No two tech start-ups are exactly alike, but those that survive and thrive have more in common than you might think.
Making the right calls often hinges less on what you do than the timing in which you do it. This requires leaders to be humble enough to learn from the inevitable mistakes that will be made along the way.
In this series of articles, we’re exploring what defines success and failure at four critical stages of development. The Scale stage is key in the evolution of a tech start-up, when the company has an opportunity to move from successful to market-leading.
Characteristics of the Scale stage
With a well-established product and customer base, revenue exceeding forecasts and demand continuing to increase, start-ups are now looking at ways to scale (e.g. multi-region expansion, extended product range)
Product choices, market awareness, customer perception and monitoring are all critical to the success in scaling the business
Ways of working including effective portfolio management, quality assurance, and data-driven delivery optimisation are all central to nurturing success
Key technical drivers include retaining and extending capabilities of the team, choice of data architecture, levels of automation, and high-quality, repeatable processes from build to deploy to monitor and fix
Scaling the organisation can have a significant impact on structure, roles, and levels of governance, so strong leadership is critical to create a culture of togetherness
In order to successfully transition to the next stage of their development, start-ups must be able to satisfactorily answer these questions.
1. Is your structure optimised for scaling?
Sound monitoring of financial performance, including full transparency/visibility of costs, is a pre-requisite for scaling. But beyond that, start-ups need a clear understanding of the costs that are fixed and those that are variable, and how costs could change as the business scales.
If you’re servicing ten times as many customers, or processing one hundred times as many transactions, how can you be sure your costs won’t go up at the same rate that your revenue increases? Do you even have the organisational structure to scale at that level?
Elon Musk once said that designing and producing a prototype Tesla was easy – the hard bit was producing those vehicles at scale. When a start-up is still in its infancy, with a relatively small customer base, dealing with a limited number of customer queries might be manageable. However, as volumes multiply, how can you ensure you have the optimal structure and processes to manage those volumes (e.g. through automation and/or self-service)?
The same can be said for product complexity. Managing a single product is simple, multiple products (and customisations) with very few customers is also straightforward, but the trap is when the start-up has multiple products, customers, and customisations. Often the cost to maintain the products and services can outweigh the usage and associated revenue.
Businesses that are cultivating failure will often resort to increasing headcount and increasing hours because they haven’t built an organisational structure that allows them to optimise as they scale.
2. What happens if you need to scale down?
If there’s anything we can be certain of in the current economic climate, it’s uncertainty. Start-ups need to be prepared in case of a sudden drop-off in demand due to a market or economic downturn.
Modelling for a variety of market scenarios is important to be able to optimise for scaling in either direction.
Just as you wouldn’t want to scale up simply by adding more people, so too you should avoid having to drastically reduce your headcount and risk losing core skills and knowledge when demand drops off and you need to reduce costs to retain profitability.
Successful start-ups should have already avoided duplicated roles/functions, used third parties as appropriate to give greater flexibility, and balanced fixed versus variable costs. However, they must retain flexibility in how easily they can drop or carve out products and leave markets that aren’t driving value, reducing their variable costs without decimating the core of the company and restricting future growth.
Ultimately, scaling down effectively is about seizing every opportunity to do more efficiently the things that add value and to stop doing altogether the things that don’t.
3. Do you fully understand your market opportunities?
The two questions above assume that an opportunity for scaling up in the first place actually exists. But do you even have a right to compete and win in the markets you’re targeting?
Scaling should be built on a detailed, data-driven assessment of product and market opportunities.
- Who offers these or similar products and services and in what context?
- Are there other products and services that could take your market share or disrupt these markets?
- What are the threats from potential substitute products?
- Who are the competitors involved and what are they doing, both current and potential new entrants?
- How could your product or products evolve and what are their potential differentiators?
- What is the size of the market and how is this likely to change?
- What are you doing to address the threats and potential changes in the markets?
Too often, leaders rely on their instincts – often based on their conversations with existing customers. To gauge where the opportunities lie, maximising the customer experience and monetisation of your potential demand is important to fully understand what is required to succeed using a more detailed, data-driven assessment of where the market is heading and what your customers really need.
- In the final part of our series, we’ll be looking at the Sustain and Extend stage, when start-ups have the opportunity to reach the outer limits of their potential.
Read additional articles from this series: