Scaling your startup: People invest in lines—not dots

Scaling your startup: People invest in lines—not dots

Join us next week as we look at how to build your financial plan from the bottom up. Learn the basics about startup finances, including forecasting revenue and growth, identifying different types of financial models, and knowing what metrics and milestones you should track.

Scaling a startup. The best at this are actually crazy. We all know that starting a company is a risky business. And as a business grows, and more people become involved—employees, board members, advisors and mentors—the risks compound. An entrepreneur needs to accept, even love, this risk of failing, and be driven by the slight chance that they might, in fact, stick the landing.

Scaling a business takes this idea of risk and reward to a new level. And it raises the question of why some companies peak at certain levels and why some are able to break through to achieve high growth. Last week at Entrepreneurship 101, we welcomed three speakers: Nancy Peterson from HomeStars, Brennan McEachran from SoapBox and Marie Chevrier of Sampler. They spoke about their own experiences in scaling their businesses: what worked, what didn’t, and ultimately, what they learned from their success and failures.

Effective growth strategies

Your goal as a startup is to grow. Timing is everything, and once you’ve achieved product/market fit and have received market validation, there are a number of effective ways to scale your business. Expanding your business offering, entering new markets or preparing for an acquisition are equally effective growth strategies that each present a unique set of opportunities, coupled with a long list of challenges.

This isn’t just the case for startups. Even wildly successfully companies can fail when they look to expand. Just look at Target’s entry and even quicker exit from the Canadian marketplace to see the complexity of entering a new market. No matter how many strategic plans are drawn up, dollars sunk in and contingencies in place, success is not a foregone conclusion.

So what, if anything, can startups do to mitigate risk?

Get your flywheel going

Before you jump headfirst into developing a new product line or expanding into new territory, make sure your company is delivering with enough consistency and momentum to warrant growth.

Start small, with consistent and sustainable actions that follow a predictable pattern of buildup and breakthrough—like pushing on a giant, heavy flywheel. The additive effect of these many small initiatives is that they act on each other like compound interest. This is the flywheel effect. It’s about building tangible evidence that your plans make sense and that they deliver results.

Each speaker alluded to the necessity of proving out your business model. While one win in a row doesn’t count, two points make a line, and three points make a trend. At the end of the day, people invest in lines, not dots. Be ruthlessly focused on seeing those trend lines and when you do, send constant signals to your team, investors and customers, making sure you celebrate each small win.

Traction is paramount

Over time, these small wins create traction, which is the single most important metric when you’re raising money. No one cares what celebrity endorsements you have, who’s on your board of advisors, or what your marketing plan looks like. What matters is the rate at which you can monetize value for customers.

Once you’ve demonstrated traction with several consistent wins, the time might be right to expand your operations in a way that is consistent with the core of your business model. You can talk about your company’s vision and mission until you’re blue in the face, but the factors that will drive your flywheel forward as you look to grow come down to:

  1. What are you deeply passionate about?
  2. What are you the best at?
  3. What drives your economic engine?

Don’t be afraid to fail

When looking to expand her company HomeStars, Nancy Peterson looked to Boston. It was the right size and offered local marketing opportunities, and Nancy thought that if she was able to show success in two different markets, it would be easier to attract investor dollars.

After a courageous fight, and certainly not due to a lack of preparation or effort, Nancy pulled out. “It was too long-term thinking,” she said. “Coming from a corporate background, I was very ambitious. It was go big or go home.”

Nancy had reached for the stars, and although she didn’t quite get one, she didn’t end up with a handful of mud either. She walked away with learnings that would help guide the future of HomeStars.

Nancy scaled the company back to maintain focus on one city. Keeping it simple was a hard lesson, and one she says she has had to learn time and time again. But her persistence paid off and after refining and perfecting her company’s operations in one market, Nancy expanded HomeStars into several major Canadian cities a few years later. 

Pay it forward

For the most part, growing your business is like navigating through unknown territory. And as Marie Chevrier likes to see it, this is where your cheer squad comes in. Surround yourself with the best. The best advisors, board members, employees and partners—a network of people who believe in your idea and can offer the necessary support and advice to help boost your company to the next level.

Missed the lecture?

Watch excerpts from the lecture below and hear what Nancy, Brennan and Marie had to say.

Challenges Scaling Outside Canada

Five Things Skateboarding Taught Me About Startups

Scaling Your Cheer Squad

Entrepreneurship 101 course resources

And search “Entrepreneurship 101” on iTunes U.