After our previous article on building an MVP, you might have got the idea that once MVP is released, you can finally sit back and enjoy your work. Though you definitely can because you deserved it, the main question will still remain at the back of your mind– what’s next?
Staying in the format of a startup until someone just buys you off is one of the options. This is what Yuri Gurski and Gagarin Capital did with their MSQRD startup. Only a year after the launch of their VR masks, Facebook acquired their small project at the cost of $117 million. But frequently, an MVP is not enough for big investors and buy-outs to look at you, so you need to grow. Or maybe scale? Or both?
Well, whether to scale startup software or to grow is up to you completely. But you need to understand that regardless of the path you choose, it needs to be done carefully and “by the book,” otherwise, you get a 50% risk of losing your new company in the first five years. So, before we get to the explanation of growth vs. scale, let us define the prerequisites for this step.
How not to fail after the MVP
Statistical data proves that year-by-year the number of young entrepreneurs worldwide grows. Yes, 2020 was a setback due to the COVID-19 pandemic, but the tendency is consistent for all industries. Since we are a tech company and you are reading our blog, we can assume that you are in the tech business as well or consider joining the ranks.
So just to outline your competition, we need to say that out of 305 million startups created in a year, 1.35 million are tech-related. These numbers only show that you are not alone in your desire to break through the mundane life and join the force of the bright young minds. Such an upsurge also demonstrates that the competition is fierce, and you will have to fight for your place, literally.
Are you scared enough? Well, don’t be. There are always ways to stay ahead if you carefully plan your steps after the MVP release. So let’s see what you need.
Yes, you want and need to grow and increase your profits since the ultimate goal of every business is to earn money. But rushing into further development can become the last stage of your startup growth if you treat initial positive feedback as the set-in-stone guarantee of revenue growth.
You need to prepare your current small business for a change, not only in terms of functionalities or features but also backend, performance, and even the team.
Focus on steadiness
If you have ever heard of startup incubators or accelerators, you know that they aim for the fastest time-to-market numbers. This means that you make your MVP, get the primary round of investments for the first growth/scaling, and then you are on your own.
While the strategy proves to be suitable for the first couple of years, further startup development seems to be blurred. So even if you decide to go for an accelerating program, take your time with the MVP, do the research, consider further steps, and focus on the long-term development strategy.
Monitor the market
There are times when growth is good, and there are times when it is not. To put it simple, if you are selling masks, then the COVID-19 pandemic is the best time to scale up. But it is not the right time if everyone has already been vaccinated.
The feeling of the market is crucial to scaling your startup. Read the trends, follow the social media influencers, check for the increasing tendencies in your niche. You need to predict the market direction to be just in time with your business growth.
Consider the real-life examples: Xiaomi predicted the smartphones usage increase and launched a multimillion-dollar company. Uber appeared on the horizon just when the shared economy trend was starting to spin.
Set up the team
Readiness and will to scale or grow is great, but it can turn into a disaster if your team is not ready. Deloitte reported that B2B scaleups tend to expand better than B2C ones owing to the initial carefulness in the team setting.
Why the team matters?
Let’s say that your software currently operates for 1000 users. So you decide to scale or grow, as a result attracting 10,000 new subscriptions. You need to ensure that your team is ready for the performance overload and the inevitable bugs that will be detected. There will be multiple obstacles with scaling or growing, and a startup needs to have a reliable team to handle them all.
Growth vs. scale: which path is for you?
Before we go into the idea of scaling the startup process, there are a couple of important concepts to define: startup vs. scaleup and growth vs. scale. Let’s start from the former.
Throughout the first section of our article, we talked about startups for a reason. A startup is a new company that has big plans to expand. And a definitive feature for a startup is that it wants to grow but does not know how or where. A startup is an idea that has spiked and does not have a defined plan for further development: which market or niche, which feature or target audience, etc.
After a startup proves its business model through an MVP and defines the forthcoming action, it can be called a scaleup. In market terms, scaleups have more than just an exciting and working MVP; they have numbers to prove their idea is working, a reliable team of developers, and the numbers for the expected revenue after the expansion.
So it’s better to be a scaleup before you actually begin searching for additional investments.
Growing or scaling?
Now, we assume that you are a scaleup, so you know what path you will be taking. But the question is to grow or to scale. And here is why it’s necessary to differentiate between the two.
By growing a business of any size, you are increasing a company’s profit through investment. This investment may go to resources (employees, offices, location, technologies, etc.). The logic of growth is simple: you need to invest to make something out of it. Since there is a direct dependency, business growth is seen as a linear process.
By scaling a business, you are also increasing a company’s profit, but the methods might not be finance-related. For example, you can review your current processes and eliminate an extra step, hence increasing productivity > sales > revenue. Or you can automate the software testing to save the budget and repurpose it. Of course, scaling can include additional funding; yet, it is not a prerequisite for this process.
So to compare the two, take a look at the table below:
Growing takes time and money to reach the desirable result, but generally, this result is more or less guaranteed. For instance, if you’ve got more clients, you need to accommodate your business for supporting them. Thus, you will hire more employees, which is risky and costly, but it directly leads to order fulfillment and revenue generation.
Scaling requires a smaller budget, sometimes even none, yet it may not bring you the expected numbers. Let’s say that you get more clients, and instead of investing in new developers, you decide to cut the beta tests and set shorter deadlines for your team. The absence of beta tests might lead to lower quality, which will not be accepted by the client, hence making your team work on the project even longer.
Shorter deadlines would definitely impact project quality and team mood and might even lead to employees leaving the company. But on the other hand, your plan might work, and everyone would be satisfied with what you are doing.
The growing path is mainly selected by established companies that have time and budgets to make steady and slow changes on the way to higher revenue. The scaling is frequently preferred by the young and small businesses that need to accommodate the changes within tighter budgets and timelines. Moreover, since scaling does not require much financial investment, it is a perfect opportunity to try out a new business direction without losing much.
We are not pushing you for either option since growing or scaling your startup is a decision that only you as the company owner can make. However, we’d like to facilitate this process for you, so read on to learn the smart and safe ways of expanding a small business.
How to scale a startup?
Yes, we said that we would not push you to a particular choice, and yet this section is about scaling, not growing. The reason why we don’t talk about growing a startup is that this process is more straightforward and less risky: you invest money to earn money.
With scaling, everything is a bit more complicated, requiring much thinking and planning. And keep in mind that this is a low-budget option, which is also a good reason for a young business to scale a startup, not grow it.
So this part of the article is dedicated to answering the question of how to scale a startup business, offering both do’s and don’ts, along with the signs when it is time for you to make this crucial step in development.
How to scale up your startup: 5 key steps
Step #1: Set up the strategy
By this time, you already know the direction to which you will be expanding. You have researched the market. And you have a tentative plan of action. Based on these three components, it’s essential to develop a more vivid strategy. At its core, the strategy needs to include:
- Company strengths and weaknesses
- Goals for every quarter of the first year + a 5-year plan
- Market analysis
- Info about investors (even prospective ones)
Do not rush into the following steps! The more time you spend on careful planning, the smoother your scaling would go. Consult industry leaders, check competitors’ experience, or simply ask the question “how do startups scale” at a StartUp Scaleup program.
Step #2: Invest in tech
Even scaling takes money. So if your budget is limited for this endeavor, make a smart investment – into your own future, your own technology. And at this point, we could just make a full stop because the list of tech assistance in your team is definitely unique, as it is based on your project idea and startup development strategy. However, we’d like to offer a generalized look at the useful tools that a startup can benefit from.
- Hootsuite (for SMM)
- MailChimp (for email marketing)
- Mangools (SEO toolkit)
- GA (for analytics)
- SalesForce (for CM)
- Insightly (for customizable CRM)
- Streak (for integration with Gsuite)
- Pipedrive (for team collaboration)
- FounderSuite (for fundraising)
- Crunchbase (to contact the world)
- inDinero (for accounting)
Step #3: Delegate and outsource
This might not seem like an obvious step, but it is essential. You need to review your current processes, operations, and any company element that you are involved in. Now try to delegate your own tasks to the managers. It will be hard in the beginning, but it is one of the best ways to scale a startup.
First of all, this step lets you free up time for your own tasks, those that only the company owner, СEO, or CTO could complete. Secondly, it is also a perfect way to test your team and learn whether any changes are needed. While scaling your startup, you need to trust your team and know that you can rely on them doing their job right, even when you are not watching or controlling them.
When it comes to outsourcing to a startup product development company, it is also a smart decision when you cannot afford a full-scale team enlargement.
Outsourcing allows getting rid of the mundane routine processes and tasks, hence allowing more time for the core development of your in-house team. Since the cost of outsourced experts is lower than in-house maintenance spending, get rid of the non-essential tasks as soon as possible.
Step #4: Work on marketing
You cannot sell a no-name startup. You cannot earn from a no-name startup. You can only enjoy your no-name startup with your co-workers, family, and friends.
To ensure that the world knows of your great product, work on marketing as one of the ways of scale up software. It can put your name on the map of growing and interesting businesses for future investments and also attract organic user flow to your application or website. Here is what to focus on:
- Content marketing: make people curious about your product, get them to inquire about you, and do not let go of some mystery in your marketing campaign. The longer you can hold the suspension, the larger your audience grows. Just read about the Fyre marketing campaign to learn the tricks of success.
- SMM: Even if you are a private person and don’t like sharing your life with the rest of the world, social media marketing for a startup is a must-have. You can build your audience and reputation through social media platforms, hence earning a place under the sun with a positive and clear background.
- Influencer marketing: It is not new, yet still is a challenge, especially for startups. The goal is to find a niche hero who would appreciate your new idea and promote it on their own social media accounts. This is the easiest way to expand the audience at once.
Step #5: Review your team
After all these steps, it is high time to evaluate how your team is doing:
- Do they have missed deadlines?
- Can they clearly report on the progress?
- Can they make decisions without your permanent guidance?
- Are all team members equally engaged in scaling your startup?
Step 5 basically means that you need to step away and look at the processes and personas in your team from the outside. And while doing so, you should feel confident that the mechanism works and the project continues to develop.
If you see that someone can’t keep pace or complete an ordinary task, either repurpose this employee or just say goodbye. You can’t afford delays because they would cross out all of your previous groundwork.
Beware of the pitfalls when scaling
Just like any other project, scaling has its own hidden pitfalls to destroy your big dreams in the business world. But by acknowledging their existence, you can scale a startup safely and effectively.
- Too fast scaling. After a smooth product discovery and a successful MVP, you might lose grip of the reality. Startups frequently fall for the easy and fast fame trying to catch up with the demand, investments, etc. The result is poor: rapid increase in users, greater investment, and low technical delivery of the scaled project.
Unless you are sure that your infrastructure, staff, and business systems can withstand the increasing demand, wait with the scaling.
- Lost focus. Scaling is always overwhelming as it vividly demonstrates that the better you do, the more traction, attention, and revenue you receive. And at this point, it is very easy to start setting shorter deadlines with more features to deliver. This is why you need a strategy and a plan. Always stick to the original schedule. Of course, you should stay Agile, adapt your project to the customer feedback and amend the milestones; yet, everything needs to happen within the established imeframes.
- Wrong hiring pattern. This is the challenge startup owners usually face before scaling begins. They realize that to scale a startup, the team needs to expand. But as everything develops rapidly, the temptation to do it fast is huge, and many owners fall for it. This hiring pattern may work but only for some time. Eventually, you will understand that the hired employees are perfect for numbers but awful for the quality. For instance, they lack the understanding of scaling an app or software, or they are missing some piece of knowledge to make your startup more accessible. In the middle of a large expansion, you might even have to switch teams. Such actions lead to delivery delays, unpleasant conversations with stakeholders, and eventual lagging.
- Scaling = amplification. Once you scale, your client database will scale as well. Your social media accounts will grow, and your overall company reach will amplify. Until everything works as it should, getting more feedback and good reviews is nice and useful. But one day, there will be a system downtime or unexpected error missed in the QA rounds. And this is when all the haters will flourish trying to diminish your company. You need to be ready and resistant to accept their anger with dignity. Do not let negative comments destroy the path for scaling your startup.
A final word
Company expansion and startup development into an actual business with more than 5 employees is an exciting moment in every owner’s life. You begin getting more attention, more complex tasks, and more responsibility. This is the time of great changes that need to be carefully constructed before the actual expansion begins.
Growth vs. scale is not actually a controversy; these paths just happen under different circumstances. First, you scale your small idea based on the existing budget and development plans. Once you reach a steady and relievable revenue, you can think of just investing in your own future – growing your company linearly.
We hope that our 3-stage series of articles for startup development helped you understand how to turn from a dreamer into a successful business person with steady income.
If you need to recollect on the previous stages, here are our articles about Stage 1: Product Discovery and Stage 2: Building an MVP. If you still have any doubts, questions, or roadmap blockers, do not hesitate to drop us a line. We will be happy to streamline the process of scaling your startup.