By Kara Sprague for Mckinsey Insights
When big corporations are plotting growth strategies, their ambitions are often limited to growth rates in, say, the high single digits. For up-and-coming technology companies, that’s a recipe for irrelevance—or worse. Only a very small percentage of tech start-ups manage to grow fast enough for long enough to become industry heavyweights. Of ~3,200 start-ups tracked in a recent McKinsey study, just 0.6 percent managed to hit $4 billion in annual sales.
“If you’re an early-stage tech company, and you’re not growing fast enough, you’re going to die a slow death. Oftentimes we see companies start to plateau—they stick around for a while hoping to regain their growth. But, in reality, very few do,” observes Kara Sprague, a San Francisco–based principal and member of our Growth Tech Practice.
Kara studied computer science and electrical engineering at MIT and started her career as a software engineer. Today she helps small to midsize tech companies bring fact-based problem solving to their aggressive pursuit of growth. Clients are often entrepreneurs, running businesses employing 50 to 500 people, with revenues of $20 million to $200 million. Typically, they have developed and launched a successful product and are shifting their focus to achieving rapid scale.
“We help them with the same growing pains our larger clients face: how to price products, how to improve sales effectiveness, how to operate more effectively,” explains Peter Weed, a principal in our Boston office. He founded the Growth Tech Practice withEric Kutcher, a Silicon Valley-based director, with the specific aim of helping next-generation technology giants realize their potential.
We’ve had to innovate our consulting model to meet the needs of these clients. Consulting projects typically run from 4 to 6 weeks instead of 3 months or longer. Project teams are smaller. The working style is decidedly different, too. “If you present a clear argument that’s backed up by data, CEOs can make a decision with little or no approval process. Within 5 minutes, it’s shared with the whole company,” says Adam Taylor, an associate principal in our Silicon Valley office who trained as a computer scientist and worked as an engineer in the video-game industry prior to joining McKinsey.
While the Growth Tech Practice started in the United States, the model is being rolled out globally, including in India, Malaysia, and Scandinavia. As Eric Kutcher observes: “The next Google is as likely to be located in Brasilia, Shenzhen, or Tel Aviv as in California.”
Sahana Sarma, another MIT-trained computer scientist turned McKinsey principal, is helping to build the practice in India, which has a thriving ecosystem of early-stage tech companies. “We are helping them navigate the complexities of operating in India as well as understand how they stack up internationally,” she says.
Regardless of geography, pricing is often top of mind for Growth Tech clients because their products and services are first of a kind. As Adam recalls, “We helped one mobile-app company re-bundle its service to play in a higher-value segment. It was able to raise its price by 30 percent—because we could quickly build the fact base needed to test pricing.”
Another Growth Tech client had some 40 strategic investments on the table—an embarrassment of riches that had become paralyzing. The McKinsey team facilitated a decision-making process to help the management team pare this down to a smaller set of initiatives and develop a clear story. With a well-articulated 3-year strategy, the company could raise the capital it needed to grow at a more attractive valuation.
What do McKinsey’s multibillion-dollar tech clients make of our work with these (relative) minnows? Says Eric, “They want to know what the ‘ankle biters’ are doing. We can help them understand the trends, the new models, where the next big disruption may be coming from. In some cases, we can make helpful introductions.”
First appeared at Mckinsey Blog