How To Accelerate Your Startups For Profitable Growth
As a startup CEO, I slept like a baby. I woke up every 2 hours and cried.
- Ben Horowitz
Ben's quote is a perfect example, to sum up, what exactly a startup CEO and the ones managing high growth companies go through.
Countless startups are created every year, with ambitious founders hoping to create the next Instagram, Uber, or Facebook.
But the fact remains that only a very small percentage of startups ever achieve the growth needed to become billion-dollar companies.
There are more startups than money, talent or consumers can support or even VC money can fund. We're reaching a point where the pendulum is swinging back in the other direction for startups to be profitable. I mean profitable beyond just on a cash flow basis. This should always be a goal from day one with your startup.
There is a difference between profit and growth.
I think it is a misconception to polarize profit and growth, that you have to choose whether you want to grow or take profit.
I think many businesses, including startups, have to have eventual profit in mind. This is an important mindset because some people just think about growth and say "let's think about profit later", while some other people, being skeptical about the former, think "we are not like them, we focus on profit".
Any business has to eventually be profitable — what difference is if you target to be profitable on day one, or if you need investment both in time and money to eventually be profitable.
Focus on the network effect for the growth of your startup
To focus on growth, you still need great products, but instead of few loyal customers, what you need more is virality, the network effect, which is the ability to quickly attract people who haven't used the products yet.
Let's take Facebook as an example, compared to, say, reading apps. If 80% of your friends use this reading app, and you are the remaining 20%, you still won't use the app if you don't like to read. But if 80% of your friends are on Facebook, chances are, you will use Facebook (even if you might feel you are forced to do so) because people are talking about that viral post on Facebook. You will experience FOMO if you don't install and use it.
This is a network effect. Facebook has this and now they become a very profitable company.
The question then becomes: How do you build a startup engine to fuel your growth?
Answering how you fuel your growth can be the difference between being number one in your space and being dead last.
Though you don't have to be number one in your space to win. You could be number two or even carve out a niche focus within an industry that attracts customers to your brand.
Growth is the result of doing the right things at the right time with consistency. The reason why most startups don't grow is that they don't know the "right things to do" for achieving growth. So let's take a peek at the following factors to accelerate growth.
You would be amazed at the numbers of entrepreneurs who are focused on building their brands and business that they exclude customers from the business model. It is okay to build your website, print your cards, design your logo, etc. However, it is not ideal to focus your resources on building a business with no customers. Customers must be at the heart of your daily objectives.
Successful entrepreneurs know who their customers are and what they want. They then go-ahead to create a customer experience around these components.
Know what your customers want and what your company does best. Focus on where those two meets.
For your startup to succeed, you need a proficient team.
Steve Jobs once said, "The secret of my success is that we have gone exceptional lengths to hire the best people in the world."
No matter how clear your visions are and where you are going, the reality is that the growth of your business depends on what your team does daily. It is therefore important to note that if you want to build a successful business, you must build a strong and efficient team. Find the right people, with excellent skills, and are better managed.
Also, you can provide your team with access to information and resources needed to understand your business and their responsibilities within it to help fortify the company to endure the changes and strain of innovation. A startup can accomplish many things when its team is hardworking, inspired, competent, and believes in the company's vision and goals.
Measure operational efficiency
Building a strong company culture will be of great help as you scale your company. But as your headcount increases exponentially, you also need to pay close attention to operational efficiency.
Interestingly enough, cash tends to burn pretty well. The very first thing you want to know is at which rate you can keep hiring, to keep your burn rate under control. That means modeling your growth against your revenue plan, by building financial and operational forecasts. This will help you understand how you're going to burn money.
Some questions you need to ask yourself for further scalable growth of your startup
- Does it make sense to scale your sales team with tools and software, or should you keep adding more agents?
- What about other functions in the company? What exactly drives revenue, customer acquisition, user growth? And where do you have the best leverage?
Think about metrics that will inform you on how well you leverage your people across the company. You want to be in a position where you have a detailed understanding of how efficiently you are running the business.
From there, it will be much easier to adapt the organizational structure, and it will help you do it with clarity, sharing with your people what you optimize for.
Poor Product-Market Fit
Consumers face a problem. You have a product or service that's the perfect answer to the problem. Consumers love your product. There's "product-market fit" for you, in three sentences. Well, almost.
Product-Market Fit or PMF is the first step towards building a successful startup.
It's not enough that there's a ready market for your product. Demand for your product needs to be steady, scalable, and most importantly, profitable. A consumer who admires your product but can never afford to buy it is an example of a misaligned product-market fit.
There are various ways to ensure PMF, with nearly all of them starting with understanding your customer.
- Get one on one with your potential customers and get to know their most critical pain points.
- Check how these fit with your product capabilities. Consider if you can tweak your product to fix their problem areas.
- Check if your addressable market is large enough to offer you scalable growth for the foreseeable future.
- Get continuous feedback and iterate to keep your product as relevant as possible.
No Attention to Customer Retention
As a startup, it's logical that you spend your days reaching out to as many new users as possible. This process of acquiring new customers, establishing your business, and creating a market is necessary, without a doubt.
However, a startup's troubles begin when it acts like it's in customer acquisition mode even months and years after its launch. Once you're already in business and have served a few customers, it's your job to make sure your customers are a happy lot.
Not only do satisfied customers spread positive word of mouth for you, but they're also more likely to buy again from you at zero acquisition cost.
Data compiled over the years supports the fact that it's decidedly easier (and cheaper!) to attract an existing customer than a completely new one.
In a study of retailers across the US, Adobe found that repeat visitors were the ones that consistently brought in the big bucks for retailers. Though they made up a mere 8% of total traffic at retail stores, they accounted for 41% of the revenue generated.
The moral of this story?
Go aggressively after new customers, but do not forget about your existing customers. They are your insurance policy when times get hard and new customers are tough to come by. This applies all the more to retailers and local businesses — all you have to do is integrate a loyalty and rewards app like Goody with your eCommerce site and use customer data to increase revenue.
It's better to have 100 people who love you than to find a million who just sort of like you. Build your business one person at a time. Just focus on 100 people. If they love you, they will market the product for you and tell everyone else. Go to your users. Do one scalable thing, one person at a time. It's that simple.
Start by focusing on early adopters
If you look at the top startups from the past two decades then you'll notice that all of them began by first dominating small segments of their markets before then trying to take over the mainstream:
- Facebook dominated Ivy League universities before moving beyond the educational field to target the wider society.
- eBay customers were the first to use PayPal, with PayPal dominating that market entirely before moving onto other areas.
- Upon returning to Apple, Steve Jobs put an end to many of the company's products and chose to focus exclusively on creating computers that creative types would love (musicians, designers, photographers, tech geeks, etc.).
- Snapchat began by going after and dominating the teenage market.
- Instagram zeroed in on hipsters, foodies, and other unique, artistic types before becoming steering toward the mainstream.
What these companies (and many other high growth start-ups like them) did is successfully execute on when to cross the chasm from the early adopter segment to the mainstream population.
Dominate the early adopter market first, fix your bugs without fatally damaging your reputation, and establish your brand name — these are the key steps to convincing mainstream customers to give your product a try.
Don't stop innovating
If you stay stagnant so will your earnings. Continue to innovate whether that is new features of your existing product or brand new products for the existing audience.
Growth or profit? For tech startups, it's the million-dollar (and sometimes billion-dollar) question.
If you want to expand your business, you generally have to spend money. But how much is too much?
When does growth at all costs become a reckless strategy? How do you find the optimal balance between growth and burn?
So many questions and no one to answer.
Don't worry we at HappyChases are more than happy to help.
Drop your questions below in the comments section and we will be there for you, until then.
Let's do the hustle baby ❤️