My 5 Biggest Startup Scaling Secrets
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We invest in companies that have achieved product market fit, shifting focus toward scaling their go to market model and operations. I’ve been through that painful process 10 times as either an active board member or an executive. Here are the 5 most important things I’ve learned, most the hard way.
1. Don’t Just Solve Problems, Build Machines That Prevent Them
At the point this process begins you’re probably reacting to what’s happening more than driving it. That’s a good thing… it’s always better to be worried about the strength of the harness than the sharpness of the whip.
While it’s fine to firefight a while longer, you need to do more than just tramp them out. You need to figure out what caused each fire in the first place, then make the changes in people, processes, or systems necessary to prevent it from happening again.
These management muscles — those that diagnose problems, design and build “machines” that prevent them — are different to those that got you to this point. You’ve probably noticed it first in sales, when you realized that selling something is totally different skill than building a machine that can sell it again and again.
Resist the tendency to squash an acute problem and move on to the next. Before you shift your focus, put someone on your team in charge of figuring out what went wrong, all the way down to the root cause. Work with them to find a solution, then back the plan required to implement it.
2. Your Heroes Will Become Cowboys
Making those changes will rattle some cages. Sometimes the resistance will come from your best people, and that will suck.
At one company we had a brilliant and nimble engineer, a person that seemed able to solve any problem with talent, creativity, and tenacity. He did whatever it took to overcome obstacles, keeping our ops engine room running with metaphorical duct tape and chicken wire, saving our bacon on countless occasions and eventually becoming a “hero” to us all.
As we matured, new execs came on board, taking charge of different pieces of our ops puzzle, and reducing the degrees of freedom this person had to operate. They set up new controls, new forms, and new hierarchies, and on the day our hero found himself locked out of the production environment, he came into my office mad as hell about the “bureaucracy” we were becoming. I still remember him saying “This is not who we are!”
He was right, and that was the problem.
After talking with those new execs I realized they didn’t see this person in the same light those of us who’d been there from the beginning did. They saw him as a “cowboy,” unwilling or unable to follow the rules that prevented acts of heroism from being required in the first place.
Startups run on acts of individual heroism required to overcome acute problems. Real businesses run on systems designed to prevent problems from ever becoming acute.
The shift from one mode of operation to the other is painful, like switching from driving on the right to driving on the left, one neighborhood at a time. There are going to be crashes, and not everyone is going to survive the transition. You need to expect that, and make friends with it.
3. Variability is the Natural Enemy of Scalability
Once the fires in front of you are under control, it’s time to climb the tower and look for smoke.
The “smoke” that predicts fires in a startup is process variability. There are books written about this, but the TL/DR is that before you can fix a process, you need to bring it “under control.” Put simply, the things that slow you down on the road to scalability are the things that are different every time.
Think about the flow of your business, from start to finish. You generate leads, close deals, onboard customers, get them up and running, generate bills, keep them happy, produce financial results, grow, raise capital, yada yada yada.
Where are the “snowflakes” in that process, meaning the outputs that seem unique every time they occur? Which steps in that process require the active involvement of a limited number of human beings with specialized skills or knowledge to deal with all the variables in play? Those are the bottlenecks you need to break, before they become choke points on your growth.
When a CEO isn’t sure where they should focus next, I like to ask this:
What would break if revenue doubled tomorrow?
Would pricing all those deals be impossible, the way we’re doing it today? Would onboarding those new customers kill us, given the nature of the integration to their current infrastructure? How about training them to use it once it’s installed? Would the Customer Success be crushed at the level, or would we simply exceed the capacity of our current infrastructure?
Throwing more bodies at the problem is rarely the right answer. An internal process where headcount needs to grow in anything like a linear way with revenue is almost always a giant red flag.
The good news is we’re not going to double tomorrow, it’s going to take a couple of quarters. The bad news is that’s how much time we have to figure out what’s causing so much variability, to figure out a way to eliminate or reduce that dependency, and to implement the changes necessary to scale.
4. Clarity Begets Brevity, and Brevity Enables Speed
As a business scales, the most important job of the CEO is not to run out of cash. A close second is making sure the right people are in the right places to give the business it’s best shot at success.
Wherever you are on the way to that goal, the third most important job is making sure the team you have right now is aligned on where the business is, what they should be focused on, and how you’re going to keep score on the way to a win.
Achieving this is much, much harder than you might think. It starts with figuring out the four or five strategic goals that are most important to the business this year, from among the 25 or 30 goals that could be rolled up from the departmental “dashboards” which have usually emerged by this point. Looking down on the business as a whole, what is most important to fix, figure out, or prove in the next twelve months? Until you have broad buy-in to a narrow list of specific answers to that question, you really have no chance of getting everyone to row as a team.
Once you do, you need to figure out how to translate those goals into data you can quantify, gather, and report on at least each quarter, then each month, and eventually each week. Here again, books have been written, but the key is to get down to a handful of numbers that indicate whether you beat or missed your expectation of progress against the things that matter most.
Some things (like brand visibility, for example) are harder to measure than others (like gross margin.) What’s important is to define the strategic priorities first, then get creative about how to measure directional progress from one time period to the next. Remember it doesn’t matter whether the metrics you choose represent the precise truth of a given objective. All that matters is that they’re directionally accurate enough to drive the right actions across the team to advance toward your goals over time.
The businesses that scale are those with real clarity on a handful of truly important goals they’re focused on now.
We don’t live in a world where the big eat the small, we live in one where the fast eat the slow. And you can’t go fast if everyone isn’t crystal clear on where you’re going and how you plan to get there.
5. Values Are Only Valuable If They Help People Make Decisions
No matter how good your metrics, if they’re sufficiently focused, there will still be lots of decisions to be made every day by lots of people all across your business. How do you make sure they’re all deciding the way you would? That’s the hidden power of Mission and Values.
Most are bullshit, not because they don’t represent good intentions (Integrity! Diversity! Respect!) but because they don’t really impact how a company operates. To do that, mission and values need to be expressed in terms people can not just agree with but reflect on, debate, and operationalize, usually as a guidepost in making hard decisions.
Hometap is a great example. Hometap’s Mission is helping people love their homes more and stress about them less. What’s so great about that? Well, I’ve seen front line people on the marketing, product, and engineering teams measure tactical decisions against that mission, in real life. And when they did, in each case, they came to the same decision CEO Jeff Glass would have had he been involved, and were able to defend their decision in that light.
When that happens, you can move fast. That’s how startups scale, and win.
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