How to Reach Critical Mass for Your Startup

Critical mass for startups could be defined as: the smallest group of users that is required for growth to occur.

Reaching critical mass is crucial, especially if your startup is social-based. No one will stay on your platform or app if it is a ghost town. That’s why you should reach critical mass as soon as possible.

However, reaching critical mass isn’t easy. Most startups struggle to find the right strategy for growth and overspend on customer acquisition efforts as they try to overcompensate for their absence in certain segments of the market.

Most startups want to grow and scale fast, without actually being ready for it. They target new segments in the market, without having reached critical mass in the previous ones, which leads to destabilization of the entire business. In fact, premature scaling is one of the most common reasons for startups to perform poorly.

So, how, exactly, do you reach critical mass and avoid premature scaling?

Start Small

Looking for growth in new segments without having reached critical mass in previous ones, and premature scaling are two of the major pitfalls for many startups. Josiah Humphrey describes premature scaling as follows:

“Premature scaling is an attempt to massively expand and grow your new company before you have successfully hammered out the intricate details of a repeatable and scalable business model. Failing to nail down the specifics of your CAC and LTV can facilitate premature scaling and, thus, cause startup failure.”

He finds that trying to scale your company without the adequate resources to do so is virtually guaranteed to produce a negative cash flow situation in which your startup will run out of money.

Reaching critical mass is hard, but it’s even harder for startups in double-sided market places, as they have to reach critical mass in both sides of the market. It’s genuinely hard to bring supply and demand together. Targeting both sides of the market in multiple segments costs a lot of money and effort if you want a good balance between the both sides of each segment you target. And since marketing efforts by startups are often limited by budget, this usually doesn’t work out well.

Let’s use Airbnb as an hypothetical example and say they planned on conquering the entire world from the beginning by targeting the following cities: Paris, London, New York, Prague and Rome.

Market Side A: are all the tourists and other people on the platform that are looking for a place to spend the night in one of those cities.

Market Side B: are all the people on the platform that are looking for some extra cash by renting out rooms, appartments, houses, etc.

If targeting the entire world would have been their strategy to reach world domination, things probably wouldn’t have looked so bright, but something more like this:

Targeting multiple segments at once makes it incredibly hard (and expensive) to bring supply and demand together in each segment. Can you see how unbalanced the audiences are in each segment of the market? The proportions just aren’t right.

Why would people that want to visit Prague and spend some nights there stay on the platform, when there’s no one there that rents out a room? There aren’t enough suppliers for all the demanders in certain segments, and vice versa in other ones.

That’s why starting small is crucial. Take Facebook for example: Before becoming the world’s largest social platform, it started out by targeting only one university. Facebook stayed above critical mass by adding only one university at a time. They didn’t target the entire world from the beginning, but were able to conquer it by starting very, very small. Find a segment and focus all your marketing efforts on that small segment. Staying above critical mass this way is a lot easier and will allow you to add new segments steadily over time:

Budget Allocation & Anticipation

Most startups overspend on customer acquisition as they have a tendency to try and grow as quickly as possible by targeting multiple segments at once, before successfully establishing a solid critical mass of users.

Starting small, however, allows you to better allocate your marketing budgets. Targeting segment by segment allows you to focus all your marketing efforts on the right audiences within that segment. It requires less budget than targeting three segments at once, which is why it is a much safer bet as far as cash flow goes, and will ensure more growth over the long term.

It gets even better: If your product or service really is ‘that’ good, other segments in the market will be waiting for you to come. You’ll be the highly anticipated product/service everyone is waiting for. And guess what, customer acquisition will cost only a fraction of what it used to be when that happens.

Care

When you have reached critical mass in your current segments, it’s time to target new ones, one at a time. The quest for new customers in new segments can be exciting, but also holds a giant pitfall; letting your existing customers fade into oblivion.

You can never do this. Ever. Not only is it much cheaper to keep an existing customer than to win a new one over, existing customers can be turned into real brand ambassadors. This means that existing customers can create brand awareness in new segments as well, and guess what? They’ll do it for free.

You should always care for your existing customers. They can be one of your most important assets when it comes to growth. They can give your brand credibility, advertise for free through positive word-of-mouth, and help you fight your battles. The truth is, you need your existing customers, if you want to win new ones over. So, don’t forget about them. Take care of them.

Really curious to find out what Josiah Humphrey thinks about this.

AV