There are many stages of a startup. And as you’ll see below, scaling your business actually often comes much later in the process. The fact is though, as with many things in the startup world, the stages are quite fluid – with stages overlapping or taking place in parallel. In fact, when I discuss this in my Harvard Innovation Lab class (as below), I purposely show the slide in my own handwriting to underscore the fluidity of the stages.
In the early stages of a startup, your primary objectives center around defining the problem and value proposition to address a large market opportunity and coming up with breakthrough innovation that creates a defensible basis around which to build a company. Eventually, and oftentimes very quickly, this turns to a company’s ability to execute, and knowing when to scale is a key part of that.
Too early or too late? Sync and Pace…
Scaling can become a critical issue, because if you scale too early it will cost you dearly and if you scale too late you may miss the opportunity to lead. As an investor, my job in this issue consists of two things: Sync and Pace. Stay in sync with the team, and bring perspective to ensure we are keeping pace with the opportunity for them to win. With that in mind, I’ve created a framework to help you think about scaling. I call this framework “The Deliberator’s Dozen.”
That is to say, these 12 things can help take the guesswork out of whether you are ready to scale or not. So if you’re in doubt, because you’re not getting repeatability and predictability in some or all of the metrics and measures below, then that should inform your decision. A business that is ready to scale is one where:
You can package your product or service and sell it repeatedly without major modification.
Your marginal cost of customer acquisition is reducing.
Time and cost for customers to adopt and deploy your product or service is lessening and the engagement from your customers is increasing toward a long life cycle value.
The servicing costs for your customers are reducing.
The upgrade cycle for your customer is shortening and the dollars generated from upsell are increasing.
Your ability to innovate, create differentiated IP and meet market needs is validated by customers and partners who are themselves building on your products and services and investing in your ecosystem.
You are able to develop disruptive and defensible business capabilities in things like your go-to-market model.
Your business model is showing real leverage and at least a potential path to profitability that attracts the funding to keep growing.
The time and cost to attract and onboard people in all major areas of the company to support growth (e.g. sales, services R&D etc.) and get them productive is coming down.
Your management team is successfully developing and promoting people from within into a cohesive culture that is as good as dealing with problems as it is with successes, and is respected as such inside and outside the company.
Your market opportunity is continuing to be validated as big enough and growing fast enough for you to be able to meet stakeholder expectations for years to come as you scale successfully.
Even if you are “changing the world for the better,” you have learned not to “drink your own Kool-Aid” and instead validate your metrics from the outside in. And with all that your gut still tells you you’re excited to get up every morning and do it again faster, better, cheaper!
I am lucky enough to be working with quite a few companies that are scalable in our portfolio, including Actifio and Acquia.* Actifio, known for radically simple storage, grew 700% last year and is recognized as the fastest-growing storage startup on record. And Acquia, the commercial company behind the wildly popular social publishing platform Drupal, has been recognized by Inc. as the fastest-growing software company in America. In its short life as a startup, Acquia has acquired almost 4,000 customers across five continents and built operations in eight countries.
So what can we learn from companies like Actifio and Acquia? In many ways they exemplify how to overcome the “Deliberator’s Dozen” first and foremost by building great teams who are continuously focused on what they can do better in the market. Along the way, they assume nothing, challenging all the points raised above and more. Yet, I never see them deliberate or even hesitate when they see a chance to engage the market and learn from it.
I’m sure there are other factors. What is your experience and what could you add to this list? Please share your thoughts in the comments below.
*Thanks to the teams at Actifio and Acquia for their contributions to this column (originally published in The Wall Street Journal).