5 Tips for growing a start-up to IPO

Growing a start-up from ideation to IPO stage is a challenging journey. Estimates of the number of start-ups that make it public vary from 10% to as low as 0.8%.
We’ve produced a guide offering five pieces of advice to start-up founders seeking to steer their ship towards a public listing, including one quick-and-easy route to an early IPO.

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How to IPO

A public listing is the holy grail for many start-up founders. Alongside selling or merging the business, listing is one of the surest exit strategies and, in many respects, represents a company’s transition from ‘start-up’ to large, established company. 

However, the vast majority of start-ups fail to exit at all, and the road to an IPO is especially tough. It is difficult to measure start-up success rates precisely, but estimates for the proportion that reach IPO vary from 10% to as low as 0.8%.

This guide seeks to help start-up founders navigate the path towards an IPO with five tips for surviving the tumultuous.

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Before diving into our tips for growing a start-up to IPO, it’s worth considering what this actually means: i.e., what does a start-up (realistically) need to achieve in order to IPO? 

Taking the LSE’s AIM as a guide, there are few official requirements – companies don’t need to meet trading record or market cap requirements, for example. Practically speaking, however, a successful IPO (one which excites investors enough to raise significant funds) depends on being able to demonstrate consistent, reliable revenue, growth potential, a reasonably dominant position within its market, and a convincing roadmap, as well as having the funds on hand to pay for the IPO process.

In other words, your start-up needs to have achieved a secure, revenue-generating position within its industry, with room for further growth.

Find us on Youtube - Interviews with leaders

Movemeon Co-Founder Richard Rosser recently spoke with Jonny Khan, ex Bain and now Head of Central Operations at Deliveroo Hop about 'joining a start-up & growing through IPO'. In that interview Jonny shared his experience about going through IPO, startup life and how to become a senior operational leader.
You can watch the whole interview by clicking the video below!

https://www.youtube.com/watch?v=jcpSddvBZcE

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5 tips for growing a start-up to IPO

1. Assess demand

On that basis, establishing the total addressable market (TAM) for your product or service is going to be key. This will define the amount of income that you can promise investors once the IPO comes around, and in the nearer term will help you plan your route to revenue generation.

This is a vital stage to get right, and it pays to be conservative. After lack of access to capital, overestimating market need was the second-most common reason for start-up failure identified by a CB Insights study of 111 start-up post-mortems in 2021.

Hiring an experienced consultant can be a vital tool to help you assess demand accurately. MoveMeOn helped junk removal start-up AnyJunk to develop and execute its growth strategy by hiring an ex-McKinsey consultant as its COO.

2. Test your assumptions

Until you have achieved product/market fit (PMF), your analysis of demand is little more than a hypothesis. This hypothesis needs testing, which requires a minimum viable product (MVP).

The Lean Startup approach tells the cautionary tale of founders who “spend months, sometimes years, perfecting [their] product without ever showing the product, even in a very rudimentary form, to the prospective customer.” Once you have identified the problem you’re trying to solve, develop an MVP as quickly as possible to test your assumptions about market demand.
Gather feedback from your early customers and use this to inform tweaks. Use PMF surveys to identify how many of your early customers truly love your product, and how you can make it more appealing to similar customers.

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3. Leave room to pivot

Counter-intuitively, you should expect your hypothesis to be disproved. Give your business time to shift its focus if that’s what the PMF data shows. 

While it might seem like a sideways or a backwards step, there is evidence that a small number of pivots is good for a start-up’s growth. Start-up Genome found that start-ups that pivoted once or twice raised 2.5x the funding, saw 3.6x better user growth, and were half as likely to scale prematurely than those that never pivoted, or that pivoted three or more timers.

4. Manage your culture’s evolution

Once you have achieved PMF, your revenue will start to grow very rapidly, and your team size is likely to rocket with it. While this is great news, it comes with challenges.

Chief among these is maintaining culture. Start-up culture, with its emphasis on fast implementation and iteration, is a precious commodity, and contrasts with the slow bureaucracy of large corporates. It’s unlikely you’ll be profitable (as opposed to revenue-generating) by the time of your IPO, so you’ll still need to retain that start-up competitiveness, even as the size and process of a more mature organisation sets in.

“We had to get everything straight and in order,” Jonny Khan, an ex-Bain consultant and now Head of Central Operations at Deliveroo Hop, said of Deliveroo’s 2021 IPO on Life after Consulting. “That was probably a catalyst to making sure we matured as a business.”

Equally, avoid the temptation to scale too early; ensure any revenue spike is sustainable, and not the result of transitory market conditions. Premature scaling is one of the most common reasons why start-ups underperform.

Find more industry insights on our blog!

5. Consider a SPAC

There is an alternative, ‘quick and dirty’ route to listing your start-up. Special purpose acquisition companies (SPACs) have gained popularity in recent years as a means of bringing start-ups public at a relatively early stage of their growth. 

This isn’t the place for a detailed exploration of SPACs, but in a nutshell, they are blank check businesses that are listed on an exchange with a view to merging with an exciting start-up in future, thereby listing that company without as many regulatory hurdles as more established businesses face. Companies like Virgin Galactic and DraftKings went public via SPAC mergers.

However, SPACs are considered a risky option by many investors, and have fallen in popularity over the last year or so.

Finding your path to IPO

Navigating the path towards an IPO requires determination, a clear strategy, and getting the right team in place. Find the people that will power your start-up’s growth by speaking to Movemeon today.

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About the author: Dan McEvoy is a freelance writer and editor, with extensive experience in finance, technology, HR, recruitment, and marketing content.