Many startups are founded by a brilliant technologist who can build better products than anyone in their industry. A case in point is Steve Wozniak, who designed and built the first Apple computers. Yet Wozniak's technical genius would have been for naught if Steve Jobs had not made potential customers eager to own an Apple computer.
Neither Apple cofounder could build an organization capable of managing all the functions required say, to order and take delivery of supplies; then manufacture, ship, and service those computers.That scaling task fell to Mike Markkula, a former Intel executive. He was able to adapt the organization -- changing its positions, roles, titles and responsibilities as Apple grew.
My recently published book, Scaling Your Startup: Mastering the Four Stages from Idea to $10 Billion, provides a roadmap for how to do that. It starts with knowing which stage of scaling your company is at from the following:
- Winning the first customers. At this stage, the number of customers and number of employees grows very slowly until the company has established that customers will pay for its product.
- Building a scalable business model--e.g., one that gets more efficient as the company grows. At this stage, the number of customers is growing very quickly and while the number of employees advances more slowly.
- Sprinting to liquidity--investing to get big enough to IPO. At this stage, the number of customers and the revenues are growing at the maximum rate - often faster than 100 percent -- while the number of employees and the company's overall costs grow more slowly.
- Running the marathon--sustaining rapid growth after the IPO. Customers at this stage may grow at 20 percent and the cost of people and other costs will grow more slowly - and revenue and profit per employee should accelerate.
Do you have what it takes to scale your organization from an idea to a public company? To do that, you'll need to change your organization at each scale of staging. To test whether you have what it takes, see if you can answer these three questions in the affirmative.
Can you build an effective team to win your first customers?
If so, you can identify the most essential skills your business needs to win its first customers -- usually product design and sales -- and build a founding team that's strong in each skill.
San Francisco-based Ethos, a life insurance startup, rapidly turned an idea born of one of its cofounder's unfortunate decision into a company that raised a big round of seed capital and grew to 20 people within three months of its launch.
Its two cofounders split up the key duties effectively. Linke Wang used his design thinking approach to manage product development and hiring. CEO Peter Colis, whose grandfather was a successful life insurance salesman, liaised with investors, partners, and the media.
Can you make your company more efficient as it grows?
If you can create departments to become more efficient in key functions -- such as engineering, sales, marketing, and customer service -- you are on your way to building a scalable business model.
The easy part is designing such an organization -- but it's hard to change the people in the boxes and make sure everyone works well together.
A company that scaled well is San Francisco-based job site Hired which by 2018 had raised $132.7 million and was growing at 300 percent a year. Its organization became more specialized as it grew.
As its CEO, Mehul Patel told me in August 2018, "Early on we hired generalists before we had product/market fit. As we grew up, we added functions and looked for specialists and the generalists left. Our departments include engineering; marketing -- to candidates and companies -- along with brand and PR; and sales."
Can you transform your team to grow efficiently to $100 million?
If you can hire general managers to bring in revenue from new geographies, new product lines, and new channels of distribution, you can grow rapidly to $100 million
Redis -- a cloud database supplier growing at a 60 percent annual rate -- was rapidly reaching the scale needed to go public in 2018. It had low customer churn and was doubling revenues per customers within 18 months.
Underlying this success was Redis's skill at scaling. As CEO Ofer Bengal told me in August 2018, "When we first started, everyone did everything. Before you have a product it's hard to attract top talent in Tel Aviv and Silicon Valley, so you take what you can get. Today it's easy to attract talent."
Most founders don't make it to this stage. If you can, you are what I call a sprinter -- if you can continue through the fourth stage, you're a marathoner.