1. Characteristics of innovative, high-growth start-ups
If you are launching an innovative offering or creating a new market, then you may need to scale-up quickly and secure market share before competitors move in.
Even if you manage costs carefully, it will probably take longer for you to become profitable than it might with a lifestyle business.
It can be harder for innovative businesses to secure conventional business loans. Therefore, you may need some form of outside investment and expert support to obtain that, until you move into profitability or sell the business.
To achieve your ambition, you will need to carefully research your ideas, pull together a robust business plan, protect your intellectual property, develop your understanding of the different types of finance, and build support networks.
2. Research and develop your idea
As with any start-up you will need to develop your thinking to the stage that you can clearly describe your idea to any audience, especially if you are developing new products and services.
Our start-up section has a wealth of articles covering everything from:
- how to access free research and market reports
- to testing your idea is viable
- and our planning to start tool will help you tailor information for your needs.
If you need support to undertake research and development you may be eligible for grants as well as tax relief and expenditure credits.
3. Develop your business plan
A business plan gives your start-up credibility and is vital if you need to secure lending or attract investors. Key questions it should answer include:
- what is unique about the innovation and is it protected?
- who will buy it and why?
- what will it cost to deliver and how much will it sell for?
- what is the competition, and how do you propose to tackle this?
It should also contain detail on practicalities such as:
- how you will develop and exploit your innovation
- the capability and experience of your team
- how costs will be financed
- when the business is expected to start generating income, break even and move into profitability.
4. Protect your intellectual property
Intellectual property (IP) is any knowledge or creation proprietary to your business - such as a brand, logo, name, or invention. Your IP rights can be legally protected by:
- patents
- copyright
- designs
- trade marks.
Some forms of IP protection apply automatically - for example, original 'literary works' (such as instruction manuals) are automatically protected by copyright. In other cases, you need to apply for protection, for example in patenting a new invention.
Understanding the basics of securing and protecting IP could be vital to success and ensuring that your business does not infringe the rights of other IP holders.
5. Find finance
The main sources of finance are:
- Grants and public sector support. These often focus on helping and supporting start-ups in specific sectors or geographical areas.
- Lending. While banks may be reluctant to lend money to innovative start-ups, if your business is viable and they are declining you because you don’t meet their criteria, under the Bank Referral Scheme, they should refer you to an online finance platform where you may be able to find funding from an alternative provider.
- Investment. This includes equity finance such as angel investors, crowdfunding or venture capital for larger sums over £1 million. You may need several rounds of investment before your start-up becomes profitable, beginning with “seed funding” for early costs such as research, product development, and marketing. Raising equity can be costly and time-consuming, and when giving away a share of your business' ownership, you will lose some power in making decisions. However, equity investors will only receive a return on their investment if and when your business succeeds, so you will not have to repay debts if your business fails. This means that the investors have a vested interest in the success of the business, and may offer follow-up funding to help it grow, and support you with contacts and strategy.
- Unsecured loans. If family and friends are able to support you, then this is another option.
To secure finance you must become “lender ready” or “investor ready”, with a credible plan to run the business which minimises risk for lenders, or ensures the potential reward for investors is in line with the risks.
From the beginning you should consider your exit strategy. For example, investors will usually expect a return on their investment which is realised by:
- trade sale - selling to a trading company
- refinancing - selling to a different investor, such as a venture capital company
- management buyout - selling to the company's existing management.
6. Support for high growth and innovative businesses
Business incubators and accelerators offer valuable support for innovative start ups. Incubators help entrepreneurs develop their idea to the point they can launch a business. Accelerators help businesses grow, for example by providing office space, mentoring or research facilities. There are several of these organisations across Scotland and some specialise in particular sectors, e.g. digital or creative.
Scottish Enterprise can help entrepreneurs and businesses who meet their strict eligibility criteria. They will support them to develop their strategy, leadership and management capabilities, as well as sourcing funding from various partners, and building a network of industry contacts and specialist advisers.
They work with select:
entrepreneurs who are in the early stages of developing an innovative, high-growth start-up or university spin-out, who have ambition and potential to scale fast, are aiming for an international market and who want to become investor ready
university researchers looking to commercialise their work, who may be eligible for the high-growth spinout programme
established businesses with ambition to improve turnover and productivity and positively impact on the local economy and progress innovation.
When choosing businesses to support, they are likely to look at evidence of:
competitive advantage
market size, growth rate and barriers to entry
channels to market
sales cycles
funding and investment needs
experience, expertise and ambition of founders and management team
intellectual asset ownership and protection
technology readiness level and proximity to revenues
market segment and export potential
business model and scaleability
key milestones
profit margins and overall viability.
If you're not eligible for high-growth assistance, you can still access start-up support from Business Gateway. You can call the Business Gateway Helpline on 0300 013 4753.
For other organisations which can provide support, see help for start ups.
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