Growth 101: Part 2 – Scaling
Once you have product development underway and recurring revenue, it’s time to start scaling up. In this second part of our Growth 101 series, we look at the key elements of successful scaling.
The potential growth curve of your company is dependent on your ability to scale, and that in turn impacts your valuation. Investors rely on scalability to counter the anticipated risk of portfolio companies making little to no returns.
Scalability is what makes you attractive to investors. Revenue growth is the key, not profitability, at least not in the early phases. Aim for exponential growth after the first revenue milestones and secure a clear path towards high gross margins as your business grows.
You need to be able to prove a steep growth curve with convincing evidence, like multiple early customers generating recurring revenue. Establishing a revenue growth path, however, is only part of scaling up. You need to make changes, sometime radical changes, to your company to be able to capitalize on growth opportunities.
Put people first
Whether you are coding or manufacturing or both, the first thing you need to address when you start to grow your business is the “soft” aspect of your company – your people. The small, fast-moving environment of a startup requires a certain mindset that differs from what you need in a growing organization.
Some individuals absolutely thrive in the semi-chaotic workplace of startups. There are lots of unknowns, plenty of ad hoc, and a room for creative, out-of-the-box thinking. Flexibility and resilience are good traits to have. A change of attitude, however, is needed for successful scaling.
When you need to scale up, you need to be able to channel the creativity and motivation – the aspects that make startup work life exciting – into particular channels. They can’t dominate the company as a whole. Growth requires predictability.
Predictability, in turn, requires operational changes that we’ll get into shortly. More important than any process or guideline, though, is preparing your team for new and shifting ways of working. The successful ways of a small company may need to be discarded in part or entirely.
New methods are needed, and even those may only be successful for a short period as you continue to grow. Managing change and the impact it has on people needs to be a key focus of your efforts as you scale your operations.
There is a limit to how much and how fast you can change. It’s a learning curve for everyone, so keep in mind the mental capacity taken up by change. Empower employees to own their tasks and be an active contributor to your growth strategy.
Map out your organization and business functions and take the time to critically assess each part. Take a proactive approach to change rather than wait for bottlenecks or roadblocks.
There’s nothing worse than brining in new team members only to have them sit idle because they don’t have the needed tools, or your workload distribution was lacking. It’s a nightmare scenario to get a willing customer but be unable to meet demand because you don’t have the capacity.
Every company is unique. Take advice and examples from others with a grain of salt. Wholesale adoption of new methods, however well they may work elsewhere, is almost guaranteed to fail. Experiment and try new ideas, just like you would in product development. You’ll find through hands-on experience what really works and what doesn’t.
Less is more
There is no one right way to run your business, but there are a lot of commonalities that need to be addressed one way or another. Address each with consequence to avoid the pitfall of just adding or doing more. Successful growth, and what investors really like to see, is revenue increasing faster than costs.
Here are a few examples of what to ask yourself:
- What are your operational KPIs?
- What are your best practices?
- How do you onboard new employees?
- Are there outsourced functions you should insource, and vice versa? - What functions are affected most when you grow, and are they resourced accordingly?
- What repetitive activities could be automated?
- What methods can be replicated as-is and which need to be replaced?
- Are you as a founder ready to scale and where should your focus be?
Stay positive and be ready for tough decisions
Sustained growth isn’t easy. There will be ups and downs, along with plateaus that last longer than you would like. Aim high but be reasonable about expectations. That really helps your team deal with the inevitable stress that comes with growth.
Along the way, you will face difficult decisions. You may need to move out of your favorite office space due to cost or space constraints, for example. There may be some activity that your team really enjoys that needs to be outsourced because it just doesn’t bring enough value compared to the cost.
Toughest of all, you may need to let certain people go. Not everyone is cut out for life in a large organization, and that’s okay. You can help team members find new jobs and other startups where they can thrive. Part ways on amicable terms and maintain contacts. You never know where the next opportunity lies.
This goes for founders as well – are you the right person to transition your team into a large, systematic organization capable of rapid growth?
Look to your investors for help
Let’s get back to the initial point about scaling, revenue growth. Clearly you need to work hard at getting customers, but don’t forget to use your obvious leverage: investors.
Highly specialized markets like the energy sector have well-established contacts. The players know each other extremely well, including energy VC. Investors from the energy sector are the ones who can swim with the big fish. They know the inner workings of the large corporations and can get you in the front door.
What does this mean in practice? For one, just straight up ask your investors who to contact. Don’t hesitate to ask for advice about how to sell, what to take into account; what you should accept vs. what you should definitely push back, and when to just walk away.
Many large companies have their own innovation teams, and your investors can probably tell you when it’s good to play with them and when you need to move on. They can also help you land bigger commitments by getting you to the higher ups at HQ.
Growth 101: Part 1 - Product Development
How to Structure and Hire a Growth Team
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