Ever wondered why some technology businesses scale up and others stagnate? Here are 5 mistakes I observe technology start-ups make ahead of scaling, which can result in failure from premature scaling or growth stagnation.
Ever wondered why some businesses scale and others stagnate?
All entrepreneurs know from experience how difficult it is to start a business – but only a 3% percent of those that start ever make it beyond a few million in sales revenue.
In my lived experience as a founder and intrapreneur of several technology-based businesses, I understand how hard it can be to scale – even if you have a great team, several customers, and capital to invest in growth.
The good news is many of the pitfalls can be avoided early, even before scaling starts.
Here are 5 mistakes I have seen technology start-ups make ahead of scaling. The result can be failure from premature scaling or growth stagnation.
Take a look. We will be covering tools and strategies to address these and others during our 2-day Scaling Up Acceleration Workshop in Sydney on October 11 & 12.
#1 Mistake a differential product for a differential strategy.
We all know Product innovation is a key driver to kick-start a successful technology-based start-up.
Being first to market with a new to world or new to market innovation that solves a meaningful problem for customers is no guarantee of success. However, it certainly has been proven (scientifically!) to be a major influencing factor behind early start-up survival and growth.
Fast forward a few years however and things may have changed.
Competitors may follow, adopting similar technology or providing a similar product offer.
Or your business may launch new features, expand product range, offering multiple versions to slightly different customer cohorts or international markets. It all starts to muddy your early unique value proposition. Or worse – you now do everything for everyone.
To you and your team you are still clearly different!
But to your customers - the differences between you and your competitors are all just shades of grey.
You need a strategy reset!
A clearly differential strategy that is simply stated (no 15-page investor powerpoint please!). One-page is enough.
#2 Believe repeatable sales equals an efficient sales engine.
We all know there is no validation of a good product than customer sales.
Those founders who grew up with Lean Start-up are clear on how to nail early the ‘Build-Test-Learn’ model and validate decisions like pricing and revenue model ahead of growth investments. Sometimes even ahead of launch!
Hooray! We have a product-solution fit. We may even have a validated pricing and revenue model.
But do we have an efficient business model? And does our model demonstrate potential for increasing returns from economies of scale?
The answer is not so much about HOW MANY customers have repeatedly purchased our products.
Rather can we (predictably) generate sales growth and HOW MUCH do we need to invest to acquire the next $1 in sales revenue.
Planning for scale begins early – earlier than most founders and leaders may be aware.
It is not enough to simply validate the business model without validating how efficient the business model is. And its potential to become more efficient as we scale customers (i.e. economies of scale).
Unfortunately, many technology-based businesses fail to establish an efficient growth engine and sales process early on. Then burn too much, too early in the process.
#3 Hire leadership but don’t hold them to account.
Technology scale-ups are often started by one or more founders who are product-focussed.
At the same time, founders are often doing everything else too.
From talking to customers and selling, to setting up websites and domain names, giving interviews and writing marketing briefs, sending out invoices and expenses. Hiring the early team and buying furniture and office supplies.
At some point, this obviously changes.
Ahead of scaling, technology start-ups build capacity (think of it as ‘slack’). And they need new capability. New roles that are typically functionally driven like heads of Technology, Sales or Marketing, Finance, People etc… The best people for the money we can afford.
Sometimes founders make the mistake of not redefining their own roles to make room for these highly specialised leaders they’ve hired. Or don’t hold them to account for key results and critical numbers such as sales revenue growth, cost of goods/service improvements, gross margin growth, cashflow, working capital, new customer adds, customer NPS etc…
At the start of scaling, the role of the founder changes from product-focussed founder to that of a hands-on CEO. The new focus is growth and the number of A-players they can recruit to their leadership and team.
#4 Fail to hire leadership fit for values and stage.
When hiring A-players, Technology scale up founders sometimes make the mistake of not hiring fit for core values or ‘fit for stage’. They are blinded by an impressive LinedIn network and profile.
Hiring ‘fit for stage’ means hiring talent for open roles who have been where you are going.
If your scale-up is today generating $5 million in revenue and your growth goal is to achieve $30mill in the next 3 years, then hire people with experience in the stage you are going to (and perhaps stage after).
Hiring people from larger firms like corporates or too early start-ups may not bring the right capability to the leadership team.
What’s more, now we have more decisions to make and several people making them. The founder can’t be across every decision so shared core values become vital to setting the boundaries for behaviours and decision making. Core values are the rules of the road. They are the fence for the playground so everyone can play safely.
Making core values explicit and bringing them to life in the organisation such as through recruitment processes frees up founders from having to be involved in everything, all the time. So that more autonomy can be given to the new leadership that are hired. A hiring mistake can be costly both in terms of lost money in recruitment fees and salary, but more importantly in terms of time and team performance.
#5 Overly focus on Product Innovation at the expense of Process Innovation
This early laser-focus on product design, development, testing and iteration is important to rapidly progress through the stages of validation and to find product-market fit.
However, at the start of scaling technology scale ups should invest in Process Innovation. That is not to say that everything and everyone should swing their attention from Product to Process Innovation – no. You need both. Process innovation tends to be associated with shorter-term efficiency gains like number of hours/days to develop and release a new feature, or no. of A-players successfully hired through a recruitment process.
Three areas ripe for process innovation at the start of scaling are:
Sales engine processes – establishing an efficient engine of growth including efficient processes, playbooks and automation for inbound lead generation, demonstrations, lead data capture, funnel process, nurturing and closing sales funnel. Reporting and optimisation processes.
Post-sales customer onboarding – if you were to 10x or 100x your customers tomorrow, where is the constraint?
Hiring A-talent – establishing a proven process to identify, attract and nurture A-players. Being proactive about identifying the best talent that you can afford in your market in terms of skill and desired behaviours, and future talent for your next stage.
Process innovation helps start-ups address limits to scale and prepares a technology scale up ahead of customer and organisational scaling.
Look for areas where your biggest constraints are and try to identify the first factor or domino. Allocate a smaller subset of your team to focus on it and start there.
If you can identify one or more of these challenges in your technology scale up, I’d love to hear from you. Happy to help by share some tools or approaches that may unlock scalability. Come along with your leadership team to our 2-day Scaling Up Acceleration Workshop in Sydney on October 11 & 12.