Owning Your Industry — Scale-ups are key to growing your market cap

Published on
November 3, 2022
Ian Bell
Chief Innovation Officer, Partner
Subscribe to our
By subscribing you agree to with our Privacy Policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Market capitalisation, or market cap, refers to the market value of a publicly-traded company’s outstanding shares. It is the most reliable benchmark when it comes to measuring business scale.

For investors, deep-diving into a company’s market cap gives them more clarity on what to expect when buying stock.

Businesses are categorised into five categories: micro cap ($50 million to $300 million), small cap ($300 million to $2 billion), mid cap ($2 billion to $10 billion), large cap ($10 billion to $200 billion), and mega cap (more than $200 billion).

The larger a company becomes, the higher its market cap is.

Surviving and Thriving in a Competitive Business World

It is no secret that the world of business is a highly volatile one. Companies are perpetually competing with each other in their respective markets (sometimes even going beyond their industries) to stay on top and increase their respective market caps.

Unfortunately, some businesses are more successful than others. These are the businesses that keep pushing forward and grabbing every opportunity they can to tower over the others.

One way they do this is by doing mergers and acquisitions.

In simple terms, a merger is a process in which two companies are consolidated while an acquisition is a way for bigger companies to buy smaller ones in order to stay competitive.

If big businesses wish to increase their market cap, delving into mergers or acquisitions is the way to go.

As scale-up specialists, our experience leads us to believe that the best mergers or acquisitions happen between big businesses and young, fast-growing scale-ups. Here are 3 main reasons why.

1) Scale-ups have the drive, talent, and agility to take big businesses further

Often, big businesses struggle in achieving more growth organically. This is because they have already leveraged many of the market opportunities that have come their way and have proven, time and again, that their current processes work best for them and their needs.

In other words, their growth and ability to scale have already reached their peak and have stabilised. But stability does not feed growth. If anything, stability gives way to complacency and stagnation.

To stimulate growth, big businesses obtain effective staff, additional talents, industry know-how, and other business intelligence from scale-ups that have complementary systems and that will seamlessly adapt to running a larger business.

Scale-ups not only possess the drive and talent that big businesses are looking for, they also operate on innovation-driven mindsets and processes that will complement big businesses’ need to scale further.

2) Big businesses can eliminate the competition that scale-ups pose before they become a problem

There’s a concept called the “innovator’s dilemma”, where big businesses end up competing with a business that they initially ignored. It is a common thing to see today, as scale-ups keep overshadowing their well-established incumbents by sheer determination to disrupt the market.

One example is Netflix and Blockbuster. In 2000, Netflix reached out to Blockbuster with an offer to forge a partnership. Blockbuster’s CEO turned the offer down because he saw Netflix as a “very small niche business”, only to be unpleasantly surprised in 2017 when Netflix boasted over 100 million subscribers worldwide and enjoyed revenue of over US$8 billion.

Today, big businesses have learned their lesson. With the pace that scale-ups are growing, big businesses — instead of inevitably competing with their smaller counterparts — choose to nip the issue right in the bud and approach scale-ups in hopes of buying them or working with them.

3) Scale-ups have access to a wider customer base and provide diverse products or services

Big businesses can push the pace of change and increase their market share by tapping into the markets that scale-ups cater to as well as their existing distribution channels.

Sometimes, despite big business’ efforts, some markets seem unreachable for whatever reason. By focusing their efforts on acquiring or merging with scale-ups that already have access to these demographics, they effectively increase their chances of penetrating the market, improve overall performance efficiency, and decrease overall costs all while increasing profits and boosting market cap.

Throughout our years as scale-up specialists, big businesses that are looking to stimulate growth, gain competitive advantages, influence markets and supply chains, and increase market share and capitalisation fare a lot better when they set their sights on scale-ups that operate on complementary goals and objectives, as well as align with their bottom line.

Scale-ups are the significant, yet often overlooked portion of the business hierarchy. As far as growth and profitability are concerned, scale-up companies present the most promise and potential when increasing market capitalization.

BeingIconic continues to assist big businesses from all industries in successfully seeking partners to further drive innovation, increase revenue, and — subsequently — increase their market capitalization. Partner with us today if you want us to do the same for you.