A favourite focus area of ours is to reveal and structure challenges startups face until reaching the ability to scale. Interestingly, even with minimal knowledge about the actual startup’s operation, you can quite well foresee the difficulties and key questions the CEO will need to address before scaling up successfully. Well, at least we tend to see some patterns already.
So, let us share our napkin strategy based on practical findings - a simple self-assessing, non-scientific crystal ball guiding your thoughts about the journey from startup to scaleup.
The basics. Growth is only scalable if three major areas are appropriately addressed:
The startup to scaleup napkin is as simple as the 3 circles above depicting a few typical situations.
But first about how to use:
Evaluate your startup (for yourself) in the above three areas: how suitable you consider your startup for an increased growth rate (up from your current pace to anything greater or even the wished exponential :)). Exact measures are not needed (right now), just go after gut feelings: where do you think your company is okay, and where “you are just not there yet”. Non-scientific self-assessment, as we said earlier.
All 3 key areas look good enough for growth? And you are honest with yourself? :) Congratulations, you are ready to accelerate, start pouring fuel into the engine and change your focus to manage scaling!
Something missing? That’s the exciting part (for us consultants, at least). Your startup may be then in one of the following situations:
You have a stable team ready to grow and also found a product matching market demand - finances are a constraint. A real investor dream: you just need more fuel to the engine to accelerate.
Unfortunately, this is the lowest probability situation as we see in practice: a maximum of 5-10% of startups passes through that phase. Far less typical than you can read about it - the false claim is mostly about the product’s validity.
For such startups, product-market fit and team provides a good enough base to survive and even to grow slowly without additional funds. Bootstrapping is a viable option, no heavy pressure on the shorter term to raise funds.
The key strategic question is the end game. How you see yourself and the business, say, in 10 years, how big is the total growth potential... These will determine which investor you should involve (if at all), how much ownership you want to give up and how much fund to raise. Investors will likely be interested in your business (thus their “dream” :)) - and consequently, if they join, pressure on you will be increased to go (much) faster for your market share.
You have a team, at some lovely moments working as a real organisation, AND financing also covered.
According to our experience, that is the most common case for early-stage startups - say, 60-70% -, thanks to the widespread access to funding nowadays.
The key strategic question for the CEO is time. The time that was bought by the financing of course. To be more precise, time means whether you have enough time to execute the appropriate number of market experiments - we love the approach where your startup’s runway is calculated by the number of test attempts remaining. Of course, testing is about planned experiments of your real market hypothesis. Business model factors and product combinations... not purely technical viability.
In that experimental phase the typical daily life of startup CEOs is to feel sales is not enough, clients not understood well, and the internal pressure to “develop something”.
You have a demanded product, growth financing also available - but it is either only one visionary person driving, or maybe a small-sized team.
In either case, the business is heavily based on the actual personalities. So something is not scalable, not balanced in the operation.
Daily frustrations are getting frequent due to micromanagement and personal conflicts.
The key question in such a situation is the leader’s internal motivation, whether to take professional or business direction. Most often it is an exclusive OR.
Note: this is an absolutely working model up to a certain scale (again, depending on the actual business) - governance is strong, and it is, of course, the founder’s decision where the business should be headed... But that usually comes with sacrifices: either the operational model is transformed into something simpler (sacrificing some of the market potentials) or an inefficient organisation is built for delivery (resulting in top managers’ fluctuation and/or oversized teams).
Napkin capacity reached, so time to finish. Hope the above thoughts inspire you to think about what is happening under the hood before scaling up and what are the key challenges coming. You will see anyway. :)
Can we help you? AbilityMatrix mentors are regularly available for free StartUp Office Hours. Our mentoring sessions provide you the opportunity to introduce and discuss your project in about an hour. Would you need an honest, independent and sometimes harsh viewpoint - just book a session!
Schedule a session: https://abilitymatrix.com/contact
Contact: info@abilitymatrix.com
