Eight steps to tackle the challenges of scaling a startup
Updated: Jul 8, 2018
Adaptability is a great asset to have because life is so unpredictable, and things can change overnight for any of us.
Coming from Chanda Kochhar, the CEO and MD of ICICI Bank, this advice is extremely relevant, especially for startups. The journey can be long and unpredictable, with several changes along the way due to new tech trends, competition, and management issues.
Three key ‘chasms’ or deep valleys that startups must jump across are as follows: from concept to prototype, from prototype to functional offering with a commercially sustainable business model, and significant scaling up from early customers to a larger market. A number of approaches can come in handy here, including design thinking, product iteration, digital growth hacking, and formalised supply and sales operations.
1.Scaling the product
Product managers must be experienced in at least one of the three key areas (business, tech, UX), and be able to manage practitioners of all three. According to the bestselling book Product Leadership, product managers should also be good at operations, as well as in inspirational roles. They need creativity to blend quantitative and qualitative customer data, and be up to date on market trends and research reports.
As the company scales and organisational bureaucracy increases, product managers must ensure that all new employees and partners properly understand the product vision. It may also be necessary to create a structure with multiple product managers and portfolio managers, along with international teams for overseas markets.
The product should also keep up with rapidly changing tech trends and adoption patterns by consumers and enterprises. Mobile is becoming a key touchpoint for customer interaction, asset tracking, and employee collaboration, and products and services are becoming increasingly digitally-enabled. So mobile should be seen as a core platform for a startup to scale nationally and globally.
Books such as Startup Manual and Startup Checklist describe a number of tools and documents that startups need to create during their lifecycle: MVP development, ecosystem maps, IP portfolio, crowdfunding, product roadmap, ESOPs, term sheets, competition metrics, and information security policy.
Commercially available tools and platforms in this space include SimilarWeb, eDataSource, Google Alerts, QuickMVP.com, InstaPage, LanderApp, SurveyMonkey, SurveyGizmo, Quickbooks, AccountEdge, KissMetrics, MixPanel and UpWork.com.
Cloud-based tools are now available at varying price points for startups of different sizes and sectors: CRM (Zoho, SalesForce, SugarCRM), customer support (FreshDesk, ZenDesk), HR (Zenefits, JustWorks, WorkDay), team communications (Slack, Yammer, Sococo), project management (Trello, Asana, BaseCamp), marketing (MailChimp, HubSpot, SendGrid) and social media management (HootSuite, SocialFlow, Sprout Social).
There are at least five kinds of metrics that startups at the scaling stage should be addressing. Activity metrics include web traffic and app downloads, but these are only basic ‘entry-level’ measures. Process metrics reflect progress in key areas like costs of acquisition, higher efficiency in marketing, and better sales rates.
Knowledge metrics cover best practices, validated customer insights, and IP. People metrics include customer and employee satisfaction, while business metrics address revenue growth, profitability and market share. In sum, clearly defined metrics should be in place, including customer acquisition cost (CAC), committed monthly recurring revenue (CMRR), lifetime value (LTV) and churn.
4.Leadership and management
Talent, leadership, culture and organisational structure vary across the phases of the startup journey. Motivation and perseverance are not enough at scale stage: founders need to sharpen their sense of self-awareness, social skills and relationship management. Power politics, reward structures, and ownership issues come into play here, according to entrepreneurship professors Uday Phadke and Shailendra Vyakarnam.
A successful entrepreneurial leader should have skills of self-awareness, motivation, relationship building, leading change, and enterprise basics. Enterprise basics include understanding the difference between projects and processes – as an organisation grows, more and more project experience becomes codified into repeatable efficient processes. The experimental culture in the early stages gives way to an efficiency-driven culture in later phases.
As the startup grows, leadership will need to become more directive and delegative, teams change from flat to hierarchical and virtual, processes become more formal, and structure becomes more organised around functions and product lines. New strategies and talent will be needed as the company expands from local to international markets, Phadke and Vyakarnam explain in their new book on tech commercialisation.
5.Organisational culture and growth
Founders create culture both consciously and unconsciously, and the startup’s culture evolves as more people join and contribute to the organisation. The founders’ own activities and attitudes eventually shape employee perceptions of loyalty, performance, integrity, speed, responsiveness, customer focus, and ethics, as described in the book Lessons from the Startup Trenches.
Founders and the leadership team should also become comfortable with the tricky issues of hiring, promotions and firing. The founders themselves may need to coach and be coached, and improve collaboration and delegation.
Senior sales directors should be hired once there is a product-market fit, and founders should be willing to give up some of their earlier control over the sales process; this will take time and trust. Data based insights should be balanced with the founders’ own sense of intuition and interpersonal loyalties.
6.Incubators and accelerators
Incubators help startups with prototype development, whereas accelerators help entrepreneurs scale the customer base beyond the early adopters. A number of activities are used in these phases: hackathons, bootcamps, weekend sprints, and community engagements with makerspaces.
Funding can also be provided by incubators and accelerators via grants or investment. Business accelerators look for big returns on equity, whereas corporate accelerators want startup products that can integrate into their own larger product portfolios or open up new lines of compatible business.
In addition to incubators and accelerators, startups can reach out to mentorship and funding networks accessible to them. These include AngelList, SeedInvest, FoundersClub, CircleUp and TiE (The Indus Entrepreneurs).
Startup investment should be seen as not just as a source of funds but ‘smart money.’ While choosing investors, these factors should be kept in mind: their network which can include potential business customers, further rounds of investment, in-house management skills, and personal chemistry with the founder. Founders should understand what investors are looking for: a strong management team, business opportunity, leadership integrity, and product quality.
A full-time finance person is required from the angel-funded stage onwards, and a balance between market share and profit share will need to be struck at later stages. Provisions and outcomes should be made for raising funds in multiple tranches and bridge rounds, along with requirements like board rights for directors and observers.
8.Boards of advisors and directors
A well-chosen and smoothly functioning board can support startups, help them understand milestones and how get to them faster, and hold the management accountable. Board issues range from meeting and interviewing to socialising and shuffling directors, according to the book Startup Boards.
Startups in scale stage need to form various kinds of committees: audit (reporting processes, independence), compensation (equity compensation, pay), and nominating (CEO succession, new directors). Bylaws and compensation will need to finalised and adhered to, and conflict management strategies should be in place. Boards may also have independent directors and other peer CEOs.
In sum, there are challenges that scale-stage startups face in areas ranging from product evolution and competitor attack to organisational management and business leadership. The eight steps described above are key for startups to harness the transformative power of technology for business advantage.
To learn more on how to take your startup to the next level, visit Vodafone’s Ready Startup microsite.