Editor’s note: This is the second of three posts in Teaching Startup’s Growth Series. Teaching Startup is published on Tuesdays, Joe Procopio is the founder of teachingstartup.com. Joe has a long entrepreneurial history in the Triangle that includes Spiffy, Automated Insights, and ExitEvent. More info at joeprocopio.com.
DURHAM – Why do some startups take off like rockets while most others drift like leaky rowboats?
The key to startup growth is what’s commonly referred to as “scale.” Scale is something everyone will say you absolutely must have, but no one ever tells you what that means or how to get there.
Scale is this: Once your company settles on a working business model, you can’t just execute and repeat. Somewhere in there is another mandatory step: Refine.
In 20+years of taking startups from troubled-but-promising small businesses to efficient growth machines, I’ve learned that when startups stagnate, more often than not it’s because they spend all their time executing and zero time refining.
Scaling a business isn’t rocket science, but when done right, you could end up with a rocket.
What does scale look like?
If you’re thinking about growth, your company probably already has a compelling story. Or maybe you’re not quite there yet, but that doesn’t mean you can ignore growth. If your goal is to build a lawnmower, you’ll be just fine with a lawnmower engine. If your goal is to build a rocket, that engine will need to be replaced pretty early on.
So plan for it.
Your company’s growth phase starts when your product, your data, and your sales show that you’ll be approaching profitability in the coming six-to–18 months. Anything before that means you need to focus on viability — Will your product survive on the market? Anything after that means you should already be writing your company’s next story.
Every startup has three stories. Story A is what your company is chasing today. Story B is the near-term future. Story C is the billion-dollar story. We can use Amazon as a general example. Story A was selling books and CDs. Story B was owning eCommerce. Story C is owning commerce.
Applying that example to your startup: Scale is moving from Story A to Story B with an eye on Story C. You don’t have to be 100% accurate in the details of your Story B or Story C, but no startup ever got to Story B without refining their operations and their approach to the market.
Here’s a general outline of a plan to do just that. Since every startup is different, apply these concepts to your own Story A. It won’t be cheap, but it doesn’t necessarily take millions of dollars in funding.
Plan A: Lean on data and technology
There’s just no excuse for any startup in this day and age to not have a data plan and a technology plan. It doesn’t matter that your business isn’t a technology play. If you have customers, you have data. If you have a website or an email address, you can exploit technology to grow your business.
If you are a technology play, your data and technology plan should be the first thing you address every morning and the last thing you refine every night. On the other end of the spectrum, if you’re a technology-agnostic company with a static website and a single email address, there are countless options available for you to refine your operations with every email you send and every visitor to your website.
No matter where your company is on that spectrum, don’t keep taking shots in the dark with your customer data and your technology adoption.
The plan: Develop a data and technology plan that will help you make decisions on launching new initiatives, creating new features, introducing new products, and entering new market segments, all with a focus on eventually building your company into a compelling Story B.
Plan B: Everything is geared to revenue and value
In any business, from the smallest to the largest, the only metric that counts is revenue. But revenue alone isn’t going to make a company successful, because any business can tell a good revenue story until you start digging into the details. The first layer under revenue is profit, which is determined by margins, which are defined by costs, which are spent acquiring and retaining customers.
When you keep digging, the source of all startup success is the value your company provides to your customers.
The plan: Develop a company-wide focus on revenue and value by adding high-margin value at every point in the chain. This starts with refining how the product is built, and extends through to how it’s sold, fulfilled, and supported.
Plan C: Consolidate your data and tech into a platform
Almost every time I see a company that is mired in chaos, it’s immediately apparent that no one knows exactly what’s going on and no one knows exactly what they’re supposed to be doing. This is almost always due to a lack of a single system of truth.
In other words, sales is getting their information from a different source than what support is telling them the customers need. Engineers are building to a different plan than what sales is hearing the customers want. Shipping is waiting on production. Product is guessing when they build their pipeline. And on and on.
The plan: Consolidate your data and technology plans to build a single platform that starts with production and ends in ROI for the customer. Document the chain from build to consumption and centralize that document in a place where everyone can refine their processes from it.
Make the chain flexible, and provide an easy means for your growth plan to be dictated by customer value data coming in and technology creating efficiencies going out.
Here’s a simple example chain:
- Support tells sales where the customer is finding or losing value.
- Sales translates that feedback into what they need to be able shorten the sales cycle and increase revenue per sale.
- Product takes that information and refines the roadmap to address that value need.
- Technology exploits the roadmap to turn those plans into reality.
The chain could be entire teams of people or a single founding team, even a single founder playing all those roles. And when I say “technology,” that could be custom-built proprietary tech or it could be stringing together low-tech solutions with Slack, Google Docs, Zapier, and MailChimp.
Plan D: Build the efficient growth machine
Now that you have the tools in place, leadership’s job becomes creating and running initiatives to build efficiencies into your organization. This is where you scale. Company leadership anticipates and automates the organizational processes that stitch together the chains you’ve created.
Anticipate: Once you have a data plan, you can start modifying that plan to collect more data, analyze it quicker, and obtain more accurate results. That data should be telling you where to find more customers, how to get more revenue out of each new customer you find, how to keep those customers longer, and how to serve their needs at lower costs.
Automate: Once you have a technology plan, you can start modifying that technology — by buying it or building it — to gain greater efficiencies in everything you do, whether that’s on the sales side, the product side, the fulfillment side, or the support side.
The plan: Increase your margins. If you scale a company that has low margins, steepening the growth curve is painful. If you scale a company that has high margins, steepening the growth curve is exhilarating.
Plan E: Crawl-Walk-Run
You can’t flip a switch on growth. Even the best growth curves start slowly before they build momentum. This is because you have to learn to crawl before you walk and walk before you run.
Let’s say you’re running Amazon back in 1996 and you’ve nailed selling books and CDs over the Internet. Your next step is not then immediately selling everything under the sun and shipping it to the customer within two days. It’s selling spatulas over the Internet. Or whatever. But it’s definitely just one thing.
The plan: To get from crawl to walk, look at all the options for your next step and pick the one that has these two benefits going for it:
- It’s the easiest to pull off.
- It’s going to generate the most revenue.
When you do one thing well — like one product or one market or one city — adding a second of ANY of those things will create all kinds of problems for your machine, including a ton of problems that you just won’t be able to anticipate.
Going from one thing to two things is tough. Going from one thing to many things is a nightmare. Walk first.
Plan F: Execute, Refine, Repeat
Refining doesn’t just happen once on the way to growth, refining needs to become a permanent part of the growth process.
The plan: As you grow, you’ll start to outgrow, and sometimes that means pivoting away from that thing you used to do and reimagining your entire reason for existence.
When that sounds daunting, remember this: Amazon still sells books and CDs, but those markets collapsed a decade ago.