How to build a successful start-up
I started this series a late last year with the 1st blog on Generate an idea (but remember that it’s worthless) followed by In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users” and then Document your Plan A and Identify the riskiest parts of your plan and then Systematically test your plan, Get to release 1.0 and Reach product/market fit. And most recently Define your strategy . I have copied the intro to the series directly below and you will then find part 9: “Scale” – the subject of this post
Original intro to the series:
The goal of a founder who wants to create a big company is to find product/market fit in a large market – one that is at least £0.5B/$0.75B in size. Much smaller than that and a venture investors won’t be confident that he or she will get 10x on their investment (and note that it doesn’t matter at which stage you’re working, as if an early stage investor like us, we need to believe that we will be able to sell you onto a Series A/B investor who also has to believe he or she can get 10x and so on). It’s not right all the time, but it’s a rule of thumb.
The Lean methodology, thought up by Eric Ries and then evolved by many others, is the best way to work through the early stages to product/market fit.
We like Running Lean by Ash Maurya for a clear outline of what this entails.
What Ash excludes from his thinking is in-depth customer observations, as developed by IDEO, the design firm founded by David Kelley in Palo Alto, right next door to Stanford University, my alma mater, and a clear definition of “strategy” for the start-up.
(Overly) Simply put, we think a founder needs to take the following steps:
- Generate an idea (but remember that it’s worthless)
- In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users”
- Document your Plan A
- Identify the riskiest parts of your plan
- Systematically test your plan
- Get to Release 1.0
- Reach product/market fit
- Define your strategy (Goals, Scope, Competitive Advantage, Logic)
- Scale – the subject of this post
I will write a bare-bones explanation for each of these 9 steps with as many links and references as I can so you can read better writers’ thoughts on the subject.
And please note that at some point on this journey you need to find a co-founder. It’s pretty rare for a solo founder to manage it all on his or her own. It happens, but it’s rare. I’ll write about that as an additional point 10:
10. How to do the co-founder thing
And the last thing that you absolutely need is a great culture.
11. What is a great culture?
Here we go: SCALE
It’s crucial that you have achieved product/market fit before you attempt to scale (as my colleague Ash puts it: “Nail it before you scale it”), or you will run out of money pursuing the wrong customer with the wrong product/service – this is the NUMBER 1 REASON STARTUPS DIE according to the startup genome project. Webvan is a great, and extremely well funded, example of how things can go wrong when you haven’t nailed it.
You have reached early traction and are ready to scale when you retain 40% of your activated users month after month and/or >40% of your users respond “(a) Really upset” to the survey question: If we disappeared tomorrow, would you be:
a) Really upset
b) Moderately upset
c) I wouldn’t really care
d) I don’t use the product/service anymore
Consider implementing a Net Promoter Score, a better way of implementing the above “really upset” survey. Simply put, ask every customer the following 3 questions:
1) On a scale of 0-10, how likely is it that you would recommend my service/product to a friend?
2) What is the primary reason for your score
3) What could we do to improve your score
People who answer 9 or 10 to the 1st question are Promoters
People who answer 7 or 8 are Passives
People who answer 6 or less are Detractors
Your NPS is the % who are promoters less the % who are detractors
HOW TO SCALE & SOME CONSIDERATIONS WHEN YOU DO
Expand your team
Hire great people: it is said that with knowledge workers, the best employee is 10x more productive and impactful than the average employee. In startups the impact of good people is felt acutely, given they are a large % of the entire workforce. If they really are 10x more productive, then they’re worth a lot more cash too – pay out for them. If your assessment turned out to be wrong….
…Fire bad (or the wrong) people fast: have a 90 day performance review and don’t be afraid to fire someone who isn’t working. It’s the best thing to do for BOTH parties. Some startups will have a review every 90 days for the first 9 months and at the 9 month mark make a “final” decision to keep or remove that person given the additional challenges that exist in removing someone after they have been a full time employee after 1 year in the UK.
Note that at Episode 1 we focus in particular on the people you have hired around you. If great people are willing to take the opportunity cost of hitching their wagon to your horse we will sit up and pay attention. If you have attracted mediocre people around you we will not invest. It’s a terrible sign.
A challenging skill for many CEOs in our portfolio is to let go and delegate. To scale you NEED TO DELEGATE. That’s why you need to hire great people, so you can sleep at night knowing the stuff you used to do is in the capable hands of someone who is actually doing it better than you ever could (or at very least as well as you used to). You’re probably above average on the meglomaniac scale – this is partially makes you successful, but you need to focus on the stuff only you can work on. We invest in you to give you money to hire people who will help you scale. Spend it!
The Sales Process – to scale you need a sales process. Duh.
Mark Suster writes about PUCCKA – Pain (n.b. RoI selling); USP; Compelling event; Champion; Key Players; Aligned Purchasing Process – as an overview to the sales process. We agree with every word so won’t re-create the wheel on that one.
Don’t worry about your competition
As mentioned before in this series, time worrying about your competition is rarely time well spent. However, what you must do is regularly have a session with the right team members in your organization to think about how a startup might attack your growing position in the market place. Once you are in the privileged and well-earned position of being a company a startup might want to disrupt, there will be a dozen startups trying to do just that. Make sure you give them as few avenues of attack as possible
- Get a junior or an intern to track new entrants in your market and how they are innovating. Piggy back on their innovation if it fits your Mission
- Spend time thinking about how you would attack your own company’s market share and do something about it – something the Pentagon spends a lot of time doing
- Read Antifragile by Nassim Nicholas Taleb and adopt a mindset of antifragility and try to imbue that mentality throughout your organization – be flexible, don’t be afraid of attacks and failures but learn from them and grow from them. As a startup you have the enviable position of being flexible in comparison to a large organization. Embrace the pivot, whether small or large, if required. Others can’t do it, you can and should when scaling is not working
Listen to your customers only with caution
Post reaching product/market fit, listen to your customers with caution, particularly if you’re B2C. You obviously need to know what your customers want (if they know what they want), but at the point of scaling, you have already been through this process through in-depth observation of your customers or potential customers and through reaching product/market fit.
- It is crucial to measure data generated by your customers – those are facts; actions they have actually made and hopefully paid for
- Customers will probably bombard you with requests for features that they actually don’t really want or at least won’t pay for
- Non-customers will probably bombard you with requests for features that they think will make them use your service, but won’t
- Focus on the core, focus on the data and only add features to your service with caution
- In B2B businesses you can afford to spend more time with your customers, but at the point of scaling you will hopefully already have used the customer development methodology we advocate at Episode 1, so you will have designed a product that fits your market beautifully.
- Don’t necessarily listen to big potential customers…if they are asking you to create a feature that isn’t part of your priorities. It will just waste time and lead you to lose focus on the core priority
 Will Herman in Do More Faster by Cohen/Feld; Wiley. Page 76