To build a successful business, you need more than a good—or even great—idea. The cold, harsh reality is that 75 per cent of venture capital-backed new companies never return cash to their investors – while according to one prominent VC only about five per cent ever fall into the “truly interesting” category.
So where do these new businesses typically come unstuck? The answer lies in arguably the most fraught moment on the startup rollercoaster: the aftermath of raising early-stage Series A investment. That’s when entrepreneurs must start scaling their business, from a bunch of mates in a co-working space to a team of 100-plus – often scattered around the world.
From sourcing talent to finding customers, managing company culture to assembling a board, the barrage of problems founders encounter can at times resemble an endless game of whack-a-mole, played while juggling the everyday stresses and strains of running a business without burning through cash.
Over the past year, we’ve interviewed some of the most successful entrepreneurs and investors for Upscale, a new book on how to scale a tech startup. Here are a few of their tips.
1. Try to be aware of your limitations – Hire the Right People
Flexibility is key when it comes to rapid growth. Being able to adapt to changing circumstances and market conditions can help your business thrive.
“Founders, along with other key people, can sometimes be a limiting factor in a company’s growth. People who are right for a certain phase may not be right for the next.
It works in both directions – there have been plenty of cases where a startup has brought in a highly experienced person with a glittering CV, but they’ve failed to make an impact. But equally, you’re going to also have leaders who were brilliant early on, but at some point just don’t scale with the needs of the company.”
Rerecruiting and growing the workforce is a key challenge. Therefore, hiring the right people and managing workload is essential for scaling up the business.
2. Find out who makes the decisions
“Always find out who the decision-maker in a corporate is. There’s no point in taking meeting after meeting with people who can’t say yes. Aside from creating that sense of fomo about your product or service, find out where the sign-off will come from.
Then work out how to get in a room with that individual. Too many people are just too nice and tread carefully. Ask up front about a corporate’s processes, and if the person you’re meeting isn’t the decision-maker, then quickly find out who is.”
3. Go for home-grown talent over experience
Building a strong team is essential for fast growth. Hiring the best people can ensure that your business is well-equipped to achieve its goals.
“When you’ve raised a lot of money, it’s very easy to go on a hiring spree. We made precisely this mistake; we were so excited to fill the [new] roles that we just started hiring people because they had experience. But before you decide you need someone with five years’ experience from a large corporate or tech platform, give your home-grown talent a chance.
Our best hires have been our interns. When you watch people like that rise up, it gives everybody confidence because they know they’re in a meritocracy.”
4. Don’t sell umbrellas to camels – Know Your Ideal Customer
“One of our team says: ‘Don’t sell umbrellas to camels’. What he means is make sure you understand who your ideal customer is and focus almost exclusively on them. They are far more likely to become referenceable customers, who can then provide air cover for your sales leads, [by giving your company] a great reference.
If you’re an enterprise business, then referenceable customers are huge. So over-index on keeping them happy. It should get markedly easier the more of them that you have.”
Too many businesses forget the importance of providing great customer service. If you deliver better service for your customers, they’ll be more inclined to come to you the next time they need something instead of going to your competition. High-quality service is one key to obtaining competitive advantage in the marketplace.
Some businesses refer to this as a taking a consumer-centric or client-centric approach.
In fact, in today’s hyper-competitive business environment, service is often the major differentiating factor between successful and unsuccessful businesses. This is where the saying “undersell and overdeliver” comes in, and savvy business owners are wise to follow it.
5. Don’t drink the Kool-Aid
“Founders have to pull off a near-impossible trick: they have to distort reality – because they are selling a vision of something that doesn’t yet exist – but not bullshit themselves. As the Americans say: ‘Don’t drink the Kool-Aid.’
As an investor, I look for entrepreneurs who can describe their strategy in level-headed terms and articulate the steps they need to take. I’m asking what their insight or unfair advantage is that makes me believe they are the ones that can achieve what they say they can.”
6. Always be ready to get your hands dirty
“If you’ve done the operational processes yourself, it gives you credibility internally – and even if they can do it better than you, your team will respect the fact that you’ve had a good go at it.
You have to keep doing what is necessary to be successful, day in and day out. This will create long-term positive habits that will help you make money in the long run and create satisfied customers from day one. Customers value consistency, too.
Throughout all my time as a CEO and four years as a public CEO, there were many occasions when, even though I was no longer doing those tasks, if someone told me something about any aspect of operations, I instinctively knew whether what they were saying was rubbish or not.”
7. Weed out the wrong investors
“Try to weed the ‘wrong’ investors out of the fundraising process as quickly as possible. Fundraising is like running a sales process: you need to work out fairly quickly who your runners and riders are, and not waste time on people who aren’t going to get to completion.
In an ideal world, founders want to end up with no more than three or four term-sheets [investment offers]. That’s three or four VCs you’d be happy to work with. Then you’ve got something you can use to try and generate the best deal for yourself.”
8. Be Creative
Always be looking for ways to improve your business and make it stand out from the competition. Recognize that you don’t know everything and be open to new ideas and different approaches.
Keep an eye out for opportunities to expand your current business or develop related enterprises that will lead to additional revenues and provide the benefit of diversification. The history of Amazon provides a good example. The company started out as an online bookseller and grew into an e-commerce giant, selling just about everything. Today it has a growing brick-and-mortar presence, as well. Among its many subsidiaries are Amazon Pharmacy, Amazon MGM Studios, Whole Foods Market, and Zappos.
9. Stay Focused on Your Goals
The old saying “Rome wasn’t built in a day” applies to building a business as well. Just because you open a business doesn’t mean you’re going to start making money immediately. It takes time to let people know who you are and what you have to offer, so stay focused on achieving your goals.
Even many small business owners who ultimately achieve success won’t see a profit for a few years and will have to rely on borrowed money (if they can get it) or their own savings to support the business until it can become profitable. Fortunately, there are a variety of ways to finance a business.
That being said, if the business is not turning a profit after a reasonable period of time, it’s worth looking into why that is and whether the business needs to go in another direction.