It’s late on a Friday afternoon in the summertime, and, as the CEO of a hot startup, you should be feeling pretty good. The key metrics on your monthly dashboard are all glowingly positive. Revenues have passed $400K per month and are accelerating. The Company just turned cash flow positive. You just hired your 25th employee – a ninja developer who came from a larger competitor. Well known investors call every week wanting to invest in your next round. And yet you are nervous. All of things that used to be easy to do in your business are getting harder, and you don’t know why. The answer is simple:
You’re not running a startup. You’re running a Scaleup Company.
Defining The Scaleup Company
On the surface, scaleup companies look suspiciously like startups – relatively few employees, one or two products, a small number of customers, and not much of a brand name. In operation, they act quite differently. A lot of companies don’t successfully migrate from startup to scaleup. To make sure your company does, you need to rethink how your entire company operates. It won’t be easy, it will be painful, and, if you want a high value exit, it’s absolutely necessary. Let’s examine the things you need to do to become a successful Scaleup company.
Solidify your market position
Your startup team went through a lot of pain to birth your first product. You experimented with pricing models, smothered prospects and charter customers with attention, and figured out where you play versus your competitors. Customers are now buying your product. The next step is to maximize market penetration. You should focus on:
- Delivering consistent the same consistent, repeatable messages to the market and customers through multiple channels.
- Documenting success stories from your charter customers and leveraging them to gain your next set of customers.
- Gaining coverage from industry analysts. For a new Scaleup company, becoming a Gartner “Cool Companies to Watch” endorsement is a big deal.
- Comparing your product with your competition’s products – highlighting your strengths and minimizing your weaknesses.
For your first ten customers, you did just about anything to bring them live and make them successful. For your next 100 customers, you need tell the same story every time – with minor variations based on a vertical market or your competitive position in an account.
Embrace specialization across the company
In a startup, it’s a big advantage to have employees who can do many things well. It’s not unusual to have to CEO also running sales and marketing and the CTO also serving as the head of product, support, and professional services. As your company grows, this model breaks down for several reasons:
- There aren’t enough hours in the day to get all the work done.
- You need deeper levels of expertise in all of your key functions across your company.
- You don’t have enough people to serve all those new customers you’re signing up.
- You need more arms and legs to go get the next set of customers.
You need to bring in specialists to take on the key roles that make scaleups successful. Some of your founding team members may resist this, because they like the variety and velocity of their startup roles. You still need to plow ahead. Here’s what specialization looks like for the key functions in your company:
|Sales||CEO/CTO Selling||VP of Sales-led sales force|
CEO no longer meets every prospect or new customer
Structured sales management process in place with monthly and quarterly tracking
|Product Management||CTO led – founding team decides features||Market focused product management led by a Head of Product who is a peer to the CTO|
|Marketing||Lots of experimentation with frequent changes in messaging||Structured marketing programs that deliver consistent messages to prospects, customers, and analysts.|
|Founders know each new hire well professionally and personally||Systematic recruiting|
More new hires based on skills, not personal connections
Less knowledge of the skills of new employees
Industry standard compensation models
|Product Development||Small, hand-picked development team|
Deep integration among team members
Led by the CTO, who may also control the product roadmap
|More than one team working of different components|
Highly structured development processes
Increased focus on scaling and support for products in operation
Less control over the roadmap
Split of R&D for new products and product delivery for existing products
Separation of professional services from product development
|Finance||Bookkeeping to pay the bills|
Rudimentary performance metrics
Simple forecast model
|Full finance function|
Budgeting process in place, including more detailed forecasting model
Metrics implemented and tracked across the company
Implement repeatable processes to lower risk and increase predictability
Creating a startup is all about embracing risk – mortgaging the house, maxing your credit cards, straining your marriage, working for low or no wages, fearing competitors both new and entrenched, and signing those initial contracts that you’re not quite sure you can deliver on successfully. A startup navigates twists and turns, and, frequently, the future depends on whether a single customer decides to sign up for your product. The scaleup company is quite a different animal. It’s all about minimizing risk and creating predictable growth and profitability. You do that by creating and implementing repeatable processes across your company. Here are some examples:
- Sales management processes that enable pipeline building and tracking of individual performance. This allows you to create accurate financial forecasts that will improve your ability to run the company and give a lot comfort to your board.
- Software development processes that provide visibility into what’s being developed and when new releases will be available. This enables you to sell the near-term roadmap to prospects and existing customers with confidence and credibility.
- Systematic, measurable marketing processes to generate leads and promote your company. Here, you satisfy two, important goals: Creating a growing a predictable set of qualified leads at the top of your funnel and increasing the awareness of your company across multiple communities, including prospects, industry analysts, and investors.
- Professional services processes that streamline the implementation of your products while causing the minimum amount of disruption for clients. High quality implementations get your company to revenue faster and create happy customers for the long term, and it almost always works better when pro services experts do the implementing as opposed to your product development team.
Pivot to management through objectives, accountability, and guidance
When your company gave birth to its first product, it was a complete team effort. Even though you are the CEO, it’s likely you functioned as more of a team member with authority than the boss of all things. That’s because creating good version 1 product requires all hands on deck, and titles don’t matter much. Now that your company is zooming past $5 million a year in sales, there are way more things to oversee. Here is a partial list:
- Your growing sales pipeline.
- The formation of a national sales force.
- Possible international expansion.
- The rapid influx of new employees across the company.
- The launch of version 2 of your core product.
- The development of version 1 of your next product.
- Putting in place financial systems that you’ll use for the long haul.
- Refining your message to the market and to industry analysts.
- Making sure that you can support dozens or hundreds of customers.
- Rounding up your next set of investors.
What do these things have in common? You depend on your managers and their teams to deliver quality results on time and on budget. This means that you need to lead more by managing than by inspiring. As a scaleup CEO, you need to:
- Work with your direct reports to define goals for your key functional areas.
- Track those goals and measure the results.
- Solve problems by providing advice and making course corrections, when needed.
- Manage and get the most out of a larger number of stakeholders that are betting on the success of your business, including:
- New investors, who have just put millions of dollars to work in your company.
- Existing investors, who don’t want to get deleted and still want to have a say in how you run the company.
- A growing roster of customers, who have bet part or all of their business on your product.
- Employees, who expect a good work environment and outstanding performance from their colleagues in other departments.
- Service providers that actively promote your company to the market, such as attorneys, accountants, and marketing consultants.
- Industry and financial analysts, who track your company and products and want to feel like they have an honest and in-depth view of your company.
- Suppliers, who provide goods or services and need to feel like you will be a predictable partner for the long haul.
The Big Conclusion
As you fully enter scaleup territory, your work life is more complicated and possibly less fun. The upside is that your company is making real progress with a growing customer list, a good product in the market, more products on the way, an expanding team, and increasing industry recognition. You are closer to the exit you dreamed about when you and your co-founders started the company. Think about it this way: Startups have a limited lifespan. They either die or become low-value lifestyle companies. Scaleups can transform markets, delight large numbers of customers, and create real economic value. Embrace the scaleup. It beats the alternative hands down.