I often hear startup founders say things like “we want to scale” or “we scaled a lot in the past six months”. They should have used the words “grow” and “grew” instead of “scale” and “scaled”. That’s because growth and scalability are two different things, one becoming dependent on the other in certain situations. Let’s explore.
What is Scalability?
Experiencing rapid growth is different from having scalability. Growth is either an aspiration or something actively being experienced while scalability is a capability that may or may not get exercised. Growth can come in spurts and is most commonly thought of in terms of sales and marketing attributes. Scalability, when it exists, is architected in and is commonly reflected in the “back office” or the technical architecture of the product solution. In other words, not the sexy stuff but rather the “plumbing”.
It’s true that having genuine scalability can dramatically affect how your company is able to handle sustained periods of growth. In fact, this is probably the right way to think about scalability – what is needed so that we can fully exploit sustained periods of growth with minimal risk and disruption to our company? Going into an “all hands on deck” mode is one way of getting through periods of excessive growth but it comes at a cost of disrupting all sorts of things that are surely strategic and you can’t live in this mode for very long.
Using the drag racing car that’s depicted with this article, the driver is experiencing extreme acceleration and associated G-forces (ie – “growth”). However, without a finely-tuned engine and lots of driving practice (ie – “scalability”), the driver either faces extreme risk of something bad happening or will have to drive much slower than needed to win the race. Do you see the business parallels with this analogy?
Here are some business-related examples to help convert the scalability concept into specific actions:
- Recruiting, on-boarding and training – Image the number of employees in your company needs to dramatically increase in a short period of time. During the startup phase this might mean going from 5 employees to 25 in six months. Later it might mean going from 50 employees to 200 in two years. In either case, do you have the strategy, tactics and talent to recruit, on-board and train these new employees?
- Transaction processing, customer on-boarding and support – Imagine an exponential increase in the number of new customers in a short period of time. Do you have the strategy, tactics and talent to keep your books in order while offering the new customers quick time-to-value (see related article titled “Importance of the Time-to-Value Metric“) and a positive overall experience?
These are two examples of evaluating and architecting scalability into your company. And realize that it doesn’t mean that you should hire back office staff in excess of your needs. Instead, focus on implementing systems and processes that are able to scale if you suddenly turn the knobs up to 11. Also pay close attention to the leadership talent you bring into these functional areas. Do they know how to architect and implement scalable systems and processes? Have they worked for a company that experienced rapid growth and/or one that was at least a couple of years down the road from where you are today? I find that most of the back-office functions sit as strategic cogs in the scalability wheel but since they aren’t sexy or outwardly visible like the product or the website is, they take a far back seat to everything else when it comes to funding and attention.
Trying to achieve true scalability after having already hit an exponential growth curve is extremely painful. So spend a few brain cycles on this before it happens. But also be careful not to spend excessive time and money on scalability during your initial validation or MVP development phase. Instead, start to consider the things described in this article once most elements of your business plan have been at least initially validated and then progressively continue adding scalability throughout your early growth phase.
Thinking One Step Ahead
A tool I’ve used at multiple companies is to act and operate as if you were one-step ahead of where you are today. For example, when you reach $1M in revenue, start acting and operating as if you were a $2M company. Once you’re at $2M, act and operate like a $5M company. You get the idea. This philosophy doesn’t need to stop until you reach hundreds of millions of dollars and are publicly traded. In fact, I remember being in a $30M company when we told ourselves to act and operate like a $50M company. The year we reached $57M we started acting and operating like a $100M company. This can help institute just enough scalability to be ready for the next big milestone and across all functions. Give it a try.
What about growth?
There are lots of articles and books on growth strategies, so I won’t try to recreate that here. But I will cover some of the most common growth strategies while saying that trying to implement one or more of them before achieving some repeatable success with an initial strategy can be very distracting. Focus is a startup’s friend which means distraction is her enemy.
One method of identifying a growth strategy is to evolve one specific aspect of your already-working business plan while locking in the other aspects. When I say “aspect”, I mean product, customer type, application use or geography. We can see the interrelation of these aspects in the following statement: “Shockwave Innovations sells (product) for (application use) to (target customers) in (geography)”. You could write this statement for your company with the statements in parenthesis replaced with your business plan.
The growth strategy I mentioned can be seen in the graphic below. Which single wedge of the pie could be evolved/expanded as the best next step in your company’s evolution.
- Application Use – Your product is enhanced in ways that allow it to be used to solve a different problem. This often means it appeals to a different type of customer (role, industry, etc). It also means new messaging and competition, and it might also mean a different pricing strategy. (for more info on pricing strategies, read my related article titled “Extreme Value-Based Pricing“)
- Product – You create another product for the same customer. Ideally, the new product has close synergies with your original product to improve cross-sell potential and customer loyalty (it’s harder to lose them if they’re using more than one of your products). Sometimes solution bundles are created. (for info on how to best achieve product line synergies, read my article titled “Prioritizing Your Product Roadmap“)
- Target Customer – The problem your product solves exists with other types of customers. This might mean a different size of company, a different industry, or a different consumer demographic. With this comes the need for new messaging and new awareness campaigns.
- Geography – This strategy involves selling into new geographies, which could mean geographic expansion within your home country (see related article titled “Expanding Beyond Your Home Market“) or could involve international expansion (see related article titled “The Complexities of International Expansion“).
Even with a great product and a solid growth strategy, reaching a revenue milestone like $100M is so much more difficult than most thing that it’s actually hard to describe, even if you have 10 years to do it. I wrote an article titled “Major Milestones Along the Path to $100M” if you’re interested in more on that.
To help think about the operational implications of being scalable, consider asking yourself questions like the following:
- If our business tripled next quarter, where would we break? If we knew right now that it’s going to happen, what would we do to prepare for it (tools, processes, people, etc)?
- If we decided to dramatically expand our geographic footprint, where would we break and what would we need to do to prepare for it?
- Is we suddenly closed a huge funding round and the investors wanted us to immediately shift from 3rd gear to 5th gear, what would that mean from an operational standpoint?