By James Johnstone, Investment Director at Bailador
The scaleup phase requires founders to negotiate a maze of problems, and often the stakes are higher than ever. I’ve spoken before about what founders can do to prepare themselves personally for the transition from startup to scaleup, but what about the business?
One common challenge founders constantly grapple with is how to generate and manage rapid growth.
There are two ways founders can fuel growth for their business; by expanding their team and/or spending levels (let’s call this ‘expansion growth’), or from seeking out efficiency improvements (‘optimising’).
As new ventures grow it’s extremely difficult to deliver expansion growth and optimise simultaneously. It’s no surprise, a sales team will be hard pressed to implement efficiency gains at the same time as doubling in size.
I’ve watched many businesses levitate between two phases of growth: they are either expanding their teams and/or spending levels, or they are optimising — but rarely succeeding at both. This is a subtle but powerful observation for founders to keep in mind as they manage growth.
The temptation for founders after increasing spending levels and getting favourable results is to double down on these activities. Rather than do this immediately, ask: how can I get more out of our existing team and expenditure? Teams are often surprised by the efficiency improvements they deliver, and these gains are embedded in any future expansion.
With this in mind, here are a few tips that I’ve seen founders use to manage the toggle between expansion and optimisation-led growth:
1. Know whether you’re scaling or optimising
It’s hard to scale and optimise at the same time. Recognise where your focus should be and make that the priority.
2. Incorporate optimisation into your growth strategy
Growth plans always outline increased staff and spending plans. Also include time to examine your business and ensure you’re making efficiency gains. The best businesses become more efficient as they expand, which fuels their rapid growth and margin expansion.
3. Know your key metrics and target measurable progress
Have a clear view of what indicators measure productivity and drive value in your business e.g. sales team efficiency or lead conversion rates. Constantly measure these metrics and aim for improvement. As you grow you’ll get an insight into whether you’re growing efficiently.
4. Ask questions from first principles
When you’re examining your business, ask: if we started from scratch, how would we do this? Free yourself from the legacy solution to unlock more efficient ways of doing things. I’ve seen a Bailador portfolio company save 60% on their infrastructure costs by asking questions from first principles.
5. Hire with tomorrow in mind
Think ahead with your hiring decisions. While senior hires are more expensive, they will accelerate your business’s growth and have the foresight to help you optimise.