The most exciting and--we might argue--important stage of a startup's life is the beginning of the scaling process. You have your product or service figured out, and now it is time to get things going!
It's during this stage that you will learn if you are going to make it or not.
Your decisions at this stage will determine if you are going to scale or fail.
From our seats as entrepreneurs and investors in many successful--and some unsuccessful--startups, we see that most companies fail to navigate the early opportunities for rapid growth. There are a number of reasons why startups fail versus scale, from drowning in high customer acquisition costs to poor management.
The biggest mistake we see are startups who are trying to expand geographically without a plan.
Let us help you shortcut your startup and follow these simple rules when the time comes for you to strategically expand your business.
Before you even think about expansion, you first need to know who your target customer will be. Knowing your target customer is invaluable data that will facilitate your product and company's growth. If you haven't yet identified your target market demographic, STOP. Do not pass go, and do not collect $200 dollars.
Get into the trenches and find the specific people who have the problem that your product or solution solves.
Now that you have your target, it's time to consider how to expand into new channels.
But understand that fast expansion is not always better, especially if your expansion is random.
Start small and expand locally before attempting to tackle new cities or states. With the exception of a SaaS provider, it certainly matters for consumer-oriented businesses to have a growth plan that builds momentum locally. For instance, if you sell your product in a few grocery stores in Santa Monica, contacting a Whole Foods in New York City should NOT be your next move.
Think small and focus.
If you are able to sell in Santa Monica, then focus on getting your products to the shelfs in Venice Beach, then the rest of LA, and then consider expansion to Southern California. If you find that the product is doing well, then maybe consider strategic expansion to the rest of the state. This is the exact strategy we employed when we started Veev.
We sold the first 500 bottles in Santa Monica, then 1000 and we just kept grinding. That's the only way we knew how to do it. Face to face. For six months that was our life. Selling liquor out of our Prius.
We saturated our target market, and since we were in all of the trendy bars in one geographic area, people started to recognize it and started to drink it. Then they would tell their friends about it, and start asking for it in bars that we weren't in.
When your target customers start word-of-mouth referrals, it will greatly expedite your product's expansion. Word-of-mouth marketing is the most effective and cheapest way to expand your brand's presence and ultimately build customer loyalty.
People in Santa Monica who discovered VEEV started to tell their friends nearby in Venice Beach to try out your product. And that is when things really started to get exciting. Our concentrated efforts got us top of mind, and we had bar owners contacting us to learn more about VEEV because people were asking for it!
Our focus on local helped to create a buzz and that is a big reason that we were discovered by a major distributor.
If you don't understand the importance of your target customer, you will fail.
But when you correctly identifying them, then focus on serving them, it pays dividends and you will start to scale.
So, why does it matter to start small?
Because you are a startup, and you have to start somewhere. But beware, because as you start to gain local traction that is when you need to get picky.
Be targeted in your expansion and don't move into all stores that will accept your product.
While it may be tempting to do so, having more product in random places won't pay off down the road. Expanding randomly will dilute the buzz that you built in your local markets with your target customers. If you place your product in too many places, you will actually lose traction and the odds of successfully scaling your company will stack up against you.
Having seen hundreds of companies scale and fail. We know first hand that moving into new retailers and locations is usually a chaotic process that takes time, money and is unpredictable.
We get it because we see it happen all the time. Startups positioned to scale will fail if they try to be all things to more than just their target market.
It does not have to happen to you.
You can shortcut your startup by developing a detailed plan of how to expand. You must first start local, saturate the area and get people talking about your product. You need to be selective of where you put your product and generate word-of-mouth buzz.
You may think that you need to expand, but what you really need is an expansion plan.