Editor’s note: Joe Procopio is the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle that includes Spiffy, Automated Insights, and ExitEvent. His Teaching Startup series appears on Tuesdays. This is the first of three posts about growth. More info at joeprocopio.com.
DURHAM – You’ve been taught to believe that your business can either grow or it can remain profitable. Doing both at the same time may seem like a circus-level juggling act — but it can be done.
For a startup to grow, money has to be spent and resources have to be diverted. Everyone — from the highest to the lowest levels of the company — has to take on several responsibilities at the same time. All of them are top priority. And not all of them will be done well.
Joe Procopio
For a startup to remain profitable, customers have to be the company’s main priority. They have to have their needs met, and they have to be thrilled with the experience of how those needs are met. They expect one thing. They expect that one thing to be done well. And they don’t want excuses when that thing isn’t done well.
Growth is a sprint, and profitability is a marathon. The paradox is unfortunate, but at least the solution is simple: If you want your startup to grow, you need to stop pleasing your customers.
Blasphemy!
I hear you. I’m a customer-first entrepreneur and have always been. But here’s the unpleasant truth: Pleasing your customers takes 100% of your focus at all times. It means doing everything 100% right at 100% capacity with 100% efficiency. And if you have any time left over, that time will be spent coming up with ways to push customer satisfaction to 100%, the one true path to profitability.
But growth requires experimentation. It mandates doing new things in new ways, moving fast, breaking stuff, and apologizing later. None of this is good for the customer, and thus, none of this is good for profitability.
Everyone tells you to think like the customer, to put the customer first, that the customer is king. And I’m totally with them on that.
But here’s the problem: When I say a business can either grow or remain profitable, the reverse of that is also true. If all we’re doing is pleasing our customers, then we’ve taken our eyes off of growth. That’s a death sentence for any business, no matter what stage it happens at. If we abandon growth early, we stagnate. If we abandon it late, we become a commodity.
So allow me to play devil’s advocate by discussing one of the strategies of what is probably the world’s most relentlessly customer-centric company: Amazon.
Do you remember the Amazon Fire Phone? The Dash button? Spark? These are just a couple of the experiments that helped push Amazon into new growth phases. These were things customers didn’t need, want, or love, and in the end, things didn’t please customers very much at all.
Amazon isn’t alone in this. Consider Google Plus. The Apple Newton. The Microsoft Zune.
But for every Fire Phone at Amazon, there’s a Prime. For every Dash button, there’s an Echo. Amazon Web Services was born from an internal growth project to get more products to more customers more quickly. If they had never run that experiment, they’d probably still be simply the world’s biggest seller of books and DVDs.
Or, you know, they’d be Borders. And we all know how that worked out.
If you don’t want to wind up being Borders, it’s critical to strike a tactical balance between growth and profitability from the earliest stages of the company. And to do that, you need to crush some conventional wisdom and lean into some unorthodox advice.
Step #1: Fear Your Launch
The truth is that most startups implode before they’re born because of fear — or rather, because of what fear does to some entrepreneurs.
Even before the first customer sees our product, we’re predisposed to anticipate customer reactions and fear the worst. I’ve personally had a number of entrepreneurs come to me for advice on when to launch their MVP, and it turned out the only reason they hadn’t launched already was their own fear.
Fear in startup is totally healthy, and also inescapable. If an entrepreneur is looking for guarantees before they launch their product, there are several guarantees I can make:
- You will always have a reason not to launch yet.
- You will always have a reason not to run your pilot yet.
- You will always have a reason not to exit your pilot yet.
- You will always have a reason not to charge money yet.
- You will always have a reason not to spend money yet.
There is no gate through which an entrepreneur goes to market with 100% confidence in the success of their product, or their strategy, or even the assurance that some or all of their customers won’t absolutely hate what they have to offer.
Fear is something I still struggle with, because fear is also sneaky. It can be difficult to recognize when a pre-launch checklist is growing because the product isn’t ready or because we’re not ready.
But it’s still better to launch with fear, make some customers unhappy, and apologize later. The alternative is that the product never sees the light of day. And if you think it can’t happen, ask any entrepreneur who has had the experience of watching someone else launch one of their best ideas. They’re out there. There’s a lot of them. They never saw it coming.
Step #2: Destroy Your Reputation
One of the worst things that can happen to a young startup is early success, because it sets them up to stagnate. When customers fall in love with us, and with our product, we don’t ever want that love affair to end. So we go out of our way to make sure that we don’t do anything that might irritate, frustrate, or even challenge that love.
But here’s another inescapable truth: The product our customers bought today is not the same product that will attract our customers tomorrow.
If we’re being totally honest, our average customer doesn’t really care about our company or our brand. Yes, there are cults of Apple, Amazon, and even Google and Microsoft. But these cult members don’t contribute to growth, nor do they stave off commoditization.
The good news is that if you do develop a cult following for your company, as large or small as it may be, it will help provide a backstop for the experimentation that will push your startup through the growth phase. The cult will try the new thing, fail with it, and still come back and use your product and love your company.
What your cult won’t do is stick around while your product becomes stale and increasingly useless. The rest of your customers won’t stand for this, either.
Step #3: Doubt Your Data
The ability to collect and access data around every part of the customer experience has become an indispensable weapon in the battle to land, retain, and please customers. That same data can also give us an idea of what our customers are asking for as we grow both the product and the company.
But we can’t put our full faith in that data.
Data only tells the story of the past up to today. Even predictive analytics can only tell us what the future will look like based on the actualities of the past. I’m a big believer in the fact that data doesn’t lie. But interpretation of that data can give us a ton of false positives.
Our customers will tell us that everything is all right until it isn’t, and by that point we’re already behind the curve. So instead of analyzing data against a hypothesis we’ve already made, we should run analyses against several hypotheses, from the most rosy to the most dire, and let the process of elimination either confirm our hopes or justify our concerns.
Look, if data were the only answer, then every hyper-successful entrepreneur would be a data scientist or a mathematics PhD. But they aren’t. They’re entrepreneurs, and it’s their interpretations, decisions, and beliefs in their processes that make them successful. Not algorithms.
The alternative is trusting our customer data implicitly, which builds complacency, freezes opportunity, and kills growth.
Step #4: Define the Split
So where should you land in the battle between growth and profitability? That’s up to you, but there are a number of paths you can take. Which paths and how you split them will come down to what kind of company you’re building, what stage you’re at, and your current growth/profitability makeup.
Priority: At certain stages of your company’s growth, you want to focus on achieving 80% growth and 20% profitability. At other stages, it’s the reverse. And at still other stages, it’s somewhere in between. Shifting this balance with changing times is what leadership is. Determine the split, communicate the plan, and make sure everyone executes.
People: For the last several years, startups have been trending towards dedicating a team — maybe product, maybe labs, maybe a skunkworks — to focusing solely on the growth plans and the future state of the company. One mistake they make is sequestering this team. Your future plans should be fully integrated into the day to day, otherwise, ideas become more and more far-flung and nothing ever gets executed.
Time: Another way to create paths to take is to align everyone’s time to the growth/profitability split. In other words, if you’re at 80/20 profitability, then maybe Friday is a growth day, where those projects and initiatives get full attention for 20% of the week. It doesn’t have to be rigid, or even synchronized — just make sure it doesn’t get ignored when people get busy.
There are dozens of ways to balance growth and profitability. It really doesn’t matter how you get there. What matters is overcoming the habits that allow us to settle for good while losing out on great.
