Hockey Stick Growth
Hockey stick growth. As a Founder of a business looking to grow to the next level, you may hear that term a lot. How can you take your business, which has a loyal base of customers, to the next billion-dollar business that grows 25% week in, week out?
It’s a tall order. Crucially though, not impossible, especially for tech businesses. But why? Well, the answer is quite straightforward and has underpinned many lofty valuations in the past: tech businesses don’t require the same resources to scale as other service-based businesses.
Take supermarkets for example. If they want to add twice as many customers to their store, they can create more offers, pour more money into marketing, and achieve the desired increase in footfall. What will it be like in store then, with twice as many customers? Well, they will need more staff to serve customers at the tills, more staff to stock the shelves, strong relationships with suppliers to meet increased demand and a bigger car park. All this will cost the supermarket money, but they will be making more money and crucially, their margins will be reduced as they can trade off what is already in place – a big building, existing staff working harder, bulk orders with suppliers and so on. Overall, it will be worth the effort.
What happens though if they wanted hockey stick growth? Their shareholders tell them they need to increase customer numbers by 10,000% in a year? The only option would be to open more stores, in new markets, new countries, diversify what they sell and even then, it is a very unlikely target. This effort would be very costly, time-consuming and take a good while to deliver a return on that investment. More importantly though, it would entail a lot of risk.
And so it becomes more obvious why tech companies are so highly valued, often very early on in their journey. What does it take for a gaming company for example, to achieve 10,000% user growth in a year? Well, bigger servers, that much is obvious. Robust technology that can handle the extra users, and in all likelihood more developers and more support staff. Professionalism, organisation and preparedness. Not forgetting as well, some insane marketing skills to grow those user numbers.
Scaling a Tech Business
In comparison to mainstream businesses however, nothing is so easy to scale as a tech business because the correlation between costs and customer / user numbers are not linear. That is why this market is so attractive to Founders and investors alike and that is why we are in this game.
If you’ve established your tech company and got your market traction, you’ll have your eye on hyper-growth. Now is the time to go big and deliver the rapid growth you promised your investors. You’ve got the funding, so what’s next?
There are a few main areas to focus. For example as a business, have you modelled what it will take for you to drastically continue to increase customer numbers? Regardless if your tech is lightweight and self-serve or more integration heavy, you’ll need to consider staffing as a major priority. Aside from your likely backlog of bugs and features that need developing, you’ll need to make sure you have ample end backend developers to keep your ship afloat when it comes under heavy pressure from large numbers of new users. Bear in mind that hiring staff can be extremely expensive and might swallow all your investor money, revenue and more!
The re-platforming challenge
If you are re-platforming, it goes without saying that your new architecture will need to match the investor story. This is the point at which you lay the foundations for the most important years of the company; that difficult period between $1m and $10m in revenue that puts your business on the map. Take a long-term view and get appropriate advice from individuals and organisations that have built this kind of infrastructure in the past and have an eye on future technology, to prevent issues later down the line. Gather as many opinions as you can and don’t remain wedded to any type of unsuitable technology due to the limitations of your in-house resources. To use an analogy, don’t be put off buying a house because your sofa won’t fit in the living room. Buy the house and buy a new sofa.
Whilst its advisable to hold onto key functions in house so you remain in control, you may wish to consider an outsourced developer for certain key areas, be they ongoing maintenance, app releases, working through bugs or project-based tasks. This can control costs but also allow you scale your resources up and down as required, which you cannot do with full time staff. Not only will this save on costs, but fewer employees often mean fewer headaches for your HR team. By creating a detailed plan of what tech resources you need, in priority order and crucially, mark what you feel you can outsource, you give yourself the best chance of achieving more without needlessly burning through resource.
Consider your customers’ experience
You’ll also need to consider your customer experience. Your early adopters will also be supportive of you and they will always have the badge of honour earned from being a beta user. They may have favourable pricing and they will be forgiving. Your new customers however, are unlikely to be so supportive! They will see a fast rising, exciting company that has (in their eyes) plenty of funding and if your product does not meet their expectations, expect painful reviews on Capterra and elsewhere. This stage can be brutal, where all goodwill goes out of the window. It’s crucial then, that your tech is rock solid, enhancements are added carefully and without risk, user feedback is constantly gathered and in turn passed back, and customer success is bountiful and responsive. Be prepared to offer platinum service to all and they will reward you with excellent reviews and recommendations.
This is not an exhaustive list of everything you need to consider when scaling your business, but by this stage you will have an intuitive understanding of what your customers need, so trust your instincts. Without question though, staying lean and nimble is always an advantage. Keep this in mind and wherever possible, reach for outside help so you can keep flexibility over your resources, costs and deadlines.