Paige Penze & Scott Olmsted
Bank of America
Special to Business Journal
Myriad factors go into running a successful startup, but when you break things down to their foundational elements, managing one requires fast, smart decision-making.
There are new choices to be made every day — some big, some small, some of minimum consequence and some with major ramifications. Some decisions, however, prove more critical as startups move through the various stages of growth. These key moments, or “inflection points,” can have a profound impact on the trajectory of a company’s long-term success.
In a late-stage tech startup’s early days, for example, taking a boots-on-the-ground approach to building the business may have helped the founder gain critical insights. In the later stages, though, the company has usually found its footing and already has a product in the market. A bigger focus on growth — rather than product development — is key.
With that foundation established, three inflection points for late-stage startups to consider include embracing new growth opportunities, going global and preparing for the public markets.
Embracing New Growth Opportunities
A late-stage tech startup may be challenged to adopt a growth culture. The company will need to think bigger and invest in business systems and processes that are critical to the next growth phase, which often means sharing decision-making powers.
This stage is also significant because it can be unforgiving of companies that wait too long to make that shift. One of the smartest things a company can do at this stage is evaluate its financial, consulting and systems partners. For example, if a company were to generate over $100 million in revenue, it shouldn’t be using accounting software designed for small businesses.
However, it’s not unheard of. Transitioning to enterprise systems is still possible at a later stage, but it takes more effort and capital to upgrade operations infrastructure when a company has 3,000 employees versus 100. In the hypercompetitive tech space, delaying could be the difference between being the acquirer and being the acquired.
Going Global
Some startups are in a better position than others to go global. Still, many companies will need some sort of global footprint and must make operational adjustments when engaging in a new country. With each new region, companies must also reevaluate whether they have the right people, partners and systems in place.
One best practice for companies going global is to consolidate accounts with a single partner so that finance executives have visibility into all assets and capital. For every bank account that’s not part of an integrated platform, companies may be losing efficiencies: International expansion means working across different regulatory landscapes, currencies, cultures and languages.
Integration of accounts, regardless of geography, is key to gaining 360-degree visibility. This provides clarity for payments, receipts, liquidity, investments, the foreign exchange market, global trade and supply chain finance.
Preparing for the Public Markets
After a landmark year for initial public offerings (IPO) in 2021 and 2022’s significant slowdown, the 2023 market seems to have found the middle ground as 108 public offerings raised proceeds of $19.4 billion. The third quarter of 2023 alone contained 26 IPOs, which, combined, raised $7.7 billion — a number that equals the total proceeds raised in all of 2022 from 71 IPOs. Market forecasts predict an increase in IPO activity in 2024 as a backlog of IPO-ready companies take that final step onto the public stage. However, debuting in an uncertain market means companies must adjust their valuation expectations and prove profitability.
As late-stage tech startups begin to test the IPO waters, they must review their financial, operational and supply chain infrastructure. Doing so will help determine whether they can support that next level of growth and scale. Leadership teams should ensure their companies have the right foundation and the best advisors to help achieve a successful market debut.
Each late-stage tech startup has its unique life and trajectory. Understanding when your company is approaching an inflection point and preparing your team for the necessary changes are vital for continued growth. While these changes may require changes to people, processes and systems, the outcomes help position the company for a new stage of growth.
Recognizing and acting upon this trio of inflection points — embracing new growth opportunities, going global and preparing for public markets — are universal crossroads that, when properly considered and addressed, can give organizations the best possible chances of success.
These inflection points are universal crossroads that, when properly considered and addressed, can give organizations the best possible chances of success.
Paige Penze is a senior vice president of global commercial banking with Bank of America in Salt Lake City. Scott Olmsted is a technology and green economy industry executive in global commercial banking with Bank of America.