-quality talent. LCCC’s student population provides Banyan Technology with a pipeline to the specialized workforce of technology developers it needs to keep its business thriving.

“We have had 17 interns through LCCC and the University Partnership, and hired seven of them as full-time employees,” Walborn says.

As the company has matured, it has evolved from a startup into a pillar of the technology park.

“We didn’t plan on taking over the third floor of an entire building, or growing from five people to a team of 42 in the same location,” he says. “But this is where we’ve found the resources to grow the company.”

Banyan made a major hiring move in October. Brian Smith, who helped grow Proforma from $40 million to $400 million and ultimately became its president and CEO, came on board as Banyan Technology’s new chief executive, a role previously held by Walborn.

“Lance and I have a vision to make a difference in our industry,” Walborn says. “We understand the industry. There is experience that Brian Smith brings to the table that we don’t have. He’s navigated the HR side. He’s navigated the finance side. He understands growth and can complement what Lance and I are doing. We just put in another pillar to strengthen the organization. That’s really what Brian brings to the table. He’s a classic hire that is better than yourself.”

Build a strong culture

A company’s culture plays a major role in attracting and retaining employees. In the midst of trying to develop and commercialize an idea, the founder of a scale-up can’t lose sight of the type of business he or she is building. It’s the founder’s idea and company, but for the people coming on board, it’s their livelihood and their reality for 40 hours or more each week.

“As a company gets bigger, the CEO can’t touch every single thing,” Reynolds says. “When you bring in a level below the CEO, and then you’ve got employees reporting to them, it changes the chemistry. Hopefully, every level you bring in takes on the culture of the CEO.”

Walborn and Healy have worked hard at keeping a strong culture as Banyan Technology scales in size.

“We have a culture where we have each other’s backs,” Walborn says. “In our space, you really need to have a work hard, play hard kind of culture, where you know how to balance work and play, and you emphasize the importance of giving back to the community. It’s about creating the type of culture that people want to be a part of.”

Walborn credits GLIDE, LCCC and other regional institutions for making it possible.

“You look around and see the investment opportunities and the high caliber of interns and graduates produced by the educational institutions throughout the area, and you realize this is a great place to develop a business,” he says. “There are so many organizations out there to help you. All you have to do is ask the right questions.”

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