Anyone who really knows me knows two things about me. I am all about start-up growth and scale and I understand that there are no simple answers to complex issues. And scaling a startup is not simple. There are many things that can seriously impede growth. So, this post is about the many things that can limit your ability to scale an early-stage company. Many organizations struggle with growth and scale. Some struggle with getting the first few customers. Others, get the first few customers just fine, may even get funding but then struggle to successfully scale the business and achieve their potential. We have covered in detail some of the reasons for this in other posts.
Nothing frustrates founders more than building a great product only to have the market not buy or use it in sufficient quantity to justify company existence and get to profitability, cash-flow positive status or get funding. But it happens all the time. In general, founders are good at product development but struggle with sales issues, particularly as they relate to scale (where the founder can’t be involved in every single transaction). So, they are great at building products, but struggle with building companies that can scale that product into the market.
This time, we are going to go broad and not deep. We will look at a broad range of reasons that companies can’t scale. And, unfortunately, there are many reasons. There are also easy solutions to these scale issues, but most founder/CEOs don’t properly identify and effectively deal with these issues quickly enough (or ever).
- Founder Issues– Often founders are the only ones who can sell the company’s product for a variety of reasons. In some cases, it is because only they have the passion and knowledge to the buyer to buy the product. Or, they have used personal contacts/connections to get the first few sales and then quickly run out of those connections. Or, they simply do not know how to hire, on-board, train and manage sales people, which is required for scale. Finally, many founders turn into control freaks and constantly insert themselves into the sales and marketing process and never let sales people independently sell the product.
- Lack of Blue Ocean sales people.This was covered in a prior post also. The problem here is that Blue Ocean products require Blue Ocean sales people. Most sales people have experience in selling commodity products and struggle with selling something that has never been tried before. Their skill set and experience is more attuned to competing for existing demand and with known buying criteria. They simply do not understand that they need to change the buying criteria (which is not trivial) in order to get the sale.
- Wrong team– Founding teams rarely last in the long-run. Often, the founding team is fine at the product development stage but is the wrong team in the scale stage. But founders are often blind to the need to upgrade the team as the company evolves. Scale requires a strong and diverse team of people.
- Poor goal setting (low or no or no realistic plan to achieve goals) – Research continuous to prove that setting stretch, but realistic goals and having a concrete sales, marketing, implementation, HR, finance and product plan is essential to achieving growth targets. But many founders either do not set stretch goals, do not have a plan to achieve them or do not communicate the plan
- Too much human intervention required in the business model.This means that the services/software ratio is too high and the company can’t scale because of it. Many organizations (SaaS or technology) struggle with growth because there is still too much human intervention involved in implementation and product-use process. These organizations have built a product that is part consulting/part technology. If you have effectively planned for this in your business model, it may not be as much of an issue. It becomes a problem when the founder thinks his/her product is easier to use than it actually is and requires extensive and expensive resources to make it work.
- Lack of processes and procedures in implementation – A related issue to the above is where an organization has not built a repeatable and structured processes for implementing and servicing a customer. The bottleneck becomes the implementation process and the company often has to stall sales to keep up with implementations.
- Too much customer attrition– Obviously, keeping customers is essential. A company with a high customer attrition rate needs to make incremental sales for growth but also make up for lost customers due to attrition.
- Lack of proper lead generation– A company without a solid lead generation plan will always be starved for new sales opportunities. Balancing inbound with outbound programs is essential as is continuous lead generation. Starts and stops in lead generation kills scale momentum.
- Poor messaging– It is essential to develop defensible differentiation that the customer will pay for and then stay true to that messaging. Many buyers do not understand what you do and most don’t understand what makes you better.
- Not addressing common objections – We all know they are coming, right? These are the real or perceived objections from prospective customers as to why they are not going to buy your product. The objections can be cognitive (don’t understand), resource (don’t have the time, money, expertise), political (my boss or parent company won’t let me), motivational (I don’t see this as a priority or I don’t want to), feature (you don’t have a key capability that I need) or risk (you are too small or this is too important to risk change on). Without documenting all of the objections by category, knowing your defense of these and weaving these defenses into your sales process (preemptive strike), you are doomed to struggle with scale.
- Poor value proposition and no justification process– This tells your ideal customer why they should buy from you and not someone else and relates to the above point. Often organizations try to sell technology innovation rather than value innovation. Your value proposition for your buyer needs to focus on their benefits, not your features.
- No overall strategy– Having an overall strategy is essential for growth. This is your “How we will win our market” plan. Most organizations have a product plan but not a win plan for those products. This is particularly important for disruptive companies. Moving a market is not trivial. Without a true overall “win strategy” there is no company direction. People do not know precisely what to do. There is no coordinated effort.
- No sales process– Having a structured and repeatable sales process is also required for scale. Many organizations wander from step to step with different prospective buyers. This is inefficient and doesn’t to allow for measurement of where in the sale process they may be losing deals. Plus, a structured sales process makes it easier to on-board new sales people.
- Too long of a sales cycle– If the company has a long, drawn-out sales cycle, this impedes growth. The company needs to identify ways to shorten the sales cycle (without giving the product away). There are things that can be easily implemented that will shorten the buying process for a buyer.
- Poor sales process conversion rates– Once a sales process is developed, the company needs ot have the discipline to measure conversion rates from step-to-step. This allows for identifying where prospects may be disappearing from the sales funnel and also where the delays in the process may be occurring. Poor conversion rates require more and more leads to come in in order to achieve sales targets. Improving the conversion rates will dramatically improve the ability to scale.
- No sales partner or referral partner program– Many organizations do not take advantage of potential distribution or even referral partners. Or, if they have them, they do not properly take care of these partners. The often fail to realize that selling a partner organization is only the first step in being successful. The partners must then convince their sales people to sell your production then this sales people need to be properly trained to sell your product to the buyer. This requires effort that is often shocking to early-stage companies.
- Too much competition (Red Ocean)– If there is no defensible differentiation, you are selling a commodity product. Commodity markets are extremely difficult to penetrate since most buyers take the safe route and buy from the already established brands (which you are not one).
- Lack of market understanding of the value of the solution– It is one thing to have a great value proposition. It is another to get the market to understand, believe and buy that value proposition. If the market doesn’t “get it”, it is not the fault of the market, it is the fault of the startup. Clear, concise, compelling and continuous articulation of the value proposition is essential. Clarity and simplicity is essential. Many organizations fall for marketing-speak or technology -speak. Another issue here is a constantly changing value proposition.
- Lost your differentiation– This happens when the market has caught up to you or found your weaknesses. Often early-stage companies have differentiation, but quickly lose it. This is because it was not defensible and others quickly copied it. Or the company waited way too long to begin serious marketing and sales efforts and allowed the competition to catch up or new entries to take advantage of the opportunity.
- Crossing the Chasm – Many early stage companies still struggle with the concepts of Crossing the Chasm. They simply do not understand that early majority customers buy using a different criterial than early-adapters and that late majority and laggard customers use different buying criteria from early majority customers.
- Not taking advice from people who have already been down this dirty, ugly, messy path and already made all the errors– It still amazes me how most founders think that they are different and that scale issues do not apply to them. They will argue over already-proven advice falsely believing that they and their market is different. These founders also often never recognize that they are the limiting factor in their companies growth. They refuse to identify the problem and acknowledge where the true issues are.
So, there you have it. There may be more, but these are the issues that most commonly impede growth. If you are struggling, there is a 99% chance that the reason is outlined above. The trick is to 1.) recognize which of the above issues impact you (yes, there is probably more than one) and 2.) do something about it. In most cases, the solution is in issue #21. Get help. You can’t worry about “Imposter Syndrome” which is worrying that our weaknesses and lack of experience will be found out if we use outside help. No one knows all the answers and has everything figured out at the beginning. Not seeking guidance will lead to a much greater disaster down the road when the company fails and your dreams of success are lost forever.
To learn more about how to overcome scale issues in early-stage companies, contact Arbor Dakota.