The inner dynamics of a start up…like time through the year.
The temperature outside my window last night dipped to 24, the crickets have stopped chirping and my wife told me that she “can’t manage all the tomatoes I’m bringing in from the garden.” Hmmm…kinda like life inside a high tech start-up.
The spring and summer inside a technology start-up can be, hopefully, times of growth. Sometimes the growth is frustratingly slow, as can be true in the earliest months and years…the spring. Founders spend the spring probing their potential customer base for the right mix of product, pricing and proposition of value (see part 1 of this Four Seasons series). A successful spring leads to a summertime filled with rapid growth in revenue. Your company’s offering has struck a nerve with a customer base and rapid customer acquisition and revenue growth leaves your team elated, but that rapid growth and strain it can put on your growing staff and operating systems can stretch your cash to the breaking point with all it’s heat (see part 2 of this Four Seasons series). It is critical that your start up gets some relief and the Autumn can bring it. Autumn in your start-up is the time to operationalize your organization and to build your WHOLE business instead of just your customer base.
This is what your business can look like as Autumn in your start-up breaks…
a lot of tomatoes, no organization, and a pulpy mess.
Here is your problem as autumn breaks inside your start-up: You don’t know what is happening. Revenue growth takes a breather…maybe you simply hit a seasonality lull…but maybe your organization has simply reached an initial capacity plateau. Two years ago you may have generated $200,000 in revenue. Last year was $1.2 million. This year might be over $2.0 million. So you’ve built revenue nicely (remember when you had no revenue and friends and family told you to give up?) Well now you’ve got so much revenue it is really all you’ve been able to concentrate on for 18 months. But you recently heard some expert to a concept you’ve never really heard of…”EBITDA”? You know, the stuff that is left after you pay for stuff? You look at your Income Statement and, sure enough, it is there and although probably “negative”, has been there all along. Then you went online and Googled it and while you were clicking around, another person mentioned something called a “Balance Sheet”. Somehow this sheet is supposed to help you understand the financial health of your business. “Gee,” you think, “I wonder if I should have one of these Balance Sheet-things.”
Ok, so you may not be that far out in left field, but you do begin to realize in this chillier air of Autumn, that you really have no clue what the health of your business is. In the spring, you spent all your energy trying to get one single customer. Then, in the summer, you spent all your energy trying to keep your head from exploding while chasing all the new customers you had. Well, it is Autumn now, and time for you to focus on the other part of your business…your ability to sustainably deliver goods/services to your current, and more importantly, your future customers. And you can’t just stop the world while you do it. If you’re fortunate, revenues will continue to grow, maybe on their way to $5 million. But it will all collapse if you don’t start putting some ORGANIZATION in place.
For those of you who have read Geoffrey Moore’s timeless classic Crossing the Chasm, this is what that transition looks like. You’ve secured the “innovators” in your target industry and the “early adopters” are coming aboard or are in your pipeline. Your organization now needs to make two huge transitions. One, as Moore points out, is that you need to “normalize” your product offering for the large group of customers who are looking for a different set of clues about the value of your product or service. You probably need to adjust your sales techniques (those channel partners who weren’t interested a year ago, now might see the light since the hard, missionary selling has had effect). You may need to add to or subtract from your product offering to reach a customer set just above or just below your current customer set. Maybe, for your business, geography needs to be added. More U.S. territory? Go international? Whatever is next, you need to be aware of the drivers that will move you from a couple of million in revenue to the $10 million mark.
I know they’re apples and not tomatoes, but this is still no way to manage
your start-up’s Autumn harvest.
The second, and arguably the more important of the two on this early autumn day, is you’ve got to get your act together internally. An inability of the founders to go from “100% entrepreneurial skill” to “75% entrepreneurial skill/25% management skill” can kill your business like the first hard frost of Autumn kills those tomatoes. Managing cash flow, automating your customer on-boarding process, instituting standardized customer service levels and staffing, maybe creating organization-wide dashboards for measuring the key “profitability” drivers, all need to be front and center now. If you hope to later emerge from the Winter of your “Start-Up” to the Spring of your “Growth” company, you need to show stakeholders that you can MANAGE all those tomatoes.
If you don’t already have a board of directors, get and meet regularly with a Business Advisory Board. Seek out a part-time CFO…an accountant alone probably isn’t sufficient. Consider hiring a top-notch Chief Operating Officer. Depending on your business type, select and relentlessly install and use an ERP software package and, perhaps, engage a consultant to help. Think of your business as a machine. In the Spring, you and your partner were like a little 6 horsepower business…overkill for a $0 revenue business, about right for a $1 million business, but incapable of running a business generating even $1.00 more than that. Just can’t do it. As police chief Brody said in Jaws, “You’re gonna need a bigger boat.”
If you haven’t been through this phase before, it can be startling to watch your own growth. Resist the temptation to stand there and watch it. Groom someone else in your company to prepare all the quotes you need to write. Your new responsibility is to add horsepower to your business machine. Take actions to organizationally operationalize your business. Otherwise, you may as well just toss all those young tomatoes in the garbage disposal.
Wayne Barz is Manager of Entrepreneurial Services for Ben Franklin Technology Partners of Northeastern Pennsylvania. Follow Wayne’s blog at www.TechonomicMan.com or on Twitter @TechonomicMan.