Many entrepreneurs talk about growth and scaling as if they were the same thing. Growth and scaling are different. One is about addition and the other, about multiplication.
Growth is about adding total revenues with a constant profit margin while adding resources at the same rate. This is typical in a product/services business model where you gain clients and hire more people to service them. They’ve technically “grown,” but they haven’t scaled.
Scaling is about exponentially increasing total revenues and profit margin while adding resources incrementally. It’s a rapidly reproducible capability that’s designed into the technical/operational architecture of the business. To scale your business, you need scalable components.
Stage 1 – Finding Product Market Fit
How do you know when you’re ready to scale your business? When you find product-market fit. Most businesses never do. In Stage 1, your value proposition, competitive positioning, business model, pricing framework, and marketing strategy are all focused on a single beachhead market to grow a customer base big enough to sustain the business. Your goal is to find product-market fit through customer intimacy.
When you find product-market fit, the demand for your solution will be much greater than your ability to meet the need. Orders will be coming in at an overwhelming pace, your bank account will be growing rapidly, and everyone will be overworked trying to keep up. Finding product-market fit in Stage 1 is a traumatizing experience. This kind of success can kill your company much faster than the slow burn trying to find product-market fit. Think about how to include some of the design strategies in Stage 2 to help minimize the trauma of product-market fit in Stage 1.
Stage 2 – Scalable Infrastructure
Stage 2 is about scaling preparation by building a scalable infrastructure. Don’t try to scale your business until you have product-market fit. Why would you scale a non-solution? Your goal in Stage 2 is to be ready to scale. The following five categories are critical for developing a scalable infrastructure.
- Scalable Sales Model – In order to scale the business, you must have a scalable sales model. Is your sales funnel, and are your funnel metrics and conversion rates predictably successful? Can you increase the source of leads and traffic without near term limits? Are the resources in your conversion funnel (sales, routers) easily scalable without reaching near term limits? Is your process to acquire a paying customer clearly repeatable?
- People – In a rapid growth mode, you don’t want to find yourself in a position hiring warm bodies to respond to the growing demand. Build a staffing plan and staffing pipeline long before you need them. Always be on the lookout for A level players and keep them on your list for when you have the finances to hire. You will need experienced leadership, people managers, and how to transition from a tribal knowledge, informal culture to a more defined and managed corporate culture.
- Processes – If your processes aren’t standardized, you have to customize a solution for every customer. Customized solutions are expensive and they’re not scalable. Determine what critical processes need to be standardized such as onboarding, training, promotions, customer management, performance management, and financial management.
- Product – Can you scale your production effectively and economically? Can you deliver your product/service faster and cheaper for every additional customer? The last thing you want is to fall behind on delivery just when you’re ramping up sales.
- Funding – When you cross the chasm from early adopters to enter the early mainstream market, you will need sufficient funding to race. If organic growth finances cannot sustain your rapid growth model, you will need to explore professional funding. First to market is not an advantage. Over 90% fail to fast followers who wait on the shores of the early mainstream market to steal your business once you’ve proven its profitability by finding product-market fit. Contrary to popular belief, no one wants to steal your idea until you spend the blood, sweat, and tears, and your hard earned money, to prove its viability. If you want to scale, you must ensure you have the funding.
Stage 3 – Scaling
Stage 3 is about pivoting from a slow burn, methodical approach to finding product-market fit and scaling preparation, to an all out race across the chasm to the early mainstream market. Ensure your prerequisites in Stage 2 are met before attempting to scale. The first to scale effectively can outpace fast followers to achieve market share and market leadership. The book, Crossing the Chasm by Geoffrey Moore is a must read.
In Stage 3, your challenge will be to balance rapid growth with increased spending while managing the transition of your work force culture. Culture transformation will be impacted by the shift from a slow to fast growth monthly cash flow burn rate, standardizing processes, implementation of people managers, and a significant onboarding of new people into the tribal culture.
Bringing it all together
Stage 1 is about finding product-market fit through customer intimacy. Most never do. Once you do, your workforce can rapidly become overwhelmed and even traumatized. In Stage 2, your focus will shift to developing a scalable infrastructure before you attempt to scale. In Stage 3, you pivot and race as fast as you can to scale your business on the shores of the early mainstream market. Your focus will be to balance growth and spending while intensely managing your culture.
Founder and CEO, Leadership Institute For Entrepreneurs