Start-up companies grow more quickly today and need to be prepared for sustainable growth
03/05/19
This week, PwC hosted the kick-off for the Nordic Energy Accelerator program for six Energy start-up companies in the Energy Experience Center at PwC Stavanger.
Managing sustainable growth and pressure on fast returns from investors
Start-ups are expanding globally at an increasingly early stage. Establishing a business is challenging, and it requires a detailed knowledge of what your business will offer. New and innovative business ideas are craving validation, new customers, and valuable resources. Many of the fledgling companies that are experiencing rapid growth are on their way to venture backed funding, or going public, or becoming the technology giants they were designed to be, but they are also experiencing classic growing pains in the areas of audit, tax and internal controls that accompany this growth.
At the same time, investors are pressuring organisations for fast returns. Start-ups are constantly under pressure to demonstrate success in achieving milestones set by the investors and the Board. In the early stages, these milestones are tied to key performance metrics such as users or customers, bookings, revenue, and ultimately by measures of profitability or positive cash flows.
Preparing organisations for sustainable growth
Torbjørn Støle from PwC Deals provided the Energy start-ups with current M&A insights from the industry, included transaction overview, typical buyers at different stages, whilst pointing out the possible financing sources for trail blazing start-ups. The discussions showed how most of the start-ups experience a gap between the financing stages of angel and venture investment. As a result, this causes challenges due to the investors willingness to provide capital to risk by commercializing high cost technology developments. At the same time, they are normally also reluctant to share the pie, but consider this; it is better to own some of something valuable, rather than all of nothing.
Understanding your business model
Today, we recognise and understand the challenges companies face when articulating their business model. Organisations increasingly need to paint a broader picture of the business, reflect interactions with a wider set of stakeholders and, in our rapidly changing world, present a more dynamic picture of the business.
To respond to these challenges and articulate the companies business model, PwC helped the Energy start-ups understand and develop their business model through a workshop setting. By making use of the business model canvas (BMC), organisations can more easily understand their business idea by breaking the business model down to their essentials elements. The canvas can act as a filter and basis prior to starting on an extensive business plan. The aim of the workshop was to challenge these companies current business model and the flexibility of these elements. It’s important to understand how the BMC exercise is an iterative process which requires test and change according to external shifts. The Energy Experience Center provided the start-ups with an innovative environment which also helped build insightful discussions during the workshop.
In today's rapidly changing environment organisations need to evolve at a fast pace and this requires them to change their business models accordingly. What we experience, is how most start-ups often hold the entrepreneurial passion, skill-, mind- and tool-set to facilitate their ambitious growth however, that they lack the appropriate ecosystem to help them accelerate and realize their strategy and goals. The workshops showed how many start-ups maintain a strong focus on technology however forget the importance of building a strong value proposition. It is essential to know what your product or service will mean to the end user and how it differentiates you from your competitors. This in turn, affected their ability to describe the customer benefits and why the customers\ should replace their current suppliers.
“It was a truly enlightening experience to attend the program at PwC’s Energy Experience Center. The facilities provided an interactive environment which made learning much easier and more effective. We were fortunate to be the example case for the business canvas model which was chaired by Thomas Arntsen of PwC. To perform the exercise with experienced personnel from other industries with a totally different perspective really challenged our thinking around our business model and has led us to come up with an improved business model”
Explain how value is created and who benefits, and identify what makes the entity distinct
Identify the key resources and relationships that are necessary for the success of the business
Consider and explain how the business model links to other key elements of strategic reporting
Demonstrate the resilience of the business model and its ability to create long-term and sustainable value
These building blocks should be underpinned by the following key points:
- Keep business models specific, focusing on what makes you distinctive.
- Provide an understandable overview of what the business does, how it is structured, and the market in which it operates.
- Identify the key resources and relationships that are necessary for the success of the business.
- Explain how value is created and which of the key stakeholders benefit.
- Don’t be afraid to change the business model to reflect the dynamics of the business and an evolving business environment.
- Consider and explain how the business model links to strategic objectives, the risk to the success of the business model, how the performance of the business model will be measured, and how that will be reflected in the annual report.
