The scalability of a business is the capacity to manage and flourish while experiencing growth. If the business can scale in a managed process via efficiency, doing the right thing at the right time and through gaining traction then the business is scalable. For your business to succeed, the business will need to be scalable even if this is on a limited scale. But there are multiple challenges to scaling your business and unless these are managed in a disciplined fashion, the business may not make the 2-year product-market fit stage.
As discussed in the previous chapter, unless we focus on the right things at the right time, things can get too big too fast and end up crashing down around you. That’s not exactly a good problem to have. If we do not know when to activate certain parts of the start-up journey, we run the risk of premature scaling and burning through our financial reserves and looking for our next career move. Think about it this way, even if you manage to gain a large client in the early stages, if you focus on the wrong things at the wrong time, there is a very good chance that their experience of your business will be poor and you may not get a second chance.
So how do you go about this?
As discussed in earlier articles, we have to build a solution that addressed a valid customer problem. There are products released daily that fail to meet any criteria and we waste resources building these as we go through our start-up journey. Remember, time is the scarcest resource we have, therefore use it wisely and do something valuable. As introduced in chapter 2, entrepreneurs fall in love with their solution, this is called the Innovators bias (Maurya, 2012), blinded by the reality that customers may not feel the same. They go out to customers, hard sell the idea and come away with their tail between their legs.
As hopefully, you can see, this is not the best approach to building a start-up. We are better focusing our energy building up to engaging with customers to take them and ourselves on a journey to solve problems with a solution that customers will find useful and pleasing. Therefore, we need now look at the 3 stages at startup goes through to reach scale in their journey as a business.
The 3 stages are
- Problem — Solution Fit — 0–3 months
- Problem — Market Fit — up to 24 months
- Scale-Up to 36 months
Now let’s introduce these stages in order.
This is when there is evidence that a product, or a service, solves a customer’s problem. The focus of your start-up in this phase is to find a problem that means enough to your target customer to warrant changing. As discussed in the previous article, instead of building a solution we are much better finding our customers and presenting an offer to them which outlines our concept, without having to build a fully functional solution. This stage is one of the most critical parts of the start-up journey and can be framed as customer development where we need to adopt methods and adjust fast as we go through the learning cycle.
So, we need to be answering questions such as are we addressing a real problem, who are our target customers and what will we charge for the product. To start this process, we need to fill in a Lean Canvas (Maurya, 2012) and start with the customer and problem segments. This is referred to as the Lean (er) canvas and focuses the entrepreneur on the first two critical questions — “Who is my customer and what is the problem I am solving”. This is the groundwork for future development and allows us to tackle this in a scalable fashion.
Once we understand these elements, we need to start thinking of who in the customer segments will be early adaptors for our product? You may be asking what is an early adaptor? The best way to imagine this is to think of those people who stand in line all night to be the first to get the new iPhone or another gadget. These are people who are interested in trying out new things and enjoy the challenge of using them to meet their needs. On the opposite side of the canvas, we can look at the existing alternatives and this is an important part of the canvas and introduces the Innovators gift (Maurya, 2018). The Innovators gift allows us to look at existing alternatives and to identify gaps in the usage of these products that are failing to meet the needs of the existing user. This will allow you to resonate with the user better, build a deeper, more impacting product and increase the chances of your product replacing there current offering. Reaching a problem-solution fit is essential for every start-up and it’s a stage that is unable to bypass in your journey. Only once you have identified these elements can you focus on the next step of the Product-market fit.
The key outcome is to make an evidence-based go/no go decision on the idea in the first 3 months of the idea life cycle.
Product-Market fit — 3–24 months
The purpose of this stage is to outline that your business model is working and to build a minimum viable product. A minimum viable product (Ries, 2008) is defined as a product with enough features to attract early-adopter customers and validate a product idea early in the product development cycle. The counter-intuitive driving principle here is that you don’t need lots of users to navigate this stage — just a few good customers.
It is the version of a new product that allows a team to collect the maximum amount of validated learning about customers with the least amount of effort.
A company might choose to develop and release a minimum viable product because its product team wants to release a product to the market as quickly as possible or test an idea with real users before committing a large budget to the product’s full development. In addition to validating an idea for a product without having to build the entire product, an MVP can also help minimize the time and resources you might otherwise commit to building a product that won’t succeed and it is the cornerstone of the Lean Start-up movement (Ries, 2008).
There are multiple learning goals that we need to ensure on to focus correctly in this stage. The concept of the customer factory (Maurya, 2016) is an important element of this stage, whereby we prioritize, look for constraints to our development and test ideas using Lean sprints (Maurya, 2016). The customer factory uses pirate metrics (McClure, 2007) to determine if the factory is working correctly. The stages of these metrics are acquisition, activation, retention, revenue and referral. Pirate metrics are named as such due to the configuration of the letters which when said out loud sound like the noise a pirate would make, AARRR!
By using these metrics, we can identify the aha-moments (Activation) when our customers use our products and build habit moments which lead to repeat usage and custom (retention).
The key outcome is to achieve product-market fit within 2 years and to not become part of the failure statistics that 8 / 10 new businesses arrive at.
Lastly, there is the scale phase, whereby we identify our first engine of growth, build repeatability in our business model and apply growth hacking (Ellis, 2017) methods to grow.
Once you have repeatability in your business model, that’s when you can employ a systematic process for finding your engines of growth and realize your business model to its full potential. This article is only an introduction to the scale phases, and I recommend referring to the work of Ash Maurya for more information on this.
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Ellis, S. and Brown, M., 2017. Hacking growth: how today’s fastest-growing companies drive breakout success. Currency.
Maurya, A., 2012. Running lean: iterate from plan A to a plan that works. “ O’Reilly Media, Inc.”.
Maurya, A., 2016. Scaling lean: Mastering the key metrics for startup growth. Penguin.
McClure, D., 2007. Startup metrics for pirates: AARRR. Startup Metrics for Product Marketing & Product Management).
Reis, E., 2011. The lean startup. New York: Crown Business, p.27.