How Fast Should You Grow if You are a B2B Start-Up?

Some clues, no answers.

How fast should you grow if you are a start-up? Sometimes in line with demand, sometimes ahead of it. But when do you know which is right?

Some clues, no answers:

Product-market fit.

You need some real traction. A good product-market fit signal is sales are happening so fast you are urgently hiring customer success/onboarding teams to cope with the deals sales-teams have closed. And you are worried about delivery. It’s your biggest bottleneck in the company. This still does not mean you should hire ahead of demand.

Products and markets have S curves. This concept describes where products initially are adopted slowly, catch on, and then grow very quickly before maturing. We need to be timing investment in a company’s resources knowing the position we are on for our S curve.

source: https://innospective.net/why-s-curves-are-probably-the-most-important-concept-in-entrepreneurship/

A market is more like waves of these S curves rising and falling as products gain and wain in popularity and markets shift and change because of that. A market, e.g. Corporate Training, is made of lots of different products, companies, business models, and solutions. It’s a bunch of smaller niche markets.  So think about your S curve within your own particular niche and the adjacent niche markets.

There is a small percentage of innovative people who are looking for solutions to problems or willing to try new things. Called ‘early adopters’. So sometimes it can look like we are in the high growth stage of a market ( climbing our S curve fast) because early adopters are showing up and getting excited and buying! Hoora! Unfortunately, this can be a false positive. And often is.

False Positives.

Geoffrey Moore wrote Crossing the Chasm. And explained in depth this false-positive. He describes feeling like our early adopters are the mainstream market and so sales seem to be travelling fast up the S curve as above. But then our product fails to “cross the chasm” to the mainstream. Meanwhile, we may have invested heavily in sales marketing and tech that only resonates with the smaller, early adopter part of the market.  We over-invested too early.

Products can have multiple S curves if you zoom out along the adoption lines of Geoffrey Moore’s diagram above, fooling us into investing too early.

“One of the most important lessons about crossing the chasm is that the task ultimately requires achieving an unusual degree of company unity during the crossing period…….It is a time not for dashing and expensive gestures but rather for careful plans and cautiously rationed resources”

Crossing the Chasm, 3rd Edition: Marketing and Selling Disruptive Products to Mainstream Customers (Collins Business Essentials)

Geoffrey A. Moore

Time to Invest Ahead of Demand.

How do you know you have crossed the chasm and should now invest ahead of demand to capture meaningful market share?

You will suddenly feel ALOT of competition. And feel like others are appearing that have solutions very similar to yours. Where you thought you were the innovator, that innovative lead seems to have been copied or is eroding. Now it’s time to out-invest your competitors and invest ahead of demand. Because the market is up for grabs and typically 1-2 companies are going to gain most of the economics.

Capital Efficiency & ROE.

Now is the time to zoom out and looking at the market holistically, not just your niche or company. Look at closely adjacent markets you can enter and remain better and different. Look at all key competitors, funds raised. Size of revenues. Growth in the market as a whole. This lets you create realistic plans on how much capital you can deploy efficiently and the ROE available if further investment is made.  Look closely if a clear market leader and no 2. is established. If not, then more capital can be deployed. Ask questions as a team around the position in the market and how much you can successfully grow. Can the market take you being 10X bigger? What’s your share then? Who loses? Are you getting good referrals from existing clients?

It’s hard not to invest too much, too early. Or too little when its time to put your foot down.