The idea of scaling start-ups is like a mantra for every other founder. The framework is not suitable for every business though. It requires careful preparation and a timely launch.
Scaling is an exponential growth, where a relatively small investment can generate huge profits. That is, your revenue grows faster than you actually spend it. The net income is usually reinvested in further growth of the business. Yet the cost of user acquisition remains relatively low. The startup’s profits and resources increase at the same rate.
Growth is usually referred to as a linear term. The start-up’s revenue increases as they add new resources (capital, people, technology).
Before launching our product Zorka.Scale, a service designed to address the challenges of quick and sustainable scaling of startups that have already secured investment, we conducted a study of the startup ecosystem, on the basis of which this text was prepared.
1. Premature Scaling
90% of startups fail, 10% fail until the end of the 1st year, 70% — in the next 2–5 years.
The main reason for a failure is premature or late scaling.
Forbes describes the characteristics of start-ups that succeed as: ‘They have a product that meets a need, they don’t ignore anything, they grow fast, and they recover from the hard-knock startup life’.
It is not worth scaling a startup if you have not checked whether there is a market need for your product. Product market fit reflects the demand among the target audience and the size of the market. To check if it’s time for scaling, answer these three questions:
- Are the sales figures growing?
- Do all the founders share a common vision of the start-up’s future development and its growth?
- Is cash flow positive?
If you’ve answered ‘yes’ to all the three questions, then your start-up’s metrics indicate you are ready for scaling.
2. Start-up Lost its Focus
What is our long term goal? What are we doing to achieve that? When do we expect to reach that milestone? Are you struggling to answer these questions? On top of that, if you fail to consistently gather and analyze your key indicators, we have some bad news for you. You are making by far one of the most common mistakes for startups.
Marketing offers a number of means and approaches. In this overwhelming variety, it is easy to get confused and choose the wrong tools. The main marketing approaches to secure a start-up growth are brand marketing, performance marketing, and product marketing. Each approach is associated with a particular stage of the sales funnel: awareness → acquisition → activation → revenue → retention → referral.
If you haven’t worked through all the stages of the sales funnel (brand building, user acquisition, monetisation, etc.), and jump chaotically from one task to the next, you risk wasting valuable time, opportunities, investment and profits.
Take a preventive measure: focus on one or two tasks from the list. Diana Smith, Director of Brand and Product Marketing at Twillio Inc. calls them ‘gaps’ of a marketing strategy. Naturally, areas of responsibility of marketing, product and sales teams in start-ups can overlap, which results in these ‘gaps’.
3. Relying on Vanity Metrics
Occasionally, startups choose an endless number of metrics. But despite their progressive increase, they don’t contribute to business growth nor help reach your business goals. For instance, there’s no revenue increase, the number of active users is not growing substantially, or the brand awareness is built among the non-target audience.
The problem is that the start-up does not have a relevant metrics base.
‘Vanity metrics’ can reflect how well you are doing with growing your social media followers, getting more website visits and building-up the number of trial users. But they will fail to meet your business goals. You shouldn’t choose more than 2-3 relevant metrics as per goal. Moreover, it is vital you set the deadline for achieving them. The algorithm is as simple as that: set a goal → answer the question ‘how do we get there?’ → select accurate metrics to measure results.
4. Don’t Really Know Their Customers
14% of startups failed because they ignored their customers. Empathy and understanding your client’s real needs are the key to a long-lasting relationship. In order to get to know your clients, you should answer these questions:
- What problem do our clients need to solve?
- Why should they choose us?
- How can we be useful to them in the long term?
Ferdinand Goetzen, a growth strategist and public speaker, believes it is enough to identify the needs of your ‘best’ users. They demonstrate the highest LTV and Retention, and they are easier to engage and lead to a purchase. Also, these users independently promote your product, and they are loyal to your company. Study your clients and communicate with them – then you will be able to customise your product and its marketing strategy in good time.
5. Failure to Identify Product Value
If a product is not validated and the audience does not see its value, there is no point in discussing marketing strategies. A really cool product is designed in response to a real user demand.
Marketing can highlight your product’s advantages or sugarcoat some imperfections, but it does not solve the problem of a weak product.
6. Focused on Short-Term Goals
Long-term success cannot be secured by its individual aspects: knowledge of the customer, brand awareness, product validity or others. The only way to ensure that business goals will be achieved is through a clear marketing strategy.
Kirill Oreshkin, Strategy Director at Zorka.Agency, states: “The main goal of a start-up is rapid growth. To create a marketing strategy, we have to understand the market where the startup is operating. This helps us find the right tools to influence the audience. In other words, we need to find predictable and scalable channels – and scale them heavily!”
7. Neither the Team nor You get Appreciated
Last but not least, a lack of patience and respect for yourself and your team can, indeed, make a startup fail. The life of a start-up is a long journey, made up of ups and downs. Yet the ending always remains unpredictable.
It is fair to say that there are no two identical people in the world. Similarly, all startups are different, and they have their unique stories of scaling and business growth. Some are better at one thing, others at another, and that’s absolutely OK!
Be patient with yourself and your team, respect the ideals that set you on the path of a start-up and be grateful for any experience that awaits you. After all, launching each new start-up is known to increase the chances of success.
About the Authors
Viktor Ryzhov is a Head of Marketing Department at Zorka.Agency, joined the company in February 2017. Viktor is passionate about marketing and digital advertising. He is developing marketing solutions and strategic initiatives to build partnerships with clients and increase Zorka.Agency global brand awareness. Viktor graduated from the Business School of Belarusian State University. Based in Minsk, Belarus.