A few months ago, I received an email from an entrepreneur I spoke with a few times as he and the team were building an online learning platform for college and university students. I remember the first time we met, the team was in a testing mode. They spent quality time with professors and students to learn about their needs and the possible solutions that can solve their problems. Things didn’t go as smooth at first due to many collegiate rules until some doors opened up. This is a snippet of his last email:
“I just wanted to give you a quick update: We launched coursenest at the University of Calgary (although they have no relation with us) in September and in the four weeks since have amassed about 5,000 users! We’re super excited about this, and people are actively engaging on the platform.
I am trying to figure out what I should do next. Would appreciate your advice.”
The moral of the story is, scaling your startup may be some time in the future but it is extremely important to be as little as mentally prepared for it. This guide is meant to do just that and more. Over the years, I learned that knowledge is time dependent, that is, we can’t possibly squeeze 10 years worth of information in one night. If you see things (concepts, examples, tools, strategies, etc.), you are more likely to understand them well in the future even if you don’t remember the first time you got exposed to them.
Prepare yourself for the future by learning what you need to know and expect as you are taking your idea from one stage to the other in your startup life cycle.
What does it really mean to scale a startup?
Some might think scaling is growth and it is in some sense but what is important to understand is that startup scaling is a lot different from that of big companies. The reason being is that startups are in a search mode for a big period of their existence. The entrepreneur begins with just an idea then moves to validating this idea. The validation part of a startup is what we refer to as a search for a repeatable and scalable business model. To use an example, assuming we have enough proof to say that our healthy food on demand idea is a valid solution to lack the of interest in cooking and need for healthy food affordably and quickly.
The repeatable part of our validation is when our product (often times web or mobile apps) can fulfill the needs of buyers in a repetitive way using the same process all the time: user creates a menu, select delivery time, app notifies cooks, they deliver and confirm delivery.
The scalable part of our validation is when the startup is able to acquire more customers and increase revenue using a repeatable model and without compromising performance. In other words, if our healthy food on demand is scalable, it will be able to serve more people using the exact same repeatable process without needing to hire more as the volume of transaction grows. And this is the difference between startups and other types of businesses.
To answer our question, scaling a startup means finding a repeatable model that can systematically serve more customers without compromising performance or losing revenue.
As we go from one section to the other in the guide, things will get much clearer but for now, I think the part where the difference between startups and small businesses is explained in the 46 lessons first time entrepreneur must learn about startups post will help in connecting the dots about what scalability means.
A Startup Is Not A Small Business
It is a phase and not a type of business. It is the phase during which founders aim at finding and validating a model that scales repeatedly, usually by leveraging technology. Startups are built for growth and it is for this main reason that most startups are tech startups; reaching more people through technology. Small businesses, in the other hand, execute proven models rather than search for one such as owning a restaurant, barber shop, grocery store or an e-commerce site. From a business and revenue model perspective, small businesses are ahead of the curve.
Let’s use some examples:
- A CPA office is a small business whereas a software that matches clients with local CPAs is a startup.
- A social media studio is a small business whereas a software that plans and automates social media sharing is a startup.
- A taxi company is a small business whereas a software that matches riders with nearby taxis is a startup.
- A magazine is a small business whereas a software that enables users to create their online magazines is a startup.
- A web development company is a small business whereas a software that enables users to create their own software is a startup.
Notice how technology triggers scalability and reach. It is the uncertainty in business model validation (among others) that makes startups riskier. In other words, are we certain that people want to be matched with local CPAs? that people prefer the convenience of a software over a social media manager? that people want to use an app to book rides? who specifically out of everyone prefers those services? etc. Startups must find valid answers to these questions before reaching a sustainable business. In the meanwhile, according to the small business administration and a Startup Genome (now Compass research) report, 92% of startups fail within the first 3 years while only 32% of small businesses do.
According to a Startup Genom survey, 74% of startups fail due to premature scaling. One of the biggest disappointments in startup history was Webvan, a grocery on demand startup that burned $800 million of investors’ money before going bankrupt two years after its initial public offering which it probably shouldn’t have done in the first place. Webvan did a great job attracting the interest of what we call the early evangelist (the early market- technology enthusiasts and visionaries) but failed to grab the attention of what will justify their few billion-dollar valuation; the mainstream market.
If you didn’t get a chance to read through the idea validation guide (Step By Step Guide To Proving That Your Interviewees (potential buyers/users) Are Telling The Truth), here is a quick summary about the technology life cycle adoption curve proposed by Everett Rogers and refined by Geoffrey A. Moore.
The curve above divides technology adoption in two groups and five subgroups. The two groups, namely early and mainstream markets, are separated by a “chasm” which theoretically is what differentiates between early stage startups and scalable ones. Webvan was recognized and actively used by the early market but failed to cross the chasm into the mainstream market, instead, it forced its entrance using the large investments and support they received from their investors and advisors. Demand did not meet projections and investors could not finance further so the company ended its operations. Uber could have taking the same route as Webvan. They introduced a revolutionary model, got the attention of the early market fairly quickly, received billions of dollars in venture capital investment and could have easily gone public (stock market) only 3 years after their beginnings. They rather took another company development approached focused on building a stronger foundation in its brand, product, people (team), processes and customer base (the mainstream market).
How can this help you scale? it doesn’t directly impact your scaling but It is one of the most important frameworks to keep in mind as you are taking your startup from one stage to the other. Related to the technology life cycle above is market types. Depending on the type of market you are entering, the chasm can be narrower or wider. For instance, in an existing market, competitors exist, customers are aware of existing solutions and know exactly what their needs are. In an existing market, startups with better faster solutions and sufficient funding have an easier job in crossing the chasm than startups looking to create a new market with a new innovative product that customers didn’t know could exist in the first place. Again, these are some business lessons to learn and keep in mind as you are generating, testing, validating and then preparing to scale.
Since one of the main objectives of this series of guides is to help you connect the dots about building startups on strong foundation from just an interest in entrepreneurship all the way to scalability, something that took me a few years of trial and error, building startups, and reading several books to master, this guide will provide you the necessary tools, strategies, and a roadmap to scaling your startup beginning with just an interest in entrepreneurship to make sure you can relate earlier steps we covered in the previous guides with the future ones.
Broadly, the entrepreneurial journey follows these steps.
The Entrepreneurial Discovery Stage
Something must have triggered it. It can be family, friends, success stories or certain events that happen expectedly or unexpectedly in our lives. Something deep inside you tells you that you are meant to be an entrepreneur. Other things that show you that you are meant to make a bigger impact in the world than doing repetitive tasks on a weekly basis at your job. For me, it was about how a few lines of code could make such a big impact in the lives of people (founders and their customers). Or something that shows you that you deserve better, or not to be treated in a way you once thought was your destiny. Something triggers it but if you haven’t yet, you will realize that the entrepreneurial stimulation is slow. It doesn’t happen overnight and only after a series of events and sometimes sleepless nights that you decide to give it more of your time by reading more, learning faster, always brainstorming ideas and preparing for the action. By learning more, you can panic more and this may slow you down, convince you to go back to your routine or encourage you to the take the challenge and keep going.
If you believed in yourself as much as I got to learn to believe that as Steve Jobs once said, I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is perseverance; let me congratulate you for your success. You will succeed in building a valuable startup sooner (with some luck) or later (guaranteed).
With interest, a lot of passion, readiness and enthusiasm in you, looking for the big opportunity is what you run after.
By “opportunity” we refer to problems worth solving and solutions worth building, also known as ideas. The idea generation guide provides us with the frameworks, methods, tools and an example to help us generate and qualify ideas worth pursuing.
To summarize, this stage is about identifying and defining what we are most passionate about. Then outlining how we can turn this passion into a business opportunity we want to pursue. In the idea generation guide, I argued and used some examples to support the fact that the most successful startups often come out of a personal need. In other words, it is when we get sick and tired of dealing with an issue in a constant basis whether it is at work, home, school, traveling or others that we feel most compelled to find solutions that we and others like us can use to stop this recurring problem.
Furthermore, experience taught me that results are even better when passion is combined with interest. In my first venture, RecyclerSpotter, I was driven by my passion for the environment but only realized that my interest in working in the space did not match this passion a year into the venture. Meetings and negotiations with recycling companies, reward providers (local businesses), environmental organizations and governmental entities burned me out. Eventually, I realized I started the venture for entrepreneurship and not for my interest in the space. By surrounding myself with the right people, pushing harder and taking some risk, I went from an idea to validation, profitability and the beginning stages of scaling the startup. It was then when I decided to start another startup because taking RecyclerSpotter to another level simply meant doing nothing but it for the following few years which I was not interested in doing.
It takes an average of 7 years for a startup to get acquired and a little longer to go public. Pick your field of interest; you won’t last long otherwise.
In sum, the pre-startup stage is when you find your area of interest, identify problems and potential solutions to these problems. Essentially, it’s the idea stage.
But what is an idea? In the idea generation guide, we referred to ideas as educated guesses. We make two guesses: Problem X is big enough that it needs a solution, and Solution Y is the right solution for the problem. In slightly more technical terms, we say ideas are hypotheses. We hypothesize (make an educated guess) that Problem X needs a solution and Solution Y is the one.
The startup stage is when we begin to validate, reject or iterate on those ideas (hypotheses). In other words, it is when we learn from our potential buyers if X is indeed a problem and Y is what the solution should be. We’re not in a startup mode until we EXECUTE. This stage is the first step in execution.
Meeting with potential buyers/users is the only way we can find out if the problem and solution we guessed are valid and there is a big market (number of buyers with the same characteristics) for it. For example, in the idea generation guide I used a personal problem I face on a daily basis as a case study. The problem is about the time and energy I spend on a daily basis cooking meals especially after a long day of work. After going through the frameworks provided in the guide, I proposed (hypothesized/guessed) that a healthy home cooked meal on demand service is an excellent solution for this problem conditioned on it costing me the same amount of money as I were to buy my own groceries and cook at home. I generated the idea during the pre-startup stage, however during this stage (startup stage) I am ready to find out if others like me are facing the same problem and if the solution I proposed makes sense to them as well. For this, I must find some people who are facing this same problem to interview. As we outlined in the validation guide (proving that your interviewees are telling the truth), the process goes as follows:
- Find 100 potential customers online, from your surroundings, existing users of competing products, and/or strangers (if you believe they would benefit from your idea). Email, call or directly stop them to kindly ask for 10-15 minutes of their time.
- Before you meet with anyone, set a qualitative validation criterion. This is when you say, I have a strong support for my idea if 80% of interviewees deliberately indicate that the problem is big. If 60% say so, it is still a good sign to proceed. If less than 50%, there isn’t enough proof.
- Do not tell them your idea at first. I usually say it’s a project I am pursuing as part of an assignment for ABC so I would love to hear about some of the challenges that XYZ (interviewees: business owners, landlords, etc.) are facing. Ask open ended questions and slowly drag them to discuss their biggest and most frequently recurring problems. The best scenario is when they say that the problem you had in mind is indeed a big problem for them. Remember not to pitch your idea, instead, let them pitch it for you; let them tell you I wish I found a solution for X.
- Most likely, 100 interviews later, you will find one of these three outcomes: 1) what you thought was a big problem is indeed big, or 2) what you thought was a big problem, doesn’t come out as big after all, or, 3) problem Y is bigger than X (yours). In other words, they would be willing to pay for Y and not what you thought they needed (X). Make sure you restate the problem and discuss alternative solutions at the end of the interview. Again, let the conversation about possible solutions begin with them by asking open ended questions such as, what do you think will solve this problem? guide them towards finding a potential solution but don’t answer the question for them. Finally, it is extremely important to keep their contact information but first ask them if they would be interested to learn more about what you are building.
- If 100 interviews later you are still not clear as to what exactly the majority would be willing to pay for, use the insights you got to start new conversations and explore new problems you may have not thought about. It may not be a straightforward task but a problem worth solving will present itself eventually.
- Do not stop until you identify a big common problem and the best (still hypothesized/guessed) solution for this problem.
With this, you have qualitatively validated the problem-solution fit. It’s time we make sure the numbers back the claims made by potential buyers/users. For this, we use some of the tactics and methods discussed in the second guide: email, webinars, check XYZ, licensing and crowdfunding. The goal from these approaches is to save some product development time making by sure interviewees really mean what they say and possibly raise some funds from pre-orders.
User/buyer engagement is your product development signal. In other words, interviewees sharing their contact information, make payments, frequently answer your emails and send you follow up questions, attend your webinar, etc. means that they are interested and eager to see your solution. At this point, you have two options that, by the way, can run simultaneously: 1) create a hollow MVP by combining existing non scalable resources to fulfill the service, sell a physical version of the digital product, repurpose existing platforms, and/or use app development platforms, 2) building the simplest best version of your product with only the core (main) feature(s) for a sample of users to try and share their comments with you before getting into the development of advanced solutions. Or you can do both at the same time.
The decision as to how you can proceed once the first degree of validation (interviewees and tests) is passed successfully, depends on many variables but most importantly competitors, resources and market type. For instance, as I briefly touched on above, in an existing market with a lot of competitors and a small room for improvement, you cannot compete with a mediocre product even if your goal is to attract the technology enthusiasts and visionaries. Another case is for enterprise solutions. You won’t get companies’ attention beyond the interviews if you don’t have a good enough solution that can solve them problems they couldn’t solve elsewhere.
Often times though, startups aim for innovation whether it is marginal or major. Regardless of the degree of innovation as long as it exists, founders are better off testing users’ experience by building a small version of the product starting with the most important features that will solve the identified problem directly and expanding to secondary and complementary features thereafter.
A startup is just a phase and not a business type. The phase begins with execution and ends when a repeatable and scalable model is found. That’s when the startup turns into an early company. Before reaching repeatability and scalability, startups have one big milestone to reach and pass: finding product-market fit. We will refer to the period from initial validation/traction through interviews, tests and hollow MVPs/MVPs (first testable version of the product) to finding product-market fit as the pre-scaling stage.
Let the conversation about product-market fit begin upside down; when we find the fit.
Customers are buying just as fast as you can build or using the apps just as fast as you add more capacity (servers) to your platform(s). Revenue is growing exponentially because customers cannot resist leaving reviews, recommending others to you and bringing in more sales. You can’t handle the work with the resources you have so you go out to seek funding and hire as fast as possible. Investors and reporters want to invest and feature you, etc.
Those are all the signals that you have reached product-market fit. Now let us discuss how.
Finding product market fit is achieved by simply going through Startup Stage steps of customer interaction and progressive product development once again until we achieve the same level of acceptance but this time through a product and not just one on one interviews and using non-scalable resources such as the hollow MVP and selling physical products of digital ones. We may refer to the initial validation through the interviews, tests and quickly built products as first stage fit.
For product-market fit to take place, there must be a product that meets users/buyers’ expectation as described, promised and expected during the first stage fit. As vague as it may sound, the step by step process for finding product market fit are all the steps that need to be taken to achieve the scenario above. This typically involves:
1) Paying special attention to user behavior and interaction with the simplest version of your product or the non-scalable approach you chose to begin with, again such as doing things by hand when the user is under the impression the software is doing the job (hollow MVP), using app development platforms, repurposing existing platforms, selling a physical version of your digital product, etc. You want to know what they use most frequently, how they use it, what makes them bounce (leave) or cancel.
2) Speaking with each and every one of first product users/buyers the same way we did in the customer interaction phase (startup stage). Realistically, it will be impossible to speak with all not because you can’t handle 200 calls or meetings over 2-3 weeks but mostly because many will not want to speak. Get as many as you can. While keeping the end result of product-market fit in mind, you want insights as to what will eventually make them very satisfied that they will buy, refer, and review as if it is their own startup.
3) Using the same approach as the customer interaction stage, incorporate the comments that the majority of respondents made (validation criterion of 60% and more).
4) It varies but it should take you a minimum of 3 months to nail users’ needs and expectations. When you do, you should be proud for two things. First, a very small percentage reach product-market fit. Second, you are ready to scale and chances for you to get an acquisition or build a large company have just doubled.
During the 3 or more months when you are moving things around to fit the pieces (product features and buyer/user needs) in the puzzle, keep in mind that changing teams, markets, products, names, and visions are all reasonable, Mark Andreesen notes. Many companies including Instagram and Twitter radically changed course from their original plan to find the fit.
In pursuit to finding product-market fit for RecyclerSpotter, I found that despite the level of validation I reached with recycling facilities in the interaction phase, it turned out that they are not willing to make any effort to record the recycled amount when RecyclerSpotter users showed up at to their locations. For a quick reminder, RecyclerSpotter rewarded users for their ecofriendly actions. Users accumulate points by recycling. The awarded points must be tracked somehow. My firs educated guess (hypothesis) was a dashboard for recycling companies to log in to and assign points to RecyclerSpotter users.
What I found is that these companies make 90% of their revenue by contracting with businesses and governmental organizations such as universities. These entities send them recycling materials in bulk on a frequent basis and therefore a few cans of metal or some cardboard boxes coming from our users are not a big enough incentive for them to learn the system and use the dashboard every single time someone walks in the door. By referring back to the idea generation guide, we can qualify this solution as uncritical or secondary.
Recycling companies were still very interested in becoming part of RecyclerSpotter but requested some adjustments in the logistics. What they valued the most was that they were part of an ecofriendly startup that has a local and growing reach. This turned out to be a unique way to promote their companies.
The companies gave me their idea scenario; do nothing. They suggested to place RecyclerSpotter logo on their website, social media pages and cashier window to show their belonging but the rest of the work “should be on me.” None of these were discussed during the first stage fit. I was surprised how much I didn’t know about them. For this, my solution was software that enables users (not companies) to scan their recycling receipts and get instant points.
The same issue was brought by reward providers; the companies that users can go to, to redeem their points. Those are local or online businesses who also turned out to value this promotion medium the most; being associated with a local and growing ecofriendly startup. They did not like the manual work involved every time a user requests a reward. They asked for better logistics. The approach I took was buying gift cards from them as users reach a certain level of points and requests the cards. This took the companies out of the equation which made the gain/pain ratio a lot higher than what it originally was.
This was an example that clearly shows that what you hear interviewees say and claim, can turn out completely different in real life. It also shows what it means to find product-market fit. Essentially, it is about listening, hustling and open mindedness.
At this point, you’re getting very close to having what it takes to scale. The responsibilities, challenges and startup goals from now on are different. It’s no longer about whether there is a buyer for your solution, or what exactly do they expect from it, or what business model should we use, or who our buyer is? It’s more about how we can improve the experience of our customers and reach many more like them quickly and preferably, exponentially. Usually it is around this time when you hear and read about the new growth startups in the news and social media.
Let us begin with 3 facts about scaling before moving to what we need to account for to ensure a strong foundation before scaling.
Scaling Is Misleading
By the time most product-market fit signals were checked off for RecyclerSpotter, the direction was still not as clear as any outsider might think. By then, some of my mentors suggested the importance of an investment for growth while others recommended I move slow and lean. It wasn’t much about the advisement that made it confusing but more about the growth pace (slow, how slow?), most urgent resources, and strategy. You can read all the books in the world, but when it comes to making decisions as tough as changing the direction completely, investing most your savings for growth, giving away a big chunk of your hand built startup, no one will ever be able to help you make the right decision than a mentor with who has been through similar situations and passed successfully. The value of mentors has been theoretically and empirically proven to make a major difference in entrepreneurs’ success. According to a study by techcrunch, 33% of founders who are mentored by successful entrepreneurs went to become top performers: 3 times more likely to reach an exit of at least $100 million or be in the top 10% in terms of the amount of equity raised, or in the top 10% in terms of number of employees.
Scaling Is Distracting
You’d think that with product-market fit in place, your main job is to build the best product to a larger audience, beyond the early market, as soon as possible. And it is. But here is what happens in real life. As you and the team are heads down improving the product and adding new features based on customer feedback, you’ll be getting emails and social media notifications as frequent as every half an hour, depending on how fast your startup is growing. Now many of these emails and notifications will hopefully be positive feedback and tags for recommendations. But what about the angry users? what about those who need some technical support? what about those who are facing bugs? Think about it, imagine your best team members are focusing on building a better product while a hundred potential and existing users are knocking for help. It’s a distraction. No matter how fast you can hire, you can’t do everything (product development, marketing and customer service) well at the scaling stage of your startup. But you can prepare for it.
Scaling Is Expensive
You’d think that as you scale or approach scaling, investment will mostly go to hiring. And it is. But what about the trainings, tools and equipment for the new hires? these may be considered fixed investments but what’s costlier are things like servers, the tools your startups uses for analytics, email and marketing where cost is dependent on growth, the backend software that also costs more with higher traffic and large user base. In the beginning, your infrastructure, server, tools and all the necessary resources would be able to handle few hundred users and can also give you enough room to grow without any cost increase which is great because this removes some of the friction out of execution. As you grow, your cost will grow and the pressure to meet projections to keep up with the cost increase is higher. Scaling is expensive.
With these in mind, how can we put a strong scaling foundation in place?
Invest In The Future
Surround yourself with people (mentors) who can help you predict the next few steps that likely to happen in the near future. We can discuss predictability all day long but the only thing that will matter is you, your product, your market, your buyers/users and the vision. Because all of these variables must be considered before any investment in the future can make, the best guide to follow is in keeping in mind that you will need to invest in the future to avoid burnout, premature scaling, and fixing things as you go along which can workout at the beginning but almost impossible to handle as you get bigger.
Having said this, you may be wondering what exactly can you invest in? there is an answer to this question.
First, invest time and energy to build personal relationships with investors that can potentially fund you when time comes. Getting funded doesn’t happen overnight and for this reason, as you are approaching product-market fit, spend quality time reaching out and meeting with investors and keep them posted about your progress periodically. When I met an investor for RecyclerSpotter the day I started getting some traction, he was very skeptical. I stayed in touch with him until he confidently wrote me a check. Ironically, the check was for another startup that didn’t even have a product back then. Investors invest in people.
Second, by the same token, invest time and energy to surround yourself with people that can potentially turn into team members, contractors and partners. In other words, people are more likely to work with you if they’ve known and interacted with you before. And because the best talent including co-founders is looking for more than just a job or startup to grow, being proactive in your relationship building will make it much easier in the future. For instance, because of the time I spent communicating with freelancers throughout the world, I can put together a team of highly skilled individuals in a matter of two to three days; something that takes others as long as a month if they care to test each new hire. This was the same way I convinced a multimillion dollar chain to join RecyclerSpotter few years ago. A year earlier, I had envisioned I would contact them in the future but knew it was going to be almost impossible to cold call them. I met with one of the founders at a presentation he gave, got his contact information, called him 3 weeks later, met with him a few times until I pitched him RecyclerSpotter. You will need a strong team and possibly partners to scale so make sure you predict and act on what can be predicted beforehand not only by surrounding yourself with the best but also hiring if needed.
Third, predict, outline and train members about the possible technological, financial and managerial events that may arise and affect your startup. More specifically, focus on the technical aspect by clarifying the course to action to events such as outages, bugs, speed/performance issues, and others that your technical team can suspect can be affected with growth. For each issue, clearly define how it will be resolved internally, who will be responsible for it and how to deal with user/buyer complaints. Set some proactivity rules such as checking system functionality on a daily basis, and deadlines in the case issues happen. A plan like this, can be a life saver in the future.
Fourth, build or rebuild your IT infrastructure for stability and reliability. Hacking a quick solution is no longer an options although it is the right way to go initially at the Start Stage once you qualitatively validate your idea through surveys and decide to build your own first version instead of using one of the non-scalable methods such as hollow MVP or selling a physical version of a digital product. Building a strong IT infrastructure can take time and a lot of resources and for this reason it should be one of your main priorities once you have some signs of product-market fit.
Build Or Invest To Automate
In other words, let software take care of the repetitive tasks to maximize human contribution to the things that add tangible value to the product. For instance, payroll, some aspects of marketing, accounting, project management, follow ups and many other processes and tasks can be automated. When you can, let software do the work so you and the team can focus on the things that will help you scale and not baby feeding the company every step of the way. A research by CB Insights shows that it used to cost a startup $5 million to launch but because of today’s open source software and cloud based tools, it costs less than $5,000. Some of the tools a startup can use include, Slack for internal communication, Trello for management and collaboration, AWS for hosting, Zendesk for customer support, Buffer for social media, Quickbooks for accounting, Mailchimp for email, Dropbox for cloud drive, and many more that you find very easily online. Notice that some of these tools are not only for repetitive tasks but also in taking roles that used to require a team member such as accounting and administrative assistance.
furthermore, by the time you reach this point, you should very well know the tasks that have been making a tangible difference and those that can be eliminated. Sometimes we get very comfortable with the things we do on a frequent basis that we forget to ask why we’re doing them in the first place. Most of the time, one or two of these tasks are useless and can be eliminated. With a bigger team, the small useless tasks can add up to a lot of waste in time, energy and money.
Finally, when the first and last thing you think about every day is how to keep up with growth under the limited resources you have, consider outsourcing the non-essentials. Those are usually tasks that do not contribute directly to the core product. Some of these jobs include legal services, blogging and possibly some administrative assistance. This all depends on your startup but the rule to follow is, focus your core competencies on the tasks that add direct value to your product and processes, while getting outside help for tasks that are essential to progress and yet can be outsourced.
Culture Matters. A Lot.
Nothing can obstruct your scalability more than a startup team with a weak or no culture. Your culture is the set of written and unwritten rules by which everyone stand. Those rules, attitude and shared values are not to be written and stuck on the wall, they all begin with your first hire and get reinforced by setting the example and evaluating performance against them. With traction, revenue and growth potential, it has afterwards come to my attention that one of the reasons behind my decision to change entrepreneurial direction by focusing on another startup was the team. I spent more time supervising when I needed to lead. Supervising is where you almost “watch” to make sure everyone is doing the job. Leading is where you hire people that care and believe in the future and in their valuable contribution to the venture, and let them surprise you with the result. Hiring and working with people you can lead and who align with your vision will make a very impact on your scaling, funding and attracting other great talent.
Your Role As A Leader Changes
The leadership mindset changes from telling, directing and delegating in the startup phase to empowering, collaborating and coaching at scaling. First, you can no longer everyone tell everyone what to do especially in a team of 10 and more. Telling is one thing but monitoring, evaluating and guiding will make it impossible for you to give quality time to everyone in the team while managing other aspects of the company. Second, as Steve Jobs says, it doesn’t make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what do to. Third, listening becomes extremely important not just to get the best ideas from the smartest people but also to align their interests and objectives with company goals. With this, you will be able to monitor less and delegate more. Finally, with goals aligned and work processes defined, motivation becomes one of your main responsibilities. My team always praise me for my enthusiasm, motivation and positive attitude. I tell them that there are some days when I am not even close to feeling what I show but if I don’t, it’s going to be contagious and everyone will consequently feel down. Fake it when you can.
We began the Pre-Scaling Stage section of this guide by discussing some of the signals for finding product-market fit. In this last section, let us discuss the same for scaling; what shows that we are ready to scale? Because it’s never a 1+2=3, many of the signals for product-market fit overlap with scaling and, again, it is depending on your situation and with the support of your mentors that you will make the best decisions for the next steps you need to take.
- First and foremost, a startup is QUALIFIED to scale when it has a repeatable model. Which makes perfect sense. In other words, how would you scale if you are serving every user by hand? or if you don’t have the infrastructure, processes and tools to support many users/buyers at one? A repeatable model in technology startups is one that leverages technology to serve users repetitively and without much human involvement. You are ready to scale when you can sell your products and services repeatedly without major modification.
- Getting users to buy the product, answering their questions, provide them with the best experience takes a lot of work and time at the beginning. When the time and cost for customers to adopt and use the product is decreasing and the engagement is increasing, you’re about ready to scale.
- When existing customers become one of your biggest marketers through word of mouth which reduces your acquisition cost and increases your brand awareness, you are on the right path to scaling.
- When your users base and revenue are growing on a weekly basis without much effort in marketing or public relations.
You just know it and when you feel it, it will be a matter of acceleration through hiring, marketing and product enhancement.
Few months ago, I interviewed Iztotk, one of the founders of Agiledrop, a growing Drupal agency about his company’s scalability and growth. Among the things he said about laying the foundation for a healthy long term growth, he said, I had to read a lot. More specifically, he noted that his readings dependent heavily on the stage his company was it. For instance, when branding was their main focus, the team spent quality time getting equipped with the necessary information to make the right decisions. He literally said, it’s unbelievable how I completely ignore a book and then 2 weeks later I’m looking everywhere to find it. The point is, scalability main not be your main priority today, but it will some time in the future. The best approach is when you know a little bit of everything as you go but a lot of a specific thing when you approach the stage. Let this guide be today’s investment in the future. When time comes, you will know what to look for and more importantly, ask the right questions.
What I Suggest You Do Next
1- Think about how all the things you got exposed to in this guide relate to your startup and the stage you are at. Ask, is there anything I need to consider or do today to avoid some mistakes in the future and be better prepared to scale when the time comes?
2- Think about this guide in perspective to the idea and validations ones. Are you better able to connect the dots about building startups? The answer will most likely be Yes, but. Email me your questions.