What business practices help startups grow their revenue? Nicole Coviello, a professor of marketing and entrepreneurship at the Lazaridis Institute at Wilfrid Laurier University aimed to answer the question in a new study.
The short answer, if the company is less than six years old, is marketing as well as research and development. According to the report:
All the higher growth firms, regardless of age, tend to spend more on R&D as a percentage of revenue. But… for younger firms, even though the proportionate expenditure on R&D is high for those with exceptional growth (61.8%), R&D spend has no significant correlation with an increase in revenue. Only spending more on sales and marketing seem to make a difference.
When companies get over that six-year hump, they have to change their focus and instead look at their management practices and employee reward programs.
“It’s no secret that Canadian innovators are good at launching start-ups, but they don’t always perform as globally competitive technology companies,” said Coviello. “These initial findings suggest that focusing on certain business practices and capabilities can help. We want to explore these findings over time so that Canadian firms are better equipped to drive long-term, sustainable growth.”
The full release:
WATERLOO – Many Ontario tech firms grow well but why do some enjoy exceptional revenue growth? According to a new report, Business (Practice) Makes Perfect – How Successful Technology Companies in Ontario Grow, only six specific business practices contribute to a key output: growth in sales revenue.
Their impact, however, is experienced differently depending on the age of the company.
For instance, investing in sales activities and marketing efforts influences the success of younger firms (not more than six years old). Older firms (at least six years old) would be wise to spend money on research and development, focus attention on certain management structures and style, consider how they reward employees and strengthen their ability to scale.
To assess and compare revenue growth, the researchers targeted Ontario technology firms referred to as “scale-ups” — those already growing with a viable business model. Participating companies each completed an online survey answering questions about 24 business practices, covering everything from “entrepreneurial culture” to “access to funding.”
“The results suggest that younger and older scale-ups should concentrate on different business practices if they want to meet their revenue targets quickly,” said Nicole Coviello, Betty and Peter Sims Professor of Entrepreneurship and Professor of Marketing at the Lazaridis School of Business & Economics at Wilfrid Laurier University. “It’s not always about scaling – that’s important but it’s just a piece of the puzzle.”
It’s expected that this initial study of Ontario technology firms will act as a baseline for an annual research program conducted by the Lazaridis Institute for the Management of Technology Enterprises. The Lazaridis Institute, located within the Lazaridis School of Business & Economics, has a mandate to help Canadian technology companies grow to become globally competitive.