When Are You Ready To Scale
In this article, we are going to talk about “When is the right time for you to scale?” Most businesses will follow the ‘tried and tested’ method, that you see in the image below.
Founders go out into the world and they start building their product.
Once they build it and they have that minimal viable product or minimal viable offering, they want to go out and search for ‘market fit.’
They are looking to find people to engage with them.
Get feedback and refine the product or offering, until it’s ready to go out into a wider market.
They then feel they can start looking to scale the business.
However, what tends to happen is a “sticking point” occurs between market fit and scaling.
Why does the sticking point occur here?
A sticking point occurs because if we look at the previous two phases, we’ve really just been focused on developing our offering and looking at small numbers of people to give us our feedback.
In fact, it’s unlikely that many companies get to this point with more than 20 or 30 customers.
Some will, but it’s rare, and that’s because a lot of it has been focused around networks and grinding away doing non-scalable activities.
Most companies who get to this stage have never really had to focus on things like lead generation, sales processes or customer success teams.
All these things that are required in order to scale.
At this point where we try and transition, it’s a completely different skill set and it’s such an underdeveloped muscle for most people that it really does become that sticking point.
We have to learn everything all over again.
So what we suggest is done here at Straight Talk is rather than going straight from search for market fit into scaling.
There is a phase that’s called learning to scale.
That’s where you take all of those individual pieces that make up scaling, and you develop the muscle.
In order for us to answer when are you ready to scale we must first complete the market fit business lifecycle stage.
In order to do that we must follow the 6 stages of market fit which are laid out in the image below.
First and foremost you must answer what is there a problem that you solve?
And for a lot of people this comes from them experiencing a problem, or experiencing a challenge, and not being happy with the solution that was provided to them.
So they decided to go and make their own solution.
Next, you have to define your niche or define your market.
And this is really who you’re going to sell to?
Who are you going to reach out to?
Who has the problem that you solve?
The third step to be completed is can you prove you solve the problem and will people pay you to do so?
This often become a iterative process with step one. Just because you’ve defined the problem, and you defined the market or a niche, that doesn’t necessarily mean that they will pay you to solve it.
Step four is to define a success metric.
A lot of people will look at churn for this, but churn is a bad choice for most companies, especially if you have longer contract lengths.
This is because churn is a lagging indicator
So if you have a lot of people on 12 month contracts, you’re not going to know what your churn is until 12 months has passed.
During that period, often you’ll keep acquiring people, and then you find out what your churn rate is.
If it’s too high, in most cases, you’ve been walking towards a cliff edge for the past 12 months, and you’ve likely already walked off the edge with no idea.
So what we suggest is define a success metric that is based around action.
If you imagine that you have a software product and it’s designed to be used every day. I would measure how many people are using my product every day for 30 days.
If I’m increasing that number, then I’m doing two things.
One, I know I’m adding value, and two, I’m growing the number of customers that are getting value, which means I can grow as a company.
Next is can you sell your solution?
This, as I said, is usually that sort of 10, 20, 30 total customers that we see in achieving market fit.
And it’s normally founder lead selling.
These customers tend to come from things like networks, referrals, probably perhaps some networking events, sometimes conferences.
So usually non-scalable activities.
Finally you have to demonstrate that you can achieve success with more people within a specific niche over time.
So what do I mean by that?
If we stick with our daily use example product, let’s say the first 10 people you acquire in a niche. Three of the 10 use it every day for 30 days.
Then you get some feedback, you adjust the product, you make some changes.
Customers 11 through 20, eight of them use it every day for 30 days.
That is you being able to demonstrate that you’re getting better at serving that market over time.
For some of our clients that we work with, if they’re going to do a seed raise, this is typically when they would do it.
Now we have worked through market fit we can look at learning to scale.
The first step in learning to scale is you have to identify a big enough niche.
What does that mean?
Well, it means that you have to have a niche that can support your growth goals in a reasonable timeframe.
If you’re looking to grow to $1 million in revenue, but the niche you’ve targeted is a $10 million market, that’s going to be very difficult for you to achieve, because you have to have taken over 10% of the total market, which is going to be very difficult.
It will take you a much longer time to do when compared to say a $50 or $100 million market, which should be a lot easier for you to get to those growth figures.
The second step is how can you consistently generate sales qualified leads?
It’s very difficult for you to scale sales, customer success and all the other steps if you don’t have a way to consistently generate leads that are qualified for sales.
That doesn’t mean I get newsletter signups, that means people that have come in, asked for a demo, asked for a consultation, and have been qualified as high enough quality to progress through your sales funnel.
Thats why when I’m looking at this, I tend to stray away from things like conferences and SEO, because they’re very difficult for you to control the flow of leads.
You can’t just turn a tap on and get an extra 10, or an extra 20, or an extra 30 qualified leads.
Which is something you can do with outbound selling, outbound lead generation, paid ads and search engine ads.
There’s nothing wrong with things like conferences, but it’s very difficult to get that consistency if that’s all you’re relying on
Next, you have to be able to show that non-founders can sell.
What will typically happen here is when you bring on your first few sales people, is usually they can do pretty well, and the reason for that is they tend to get a lot of time with the founders and they tend to learn from osmosis.
They will hear you speaking, they’ll see the emails you’re writing, they’ll be in the meetings with you, and they just tend to pick up a lot of what’s needed just by being around you.
The problem tends to come when you start hiring salesperson number three, number four, number five and number six, because what will happen is as the company grows, these employees won’t have that same amount of time with you.
So they’re not going to be able to learn in the same way.
They are reliant on the training material that you created.
It’s quite common for this training material just to not be good enough. And then the performance starts to suffer.
The key here is just to be aware that it’s a fairly typical problem that occurs in many organizations, and you can now spot it, and know how to fix it. Usually it’s a training issue.
Another tip that I would suggest for this stage is if it’s financially possible hire in pairs, but hire for the same role in pairs. Hire two SDRs for example.
That way if they both perform well, you can roughly say, okay, the system’s working.
If they both perform badly then probably the system needs some work.
If one performs well and another performs badly, then it could just be the case that they’re not really suited to the role.
Hiring in pairs lets you know is it with the system, or is it with the individual?
The next steps are to demonstrate your sales process and your customer success process are going to scale in tandem.
So what does this mean?
This means as you start going from processing five leads a month to 10 leads or to 15, there’s going to be adjustments in both of those processes that need to be taken into account.
There has to always be a follow up task for deals in the system.
You have to have set criteria at each stage of the funnel.
These are all things that you have to develop and you have to report on and present, in order for it to be tangible that this sales process can scale, and it’s not just going to start opening up big black holes where deals are going to fall into.
The same goes with customer success.
The real easy way that I go about doing this is following a GPCT structure, which stands for goals, plan, challenges, and timeframe.
For every single lead, and then every single customer, I like to have that listed out.
So what are their goals?
What’s the plan for achieving the goals?
What are the challenges?
What is the timeframe?
This forms a really useful structure because a lot of the clients that we have, they’ll go through POCs, or trials as part of the sales process.
So we will normally say, “Okay, the POC can be deemed as a success if we achieve this one goal.”
It makes it very clear on exactly what success is going to be measured against, and then we have a very clear plan on how we can get achieve it.
The other benefit of this, is you’ll often find most people have multiple goals.
So this structure forms a really useful document for your customer success teams.
Imagine if a company comes to you and they have four goals, and you achieve the first goal as part of a POC you’ve then got a ready made customer success document.
Your customer success team then has to deliver on the other three goals within the contract timeframe.
The good thing about that is it then it gives you, as a business owner or a founder, a monthly meeting, just go set up a monthly meeting and go through those GPCT docs for every single customer you’ve got.
And ask your team, where are we on achieving this?
Where are we on achieving this?
What about this one? What about this one?
Why has it not been achieved? How far away are we?
And what you’ll be able to do very quickly, is start to identify opportunities for upgrades.
You’ll be able to look for renewals, but you’ll also see at-risk clients, and answer why are they at risk?
So this is just again, a really handy way of demonstrating that you’re ready to scale, it’s a process in place that’s going to allow you to do so.
The next step is to deliver all of the steps profitably.
This doesn’t necessarily mean what a lot of people thinks it means. They tend to think it means, I’ve acquired a customer for $100, and they’ve signed $150 contract.
It’s not quite that. It’s a case of understanding all of the metrics.
What’s it costing you to acquire people?
What is the value of each step in the process?
Now what’s the newsletter sign up worth to you?
What’s a demo worth to you?
What’s a consultation worth to you?
What’s the payback period?
So if you acquire someone for a certain price, how long does it take you to get that money back and become profitable on that customer?
What is the churn?
These are all things you have to know because they’re going to let you understand how can you scale profitably.
If it takes you six months to get the money back you spent to acquire someone that’s going to impact the cashflow of how quickly you can scale.
You have to have the information so you can put it into your finances and make decisions based on that.
You also have to know what can’t you know right now, because there are things at early stages, you’re not going to be able to know.
For example, it can be very difficult to say what is your customer lifetime value if you’re just a year old, because you might have people that have been with you since the beginning, and they keep renewing so you don’t know.
You can say, well, the current lifetime value is an average of X, but that’s going up every month.
Or maybe you’re only three months into signing contracts with customers.
So you’re not necessarily going to have all the answers, but that’s okay.
It’s just as important to know why you don’t have that information, and what you’re doing to go about getting it.
That’s what I mean by deliver all steps profitably.
It’s about understanding the numbers.
The final step, which is probably the most important because it’s great to be building all these new things that we’ve been talking about, but just by implementing them, they don’t necessarily let you scale.
What is going to let you scale is by consistently delivering each of the previous steps.
Typically I would say deliver consistently for around six months.
For me, if you do it consistently for six months, that is when you are finally ready to put the foot down and really start to scale growth.
Once you have completed the 6 market fit steps and the 7 learning to scale steps you can move into scaling.
That answers the question when are you ready to scale.