How to scale your Startup
- 1. Image Credit: Chad Dickerson, CEO, Etsy Scaling Startups Asif Ali azifali@gmail.com | twitter: @azifali Originally Presented at IITM’s RTBI, Chennai
- 2. About Me • Entrepreneur, technologist with over 13 years of experience. • Worked on a multitude of technologies • Loves technology. • Co-Founded ZestADZ (Sold to Komli) • Lives in Chennai, India
- 3. Meaning of scaling • Scaling businesses has slightly different meanings to different audiences: • Higher growth of revenues than Operating Expenditure growth • Business growth in general • Ability of the business to sustain growth
- 4. LET’S START WITH THE VERY BASICS
- 5. Broaden your Vision • Often startups start with a Narrow focus; • When you’re beginning to scale out, it might be time to revisit that.
- 6. How does your growth stage look like? • High margin positive cash flow (ideal but mostly not possible) and profitable • Low margin, positive cash flow, nearly profitable • Low margin, negative cash flow and high growth, not profitable • Choose your model depending upon the stage and available funding. • Some models may not allow you to scale linearly • Most VCs tend to accept high negative cashflows and even low margins at Growth stage in exchange for very high growth. • There is no preferred model of growth. Entrepreneurs need to decide the right growth path. But remember without enough backing and cash, your business could die despite having great revenues / margins..
- 7. How much and how fast do you want to scale? • Depending upon your biz model, you might end up needing more cash for higher growth. • However, if you don’t have enough cash, your startup might get killed, even if it were profitable • A positive cashflow is required for unfunded startups • Assuming that you want to raise funding, keep a plan A and plan B ready..plan A without funding
- 8. Problems start with Cash • For most startups, not having enough $$ is reason enough for not being able to scale. • Prepare two different financial models simulating a) without cash b) with cash and identify clearly what are your needs.
- 9. The right meaning for a scalable business • Businesses that scale are businesses with operating leverage. Put simply, if you add operating costs (sales, marketing, administrators, R&D, etc.) at the same rate you grow revenue, then your business does not scale. • Alternatively, if additional revenue requires relatively smaller and smaller additions to operating costs, then congratulations… your business scales! Source: http://finance.fortune.cnn.com/2011/06/01/but-does- it-scale/
- 10. However several VC funded startups are taking the opposite meaning • Opex grows with size of business • The business swallows down large loads of cash • Margins are low and cash flow is extremely negative • Profitability is not in sight • Should not be acceptable in normal circumstances but this is the new ‘normal’ in growth stage startups funded by VCs • My advice – stay away from such a situation.
- 11. Not scalable vs scalable
- 12. Google P&L • Margin growth is exponential, operating expenditure didn’t grow proportionately.
- 13. Chart your revenue goals • Since you already have a business model, it helps relook at some of those revenue goals to ensure that there is an aggressive plan in the coming quarters. • Some of those numbers may look unrealistic (say getting to $10m from $2m in 2 years) but unless you think about it, plan about it and execute on those goals, you are NOT going to get there. • You are not going to gain revenue and traction with revenue as a bi- product of success (doesn’t happen so easily in Product cos in India). • Go after revenues
- 14. Relook at hiring • Its time to hire those top level rock stars..maybe its time to hire your VP of product or VP of marketing. • An important milestone is that while growth continues to come, as a startup founder – you might want to defocus on a few things and focus on fewer things that can help the business scale
- 15. Growing Pains – small to big • Getting good people is paramount • Establish processes but don’t over do.. • As a startup CEO, stop doing everything yourself (hire great people, delegate and review) • Focus on execution • Establish your financial model based on your needs
- 16. Things that you should scale to help your business scale • Users; usage; and reach • Revenues • Technology • Hiring People • Processes • Product • What do you want to scale?. Most startups would want to scale on everything..
- 17. Identify your business limitations Opportunity Market Operational People Efficiencies Technology Cash Business Your Execution? scale? business
- 18. Fix things iteratively Identify problem Rollout Find solution solution Define process
- 19. Market • Does your product meet the market need? Conserve cash as much as you can.. • Find the right strategy and pivot. • Change your model OR Product if you need to and investing aggressively when you have found a repeatable, scalable sales model.
- 20. Re-evaluate Opportunity • It is important to identify the opportunity ahead for your business • Are you going to be able to pivot by changing your business focus entirely?. • Is your existing market largely untapped?
- 21. Re-evaluate opportunity – An example scenario Video Mobile Downloads movie clips Hybrid Video Model Streaming Something bigger that you’re missing? Your business DVD Maybe your Rental business needs focus to pivot to this opportunity
- 22. People • In a growing startup, people make all the difference. • Make it a point to hire great resources, whom you can delegate instead of micromanaging everything. • Several key units of your business should be managed by your hires who report to you.
- 23. Product • Traditional businesses grow by adding more people but those are generally non scalable practices. • In a tech business, a highly efficient, automated product is a key ingredient to a scalable business. • Plan for growth: you must now plan for non- linear growth and bursts of growth to ensure that you have the right features and the infrastructure to
- 24. Product • Needs a great well defined roadmap • If it is the core of your business, then the technology must be built to scale • Establish a repeatable process that can help add features to your product. • Product development requires insane focus, especially if you business is a product business
- 25. Where is your Product currently at? Your Product? Early adopters Middle Ground You need to find out what features are needed or what is missing for mass Mass Adoption adoption
- 26. Insane focus on Product is required to scale the business Define Vision Define Rollout Product require ments Build and validat e • Have a repeatable process defined that helps build out and launch your product features • Use agile methodologies • Innovate on your product features and then in technology but not the process itself. • Optimize your technology at this stage
- 27. Resources vs productivity: our actual numbers 90 80 70 60 Resources (# of people) 50 Cost of hardware ($1000s 40 a month) 30 Impressions (Billions) 20 10 0 Year 1 Year 2 Year 3 Year 4
- 28. 2009-2011 Impressions 7,000,000,000 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 Impressions 1,000,000,000 0
- 29. Technology as a driver of growth • Technology is a key driver of growth and it should be leveraged as a strategic advantage for startups going to scale. • At a stage that you’re beginning to scale, start optimizing your technology to deliver 10X more than what you’d expect the market to use. • Build a hacker culture within your organization, encourage problem solving and
- 30. Process • Define simple, repeatable processes to get things done. • Don’t make the process a bottle neck • Understand different culture of global teams as you grow.
- 31. Scaling Geography • At some point, scaling your business also means scaling your geographic presence. • Startup founders must be willing to spend days on a plane travelling to meet customers, employees and partners. • If you have a world class product, take it to the right global market instead of just selling it in your backyard. • Don’t ask Why should you do it, instead why you shouldn’t do it. • Hire people with deep local expertise and connections.
- 32. Sales Model • Master your sales funnel.. • Set a defined, repeatable process for sales • Understand your economic model – cost of user acquisition, cost of lifetime model and use that model to scale out your sales over a period of time. • If cost of acquisition is high, focus on reducing it.
- 33. Adding more people for sales in geographies needs more cash Information and graphic source: http://www.forentrepreneurs.com
- 34. Revenues could grow • MRR – Monthly recurring revenue Information and graphic source: http://www.forentrepreneurs.com
- 35. If you stop adding sales people Information and graphic source: http://www.forentrepreneurs.com
- 36. Lowering Churn • Lowering churn results in better net profits.. Information and graphic source: http://www.forentrepreneurs.com
- 37. Execution • Be Paranoid about execution • You need to be able to get things done well, on time, every time about everything. • Execution is huge priority in Chennai’s startups. • Remove the mindset that sloppy product and execution is OK in a market like ours.
- 38. Sales funnel • Source: http://www.forentrepreneurs.com/saas-economics-2/
- 39. Master and grow your deal flow • This requires that the marketing department be constantly looking for their next source of leads. A great VP of Marketing will be ahead of this problem, and working to create scalable solutions • Source: http://www.forentrepreneurs.com/saas-economics-2/
- 40. Use tools to grow • Use tools such as Salesforce, highrise, skype, google docs, dropbox, etc to grow your automate your business
- 41. Dashboards • Set up real-time OR daily dashboards for your business that provide key metrics around the following units of your business – Revenues and margins – Cash flow – P&L – Product status – Sales funnel – customer acquisition costs – Customer churn
- 42. Funding • Funding is really important and it is upto you and your business to decide how much, when and who to take it from. • Funding preparation can be distracting
- 43. Final thoughts • This presentation should give you some ideas about strategies needed to scale startups. • There is a wealth of information already available out there; use them to your advantage.
- 44. Thanks Asif Ali Twitter: @azifali Email: azifali