This past weekend’s rainfall has brought a huge relief to residents and reservoirs in what has been another dry start to Cape Town’s winter….
A startup is like an infant: it keeps you awake from early in the morning until late at night. An established business is when your kid is all grown up, has left the house and now you can finally go and get a real holiday!
But what about the transition between startup and a proper business, what about those awkward teenage years?
Well, the good news is that the hardest part is probably behind you; you’ve got a product that the market enjoys enough to have given you either a stable/growing income, and/or you’ve got investors who love your product enough to push you to the next phase: growth.
But what does that actually mean?
When you were a lowly startup you would have classified many of the problems you encountered at this phase as “nice problems to have”. Well guess what? Those problems have let themselves in your house, and have already messed all over your favourite rug (which is too bad, it really tied the room together).
So how do you navigate your business through the uncertain waters in this brave new world? Approve a more aggressive sales strategy? Invest in developing more products? Design new or better referral agreements? There are probably an infinite number of choices.
While all of these questions are on the right track, they focus too much on the details; too much attention on the wood, too little thought on the forest. Remember, we’re interested in growth here, so the one question you need to associate with every question you now ask is: “How does this action make my business scale”?
If you fed your teenager the same amount of food as you did when he was a baby, your teenager wouldn’t grow enough (in reality he’d probably describe his angst, prepend it with a hashtag and tweet his misery). What you want to be able to do for your teenager is give him all the food he needs so he can grow as big as possible. Your challenge is to make sure that the food keeps flowing, and every decision you make has to bear that in mind. You can’t make a decision that’ll limit his growth; your decisions need to allow for significant growth first.
This question forces you to think about your business from a more holistic point of view, and not as a series of integrated, iterative processes that come together and form a product offering. In other words it forces you to focus less on how to sell just your product, but how to expand every part of your business on the back of your expanding product sales, making it more resilient and ready to capitalise on future opportunities.
A great example of this is McDonald’s. One of the reasons McDonald’s is as successful today as it is, is because the man responsible for its meteorite rise, Ray Kroc, knew that the wasn’t in the hamburger business; he was in the business of being in a hamburger business. In other words, he didn’t think how he could make a better burger (indeed many would argue this is noticeable). Instead he focused on how to make the business of selling hamburgers better. He thought about distribution, consistent quality, speedier preparation of burgers, and so on.
You may notice the one thing that all of these improvements made have in common: they all address the issue of scale! McDonald’s cares about how many burgers it can sell first. Sure, it cares how the burgers taste, but only to the extent that the better they taste the more they sell. Everything comes down to scale.
Once you’ve proved your product works and has a market and you find yourself in the growth phase, the temptation is to simply continue doing things the way you’ve always done them, but just do them better. Sure, you will actually be doing a lot of this, but if you continue to do what you’ve always done, you’ll continue to grow at the pace you’ve always grown. To grow exponentially you need to always be thinking about scale, in every decision you make.
So yes, by all means, please ensure that your product gets better and better, but make sure that you don’t focus all your resources into just this. There are now other important problems that you need to solve for.
Ensure your processes are as automated and as thorough as possible, prepare for explosive growth and not just gradual growth. If you prepare for gradual growth but have a product that’s good enough for explosive growth you might find it brings your company to a screeching halt, and you lose all credibility in the market place.
At the startup phase it’s ok to think about solving a problem; the better you solve the problem the better your business. At the growth phase you need to start thinking about the return growth has on your business. If your business doubles are you happy with a just 2x increase in profit? What about 5x or 10x? Some investors are only interested in 100x.
Whether or not you’re interested in making a ton of money, or really just want to solve a problem, at some point you have to think about scale, and it’s not just for the sake of investors (who start thinking about that return in the startup phase). In fact it doesn’t matter if you don’t ever want an investor, we live in a free-market – that means that competitors who might well have or want investors will start thinking about scale.
Of course there are more factors to consider during your growth phase, but if you can’t master your ability to scale you simply won’t survive in the long run and your teenager will never turn out to be the well adjusted young adult you hope for.
Image: Ethan Lofton via Flickr.