Technology Banking
growth | 3 minute read

Scale should be the objective for tech firms

Scaling is easier said than done. Even the most scalable businesses must invest in people and infrastructure to develop, market, and support their products.

Many tech firms are well-positioned to scale: A company that builds a new platform or app may be able to accommodate thousands of new users for little more than the price of server space. “Because you can automate and standardize, technology affords itself to supporting scale,” says Kaylin Andrew Tabb, a former software engineer who is now a vice president and team leader for the Technology, Media & Telecom corporate banking group at Wells Fargo.

But scaling is easier said than done. Even the most scalable businesses must invest in people and infrastructure to develop, market and support their products. A company that doesn’t invest wisely will collapse under the strain of rapid growth.

“For many people who actually make a product, your worst nightmare is that [a customer] calls and you don’t have the capacity to meet the new demand,” says Ron Carucci, managing partner at consultancy Navalent. “It’s easy to be seduced into sprinting and then easily burn out. Great leaders who want to go the distance are very measured in how they scale.”

Get ready, get set...

Scaling requires that companies “begin to think in terms of systems and processes rather than merely asking how fast you can get from point A to point B,” says Shikhar Ghosh, a professor at Harvard Business School and founder/CEO of eight tech-based companies.

Preparing to scale can be challenging for midmarket firms because they need to sink money into infrastructure — technology, facilities, people and more — before they can realize the benefits, Ghosh adds. Scaling also requires a big shift in culture as a company can grow too large to stay under the exclusive control of the founder or founding team.

Here are a few ways to help prepare your firm for scaling:

Nail down your mission first: All scalable firms start with a management team committed to and capable of scaling, Tabb says. This team must develop a mission that describes the company’s purpose and then ensure that all new hires buy into the mission. When your staff grows to the point where you need to add a layer of administrators, “it changes the culture in a dramatic way,” Ghosh says. “If the business model is very clear, then this layer will really help you deliver. If the model is still constantly changing, that will slow things down — and your best people will want to leave.”

Standardize your processes: “Many of a company’s day-to-day activities are repeatable, from the simple to the complex,” Tabb says. Examine how standardization can help save you time and labor in areas such as sales, marketing, customer service, production, delivery and financial management, then invest in the necessary tools. Standardization doesn’t stifle creativity, Carucci says; it frees up creative energy that had been occupied with reinventing the proverbial wheel.

Don’t jeopardize your culture: Sometimes a smaller company will bring in an executive from a large company to provide guidance on how to grow successfully. Too often, though, these executives “know how to run a big organization, not how to make a small organization big,” Ghosh says. They may end up imposing policies that stifle the culture that attracted the company’s most valued talent. Be particularly careful about imposing rigid structures that change the relationship between employees and managers, Ghosh says.

Know when to hit the brakes: Tech culture doesn’t just encourage companies to move fast. Bold moves and disruptive innovation are requirements in today’s global economy. But a company can run into trouble if it grows too quickly without the right foundations in place, says Rahul Baig, a managing director with the Technology, Media & Telecom corporate banking group at Wells Fargo. The quality of the product or service may deteriorate; cash is wasted; products are launched half-baked.

The most successful companies leverage their networks and build partnerships with savvy industry veterans who can help them avoid missteps along the way, Baig says. “Experienced investors and executives are always looking for early warning signs that a company is growing too quickly,” he says. “When they see these warning signs, they can resolve issues before they become a problem.”

Produced in partnership with WSJ. Custom Studios.

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The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. Silicon Valley Top 150 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue

Disclosures

Securities Products:

Not Insured by FDIC or any Federal Government Agency

May Lose Value

Not a Deposit of or Guaranteed by a Bank or Any Bank Affiliate

© 2019 Wells Fargo Bank, N.A. All rights reserved. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC. Deposits held in non-U.S. branches are not FDIC insured.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.

© 2019 Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

© 2019 Wells Fargo Capital Finance. All rights reserved. Products and services require credit approval. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries.

Wells Fargo & Company conducts business outside the U.S. through various companies, including duly authorized and regulated subsidiaries and affiliates in Asia, Canada, and Latin America. In Europe, banking services are provided through Wells Fargo Bank International (WFBI), directly regulated by the Central Bank of Ireland, and Wells Fargo Bank, N.A. London Branch, authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. All products and services may not be available in all countries. Each situation needs to be evaluated individually and is subject to local regulatory requirements.

We provide links to external websites for convenience. Wells Fargo does not endorse and is not responsible for their content, links, privacy or securities policies.

Important notice regarding use of cookies: By continuing to use this site, you agree to our use of cookies as described in our Digital Privacy and Cookies Policy.

The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue.