Startups looking for funding from Venture Capitalist firms will know that such investments come with a need to grow really large at a very fast pace. The average VC expects a return of at least 20% each year. This is not always sustainable and often leads to rash decision making from the startup founders. However, this does need to be the case.
In this article, we will provide you with some actionable tips that can help a startup to scale up their business without bleeding too much money or losing control of your direction.
Initially, it may appear that scaling up fast can only happen with big bang launches and product releases. However, it’s possible to attain similar growth with small, incremental changes. Jacqueline Biggs, the author of the book, ‘Marketing To Win’ recommends a technique known as ‘the 10% strategy’. The essence of this strategy is to pick out each growth element in your business and try to grow them by a modest 10% every year. For instance, consider a business that generates 10,000 leads each month that converts 10% of its leads into paying customers who order products worth $1000 over the course of the year. Let’s assume that this nets a 30% margin to your business. Just increasing each of the growth components (in this case, they are the leads, conversions, order value and profit margin) by 10% over the course of the year is sufficient to give a compounded absolute growth of as much as 61% year on year. That is more than sufficient to get any investor excited about your startup.
Scaling up is usually associated with meeting aggressive targets and attaining explosive growth in your sales numbers. But growing your user base by 100% over a few months or expecting your average order value to go up each month is not only unsustainable but also quite risky. According to marketing strategist Jonha Revesencio, the trouble here is with planning for ‘upward’ growth. Any business can only grow their sales or order value in a self-sustaining manner up to a certain point. Beyond that the growth becomes unsustainable and prone to failure.
An alternate strategy is to plan for outward growth. If you have built a platform for one type of user, you could replicate the same strategy to grow another category of users with the same platform. Another way to do this is by moving up and down the value chain. If you run a chain of coffee shops, you could perhaps move into the coffee bean supplier business as well – this not only diversifies your business, but also brings down your operational costs (since you could now procure your coffee beans at a lower cost). Scaling your business this way is a lot more sustainable and profitable.
Startups that are flush with VC money find it irresistible to engage in price wars. To such business owners, profitability takes a back seat to gaining market share. This is a risky strategy since customers acquired through discounting schemes are not likely to stick when the promotions get over. A better way to scale your user base is through joint ventures and partnerships. Such engagements help your business be exposed to a large base of prospective customers who you may have not reached out to earlier. Joint ventures are symbiotic and provide each partnering business with an incentive to engage in the relationship. A well-executed joint venture strategy could thus bring about a sustainable growth in users with minimal capital expenditure or marketing budget.