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Gaining Traction

Gaining Traction

With your concept proven and first orders filled, it’s time to prove you can keep the wheels turning and the business moving forward.

Download Our PDF Guide to Gaining Traction >>

Go-to-Market Strategy

With your concept proven and first orders filled, it’s time to prove you can keep the wheels turning and the business moving forward.

We call this Gaining Traction, which helps us to mentally differentiate real progress from spinning the wheels faster and faster without actually going anywhere (think: skyrocketing user count while continuing to hemorrhage cash each quarter, for example).

Like many early attempts at human flight, what goes up doesn’t necessarily stay up for very long.

The history of business is littered with the wreckage of companies that seemed highly promising and generated encouraging initial sales only to fail the sustainability test.

Once you start a business, you have to grow it and grow with it - starting a business is not just for Christmas.

Natalie Massenet
Fashion Entrepreneur

Three key goals dominate most business agendas at this stage: growing an engaged audience from which to generate leads, turning enough of those leads into paying customers, and achieving profitability.

Each of these goals requires a different set of skills and tactics, and can be measured independently, so how they interrelate will be different from business to business.

Nevertheless, the milestone of achieving consistent positive cash flow – or some similar measure of financial performance that means you aren’t burning through investors’ cash anymore – is a strong indicator of the transition from this section into Growing and Scaling.

To help you think through this adolescent stage in company development, the following sections will cover:

  • Building Engagement – Growing and interacting with an increasing number of people who just might become customers.
  • Lead Generation & Nurturing – Providing potential customers with the information and experience they need to evaluate and choose your solution.
  • Customer Experience – Delighting your early adopters so that they become loyal repeat customers and tell their friends to check you out as well.
  • Path to Profitability – The all-important inflection point in your financial trajectory where income finally exceeds expenditures.
  • Growing Pains – The trials and tribulations of continuing to build and manage the company as it transitions through the awkward years from cute and cuddly startup to handsome established business.
  • Venture Funding – Raising the next round of capital, which is probably larger and comes with more strings attached.
Next Section: Building Engagement >>

 

 

Building Engagement

In our section Getting Started, we covered the basic marketing building blocks. This included setting goals, mapping your customer’s journey, getting your message to stand out in a crowded market, and launching and monitoring a website.

As the business grows, you’ll reach a point where it makes sense to invest more and focus more on strategic marketing.

This begs the question, when is the right time to begin a fully-fledged marketing effort?

Marketing is so much broader than most people realize. Consequently, it’s not a simple matter of do or don’t but rather, how much and how soon. And, whether to build an in-house marketing team or hire external specialists to do the work.

Many companies have forgotten they sell to actual people. Humans care about the entire experience, not just the marketing or sales or service.

Dharmesh Shah
CTO & Co-Founder, HubSpot

With an ever-growing array of accessible and affordable marketing technology software, we think it’s possible for a mid-level marketer to achieve much of what an entire department would have accomplished a few years ago.

Add a judicious sprinkle of external work-for-hire, taking full advantage of the burgeoning gig economy, and you’ll out-market bigger-spending competitors while keeping things lean and keen.

So, who should manage your marketing? Can it be entrusted to that college intern with whiz-kid computer skills and lightning fast typing thumbs?

You’ve probably guessed that we consider marketing too important and too nuanced to be left in the care of your most junior employee. (For more discussion about this, read “Can’t I Just Hire a Marketing Intern for That?”)

Marketing strategist, Seth Godin, observes that “the experience people have with your brand is in the hands of the person you pay the least [so] act accordingly”. He calls it Krulak’s Law, paraphrasing General C. Krulak’s Law of Leadership, which states that the future of an organization is in the hands of the privates in the field, not the generals back home.

Contrary to popular opinion, marketing should not be an afterthought within the sales department. It stands alongside product development, sales, and operations as key pillars in your business.

MARKETING BUDGET

In addition to hiring someone who understands marketing strategy, you’ll need to establish a marketing budget.

Just how much should you be spending, and on what?

There are some useful rules of thumb to guide both the total budget and how to divide it across different elements of marketing. The total will vary according to the maturity of your business and, to a lesser extent, the type of market you’re targeting.

Don’t be fooled into thinking it’s a trivial amount.

Many companies – and their investors – fail to allocate enough budget to marketing and then wonder why sales come in below their expectations.

DOWNLOAD MARKETING BUDGET CALCULATOR >>

Minimizing marketing spend is not a good strategy for reducing the cost of customer acquisition. In fact, it can end up having exactly the opposite effect!

Earlier, we mentioned that marketing is much broader than most people realize. Some think it’s “all about” advertising and PR while others throw up a quick website and begin posting all manner of social media, expecting that to do the trick.

In practice, there are several different types of marketing – including brand awareness, product marketing, public relations, strategic/targeted marketing, and business development – each of which plays a role in growing the business.

Which one(s) you focus on first will depend heavily on the type of product you’re selling and to whom.

MARKETING STRATEGY

“Marketing’s job is never done. It’s about perpetual motion. We must continue to innovate every day.”

-Beth Comstock, Former CMO and Vice Chair, General Electric

Your marketing strategy will inevitably become more sophisticated as the business grows. Nevertheless, complexity doesn’t equate to efficacy.

We strongly recommend picking a small number (i.e. one or two) of marketing tactics to pursue at once and doing them right, rather than taking a scatter-shot approach.

Every business, product, industry, and set of customers needs a different marketing mix, so perform controlled experiments to find out what works best for your business.

Here are some examples:

INBOUND MARKETING

Inbound marketing is a business methodology that attracts customers by creating valuable content and experiences tailored to them.

While outbound marketing interrupts your audience with content they don’t always want, inbound marketing seeks to forms connections they are looking for and solve problems they already have.

We’ll talk more about inbound marketing – and HubSpot, our preferred software platform for making it happen – in the next section on lead generation and nurturing, but here’s the approach in three steps:

  1. Attract the right people by sharing valuable content and engaging in conversations that establish you as a trusted advisor with whom they want to engage.
  2. Engage that audience by presenting insights and solutions that are aligned with their pain points and goals, making them more likely to buy from you.
  3. Delight them by providing outstanding help and support, empowering your customers to achieve success with your product or service, making them more likely to return.

CONTENT MARKETING

Content marketing is widely discussed and frequently misunderstood.

Simply put, it involves creating and sharing information that’s valuable to your prospects.

Unlike a lot of content that companies share, effective content marketing shouldn’t explicitly promote your brand.

Instead of pitching your solution directly, it should stimulate interest in your products or services by being useful.

This approach is used by major brands and small businesses alike, all over the world. Why? Because it works.

In today’s world, where we’re inundated with thousands of unsolicited and irrelevant messages every day, great content stands out. The rest is mostly spam.

Other elements of marketing depend on great content, including social media marketing (coming up next), search engine optimization (where Google and friends reward businesses that consistently publish quality content with superior search rankings), email marketing, and pay-per-click advertising.

SOCIAL MEDIA MARKETING

Social media has become an integral part of content marketing, since posts can be used to advertise or deliver the content and drive interested traffic through to your website.

Video content is especially popular (and effective) now, alongside blog posts, podcasts, and white papers.

What social media channels should you be on, and how do you plan to manage each of them?

Many companies’ social media strategy consists of randomly posting news and photos from the company, whenever someone remembers. (This is especially true when social media responsibility is entrusted to the aforementioned intern.) They may even have an automation set up so that when they publish to one channel, the same piece of content is also posted to their other social accounts.

"A large social media presence is important because it's one of the last ways to conduct cost-effective marketing. Everything else involves buying eyeballs and ears. Social media enables a small business to earn eyeballs and ears."

-Guy Kawasaki

Given the amount of noise being transmitted on each social channel, it’s important to understand which channel is likely to connect you with prospective customers (as distinct from connecting your company to prospective employees, for example) and what types of post they are likely to notice and open.

Each one prefers content in certain formats and frequencies, and it pays to tweak your post for each platform. So, seriously, only be on one or two channels max until you are generating at least several million in revenue each year.

A fully populated customer journey map (see Marketing Foundations in the Getting Started section) should give you some strong pointers, which can then be validated through experimentation and analytics.

EVENTS & TRADE SHOWS

Most of our clients operate in B2B (business-to-business) mode, where in-person industry events have historically been seen as the best, if not only, way of reaching a large audience.

However, even before the COVID pandemic barreled in and tore up the playbook, progressive B2B companies were recognizing an inexorable shift to online product research, evaluation, and buying.

So, are trade shows a thing of the past?

Probably not. We humans still have a deep-seated need for connection, and we’re conditioned to be skeptical when buying things we haven’t seen and touched.

A great deal of online shopping relies on easy (and often free) returns to convince skeptical shoppers that purchasing online is low risk. That’s a lot less practical when talking about industrial equipment and other large or high-value transactions.

The connection piece is harder to resolve electronically.

Almost everyone was forced to use virtual connectivity tools – Zoom, WEBEX, Skype, Teams, and more – when work from home orders forced us out of our usual environment. For many, the experience was much better than expected – but it was far from a perfect substitute for meeting in-person.

Like any other channel, we recommend evaluating how your customer is thinking about trade shows – as well as other in-person events like networking receptions, pitch competitions, alumni reunions, technical workshops, golf tournaments, and society luncheons – in the ‘new reality’.

If decision makers in your market segment continue to see in-person experiences as an essential component in their buying process, you will need to meet them there or risk losing their business (we recently proved this point by insisting on holding a kickoff meeting over Zoom rather than in person, which cost us a new client but allowed us to uphold our values).

We suggest focusing on a small number of events – fewer than you might have chosen before - and doing them well, rather than trying to be seen or heard at as many events as possible.

Although you want prospective customers to see you regularly, imprinting your brand on their subconscious and leaving them with a comfortable feeling of familiarity, it’s counterproductive to short-change those appearances and end up leaving an impression of inferior quality.

You can make up for any reduction in visibility by participating in the growing world of virtual events, which are rapidly becoming more sophisticated and effective.

We plan to update our guide with ideas and best practices for virtual event marketing once the pace of change slows down a bit and we gather more consistent feedback from our clients, as well as building up our own experience.

<< Last Section: Go-to-Market Strategy
Next Section: Lead Generation & Nurturing >>

You can make more friends in two months by becoming interested in other people than you can in two years by trying to get other people interested in you.

 

Dale Carnegie

Lead Generation & Nurturing

In the previous section, we talked about building an engaged audience. The next step is to convert some of those folks into qualified leads.

Having established yourself as a trusted advisor, prospects should be increasingly willing to take the next step and consider your product.

Why not ask?

Too many websites and social media strategies do a solid job of sharing valuable and relevant content but then forget to ask the recipient whether they’d like to evaluate the product.

These calls to action (CTAs) should be strategically located throughout your digital property, in much the same way an experienced salesperson picks the right in-person moment to ask an engaged prospect whether they’re ready to take the next step.

Whether it’s a ‘Learn More’ button or a ‘Contact Us’ form, the goal is simple: have the prospect signal their willingness to engage and volunteer their contact information so you can reach them.

Which creates a nice segue into talking about marketing automation.

This is where a well-deployed marketing software stack can allow a small company to act like a much larger enterprise, instantly and automatically capturing and responding to leads.

MARKETING TECHNOLOGY

Which marketing tools should you be deploying? How many tools does it make sense to combine? Are the larger marketing technology (martech) platforms, which provide integrated access to multiple tools, worth the premium price?

These are all great questions that should be answered as part of your marketing strategy, tied into hitting corporate objectives.

Given the accelerating trend toward online product research, evaluation, and purchasing, we lean toward earlier and more sophisticated martech implementations.

A 2015 survey found that early-stage companies deployed over 20 tools in their tech stack, while later-stage companies used over 40.

This might sound onerous but the ever-improving quality, accessibility, and interoperability of low-cost – even free – tools has made choosing, implementing, and using them something most businesses should be willing to tackle (and we’re here to help!)

SO, BACK TO THOSE LEADS

All being well, effective marketing in combination with the boots-on-the-ground efforts of you and your staff has resulted in copious lead generation. You have a growing list of prospects with whom to follow-up.

Next on your shopping list – if you don’t have one already: a CRM.

A customer relationship management (CRM) system is vital to keeping track of your leads as you qualify them, nurture them, and hopefully turn them into paying customers.

Often known as a sales pipeline, this is the life blood of your business. And, just as you should regularly monitor your blood pressure and occasionally take measurements of critical blood components, its vital to monitor the health of your sales pipeline.

Too few leads, sluggish progression along the pipeline, or too low a percentage converting from leads into sales could all be signs of a serious – even life-threatening – condition.

SELECTING A CRM

How should you go about choosing a CRM product? After all, there are dozens of options to choose from and new products hitting the market every month.

This is a non-trivial task.

We first recommend eliminating the overly complex and overly simple options. Complex tools designed for much larger businesses will be unnecessarily expensive and you’re likely to outgrow the simple ones too quickly.

Migrating from one CRM system to another is painful and should be avoided for as long as possible,

Next, try to find out which CRMs are popular with businesses like yours. Ask your business contacts for recommendations and read relevant blog posts. There are usually a handful of solutions that have proven themselves most effective for any given business and customer type.

DID YOU KNOW?

CRMs are known to improve customer retention by as much as 27%.

Source: Salesforce

Once you’ve narrowed your search to three or four options, it’s time to compare the features and workflows they provide.

Rank them according to what your business needs and beware “shiny object syndrome”, which tempts you to pay more for features that sound amazing but won’t deliver any real business value.

This is often where we recommend bringing in a CRM specialist to help you evaluate and select the winning tool.

Companies frequently get bogged down in the minutiae of functionality and scalability and apply too little weight to which system they and their team like using the most.

Most people hate their CRMs and find them incredibly difficult to use.

Because of their frustration, they end up using the tool less and less, and your CRM is only as valuable as the data that's in it.

So, pay an appropriate amount of attention to ease of use and enjoyment of the platform when making the final decision.

USING YOUR CRM

CRM systems aren’t just for email marketing or pipeline management!

We’ve encountered businesses that use their CRM system as nothing more than a glorified list server, storing contact details and sending out newsletters.

Yes, that’s one of the marketing tactics that a structured CRM system can help manage and even automate, but there’s a whole lot more to managing customer relations than simply spamming their inbox.

A properly configured CRM will help you nurture leads, sending them gentle reminders when they seem to have fallen asleep on their journey, and prompting them to take the next step.

Following up with leads in a timely manner has been shown to greatly increase the probability that they go on to become customers.

This can mean responding within minutes – not hours or days – to a button click or form submission, which makes automated lead nurturing essential if you ever want to disconnect from your devices and sleep at night.

One footnote: a CRM is, at heart, a database. Databases require regular maintenance, otherwise they accumulate errors and inconsistencies – for example, duplicate records, information entered in the wrong field or format, and incomplete entries – that can produce misleading statistics or break your workflows.  Appoint a data manager from the get-go and task them with keeping the CRM house in order.  You’ll thank us later…

MARKETING AUTOMATION

To the uninitiated, robotically responding to leads and drip-feeding them scheduled emails sounds like a dystopian nightmare.

In reality, we’ve all benefited from autogenerated correspondence – often without even realizing it – and it greatly reduces friction in the information flow that drives the buyer’s journey.

Why depend on slow, subjective human intervention when the software can provide a timely, relevant response that’s personalized according to information you’ve gathered about the lead’s needs, wants, and behaviors?

Automation extends far beyond simply capturing leads and managing email drip campaigns.  For example, you can connect and post to your social media accounts, track detailed analytics, and manage full-blown marketing campaigns.

Our preferred tool for these activities is HubSpot, although we’re tech agnostic when it comes to helping clients who have already chosen a different platform.

HubSpot has grown up a lot over the past few years, adding an Enterprise tier to keep up with its growing users. But some of the things we admire most about the platform are its modularity, scalability, and – importantly – accessibility. (Read more about our history with HubSpot).

As a growing business, we strongly recommend putting in place the tech that will still fit you in 3 years’ time, so that you can focus on using it without bumping up against limitations.

And, the sooner you get the tech in place, the sooner you can start automating processes and taking advantage of the improved conversion rates that follow.

When you are getting started, our mantra of “keep it simple” still holds. Don’t worry about automating everything at once. Set up a couple of workflows and then tweak. Once they are working, set up some more (or ones that are more personalized), and so on.

<< Last Section: Building Engagement
Next Section: Customer Experience >>

ADDITIONAL RESOURCES

The 6 Biggest Benefits of CRM - Salesforce
Choosing and Using CRM Software - ondeck

Customer Experience

Building on the theme of the customer journey map, the next stage is to think about the entire customer experience – every interaction that customers have with your brand – from first to final.

Customer experience, or CX, is a relatively new term and is a different way of thinking about how customers interact with your company, encompassing several functions: marketing, sales, customer success, and customer service.

Focusing on customer loyalty can significantly impact your company’s profitability. Research has shown that increasing customer retention by 5% increases profits by 25% - 95%. Even if your company is on the lower end of that range, we’re sure you’d still take 25% more!

Exceptional customer experiences are the only sustainable platform for competitive differentiation.

Kerry Bodine

onboarding & CUSTOMER SERVICE

You have a new customer! Awesome. While the digital ink dries on your new contract, it’s time to start the onboarding process.

Depending on the technical complexity of your product or service, your customer may already know what to expect. However, if you have a low-touch product, then you might need to provide en masse guidance.

Your customer should know how long onboarding will take and what the key steps are. Nevertheless, even if they have some familiarity, revisit the steps with them.

Set concrete timelines and goals – or milestones. This means creating a written plan and communicating it to your customers.

While you might not have a fixed process as you onboard the first few customers, keep your eyes and ears open. Try to spot patterns in customers’ questions and behaviors. Look for opportunities to both personalize and automate.

Stay focused on your customer. If your process isn’t working for someone, investigate whether your process needs to be modified or if there’s a reason this person or company should not be a customer. Share the resulting intel with your sales and marketing team.

Many customer onboarding principles remain true as the account ages. And, don’t forget that there will be opportunities for upgrades and/or add-ons that can have a positive impact on your business KPIs.

Make sure your customers have a variety of ways to reach your team, really listen to them, and invest in the long game.

Many companies claim to have a “customer-first” perspective but make short-term decisions that aren’t.

You probably won’t be in business for long if you take shortcuts because you believe they are more advantageous, cheaper, faster, or easier for you today; they will hurt in the long run.

Does your customer want or need ongoing education? Who do they want to hear from at your company?

Thinking through what your customers want and need at every stage – not just prior to conversion – will help you build an army of advocates.

Net Promoter Score

One of the most common ways to measure how satisfied your customers are is to calculate and track your Net Promoter Score.

You’ve probably seen surveys that ask you “On a scale of 0-10, how likely are you to recommend us to a friend or colleague?” That’s the first of two questions in a Net Promoter Score survey. The other is an open-ended question that asks you to explain why you gave that score.

Anyone who scores you a 0-6 is considered a detractor. The 7s and 8s are passive, and the 9s and 10s are your promoters.

You will then subtract the percentage who were detractors from the percentage who were promoters to calculate your NPS score!

NPS = % of Promoters - % of Detractors

To help capture this, you can install widgets that will pop up while a customer is using your website or app.

You can also contact customers using tools like SurveyMonkey or Google Forms. Or, you can automate the process using tools like Delighted or HubSpot Service.

Then what?

If someone writes glowing comments, ask them to write a testimonial for your organization and showcase it on your website!

Also contact your detractors to find out what you can do to improve their view of you. Use this feedback to train new hires and existing staff.

<< Last Section: Lead Generation & Nurturing
Next Section: Path to Profitability >>

Path to Profitability

FROM TELLING TO SELLING

While some marketing activities are considered ‘sales enablement’, the hard work of turning those leads into purchases and repeat business falls to a special group of people: the sales team.

Wherever we’ve worked, salespeople are usually the most idiosyncratic and hard-to-manage bunch in the company. Why so?

We believe it’s because of their simultaneous need to be competitive, selfish, empathetic, relentless, eloquent, resilient, and loyal (and that’s just the short-list of traits!)

Anyone can sell product by dropping their prices, but it does not breed loyalty.

Simon Sinek

A sales team must be properly managed. You should have a defined sales process that helps keep the team within acceptable boundaries and establishes appropriate tactics for selling to different customer types.

The process should also cover how some common sales situations will be resolved; for example, when a sale is made to the client’s head office team (in sales territory A) but intended for use by the client’s regional team (in sales territory B).

PRICING

The second essential ingredient is a pricing strategy.

Neither the list price for your product or service nor any discounts that may be offered should be arbitrary. Value-based pricing should always be preferred over cost-based approaches or those relying on historical “market price” arguments.

Remember that it’s easy to give discounts but perilously difficult to raise your prices again afterwards.

Discounting signals to customers that your product probably isn’t worth what you originally asked. It also encourages the buyer to seek the same – or even greater – discount next time, and to shop around between competing vendors while making a price-based, rather than value-based, purchasing decision.

MEASUREMENT & MOTIVATION

The third leg to your sales management stool is a process for measuring and rewarding sales performance.

As we mentioned earlier, salespeople are notoriously outcome-driven and competitive. They need meaningful targets against which their performance can be objectively measured, and they need rewards that line up with their extrinsic motivators – such as recognition, promotion, money, and prizes.

It can be hard for an early-stage company to set meaningful sales targets. Securing lots of small, first-time purchases can be just as important as landing the occasional larger deal. A target combining sales volume (number of deals) and sales revenue might be most effective.

And don’t overlook sales effort. When selling for a relatively unknown brand and introducing new products into the market, leading indicators such as number of sales completed and the increase in probability-weighted value of deals moving through the sales pipeline can be more meaningful than total revenue generated.

"The top salesperson in the organization probably missed more sales than 90% of the salespeople on the team, but they also made more calls than the others made."

-Zig Ziglar, Author & Motivational Speaker

However, cash is still king and without sales you won’t be in business for very long, so don’t get too carried away rewarding effort that fails to deliver actual revenue growth.

You might think that tying 100% of a salesperson’s compensation to making actual sales would be the ideal scenario. However, this overlooks essential, non-selling tasks that the company should want a salesperson to perform.

These include taking part in strategic or wider company activities, capturing customer contact information (e.g. populating your CRM system) and reporting market intelligence. Salespeople who become too focused on simply making sales will neglect these other duties.

Paying a base salary plus a commission (some percentage of the revenue generated) is the most common compensation construct. And it works well, especially in established companies and markets where the frequency and size of transactions is quite predictable.

Once again, newer companies might have to get creative to keep salespeople motivated while experiencing the fits-and-starts sales cadence that often typifies early growth.

A combination of individual sales commission and a bonus tied to both individual and team performance indicators can help mitigate these issues. It encourages the salesperson to sell while also helping the team and company as a whole meet other targets.

One caveat: make sure the scheme is kept simple enough for the recipient to always know where they stand. Salespeople love calculating how each task and sale will contribute to their paycheck at the end of the month or quarter.

COST CONTROL

Sadly, generating revenue and delivering the goods costs money.

Software companies generally experience very low delivery costs, but the up-front cost to develop their code and the ongoing demand for fixes and new features must still get paid.

Manufacturing companies must cover product development, raw material inventory, manufacturing, and delivery costs, in addition to administrative overhead.

Whatever your business, a ruthless focus on containing costs is critical to reaching profitability as quickly as possible.

Is that always the right objective? Many businesses trade for years without ever making a profit, growing their user count and expanding operations while promising investors a larger payday in return for their patience.

Recent experience suggests that early-stage investors generally shun the “West Coast Unicorn” model - tech companies that burn millions during early growth but attract billion-dollar valuations on the promise of an upcoming swing to profit generation.

We understand that a startup requires ongoing investment to build out the team, product line, operations, and distribution, and for working capital as it services more and larger orders. Nevertheless, the underlying business model should describe a path to profitability once some economy of scale has been realized.

It can be very tempting for early-stage companies to spend beyond their means, particularly when trying to hire experienced executives (who can bring new business to the company), adding hardware and software to improve throughput, or expanding rapidly into new geographic areas or market segments.

Unfortunately, getting too far ahead of the revenue curve can mean asking investors to inject more capital while the business has yet to hit its growth milestones. Unless the investors are willing to accept an increased pre-money valuation, based on promises rather than proof, this will cause dilution for the founders and existing shareholders.

We admire frugal but practical entrepreneurs who manage to balance cost control with prudent investment in the business. Those who rent shiny offices and buy everyone a new laptop may be overconfident in the company’s success. Those who limit the nice-to-haves in order to add a time-saving piece of machinery or upgrade their marketing automation software might be onto something.

<< Last Section: Customer Experience
Next Section: Growing Pains >>

It's not enough to be busy, so are the ants. The question is, what are we busy about?

Henry David Thoreau

Growing Pains

With marketing doing its best to find and attract customers and sales working its magic to turn prospects into sales, you’ll actually have to deliver the goods! Time to talk about growing your business operations.

RESOURCE MANAGEMENT

One of the first challenges you will face as your nascent business bounces along is to manage scarce resources effectively.

MANAGING YOUR TIME

The most critical of those resources is your own time and energy.  There’s still only one you (we assume; clones please skip ahead and excuse our ignorance) and you can only contribute a finite number of productive hours each day.

As we will repeat ad nauseam, pay no heed to the busy-braggers who believe 17-hour days are an essential ingredient to becoming a successful entrepreneur. Proper rest and learning to say no and delegate are true ingredients for sustained success.

That said, a particularly thorny decision for many CEOs is how much time to spend on the business versus out selling product to potential customers?

Until your business reaches a size where the product development and sales functions are standalone entities – dedicated team members, if not teams of people – you must take turns wearing those and many other hats.

This creates a paradox: while you’re away selling, the product – and indeed the wider business – isn’t developing quickly enough. And, while you’re back at HQ working on the product and the wider business, not enough sales are being made. Damned if you do; damned if you don’t.

The amount of time you can and should dedicate to either set of activities will inevitably ebb and flow. What’s important is that you pay attention to where your time is (and isn’t) getting spent and regularly assess whether the balance is appropriate.

MANAGING YOUR TEAM

The same goes for other members of your growing team. They too must find a balance between focusing on their individual specialty, for which you hand-picked and hired them, and contributing to team- and company-wide efforts to build a sustainable business.

Once again, check in regularly with the team to review and adjust these balances. This will help to avoid disconnects and frustrated people waiting on each other for inputs or feedback.

You should also hold regular leadership team meetings (or all hands, if you all still fit around a conference table) to reconnect with purpose, mission, and vision.

In his seminal book, Traction, Gino Wickman recommends bringing everyone together at least one per quarter.  Anything over 90 days, his research suggests, and things will drift off track – without anyone noticing, at least at first.

Circling the wagons gives everyone chance to reconnect, both with each other and with why you’re all doing this in the first place. In a small company, where everyone has their head down chasing something, it can be easy to lose touch and inadvertently work on misaligned solutions.

This reminds us of the bridge that’s built from both ends but where the two halves don’t line up in the middle.

MANAGING VENDORS & SERVICE PROVIDERS

It’s a cliché to say “you get what you pay for” but to a large extent it rings true.

Very low-cost service providers and products seldom deliver what you really need, and often end up costing you much more in the long run.

Finding and vetting suppliers can be another drain on your precious time. We recommend tapping your peer network for referrals to providers they have used and been pleased with.

Be alert for introductory deals that are attractive in the near-term but commit you to paying a much higher price in the long run.

Vendors who offer deep discounts to startups should be willing to walk those discounts back over time as your company grows, not slam you with the full price 12 months + 1 day later.

Sadly, there are many unscrupulous vendors willing to take advantage of early-stage businesses in their time of need then gouge them later if they become successful. If something sounds too good to be true, it probably is.

BUILDING A WINNING TEAM

"The growth and development of people is the highest calling of leadership."

-Harvey Firestone, Founder, Firestone Tire & Rubber Company

As we mentioned earlier, the biggest resource constraint faced by most early-stage businesses (except cash, perhaps) is time.  There are simply too many things that need to get done, and the list just seems to grow longer the harder you work.

HIRING

Hiring warm bodies is the obvious solution. However, you can’t hire everyone at once, for both financial and practical reasons. So, how do you decide who to hire next?

The answer is much the same as how to effectively manage your own time. Figure out which need is the most pressing and that, if addressed, will have the greatest impact on solving other needs that come after. 

This is the “biggest domino” approach recommended by Jay Papasan and Gary Keller in their best-seller The One Thing, and we support it wholeheartedly.

Rather than hiring in an ad hoc manner, you should undertake some basic organizational design. This will require some thought to identify the skills and levels of competency that your business is likely to need if you are to achieve the things described in your vision statement.

You might find it helpful to draw up a conceptual design for what the fleshed-out organization will look like in a couple of years (or whenever you’ve hit the next major milestone), then work backwards to decide when those positions should be created and filled.

Also consider whether a position should immediately be filled by a full-time employee or whether a contractor might be more appropriate. 

Using part-time resources – sometimes called “fractional” employees when applied to senior and executive roles – allows you to step up from zero to one person in a role or department, mitigating the annoyingly quantum nature of human beings!

FIRING

No matter how well you design the organization or how diligent you are during the hiring process, it’s likely that someone won’t work out as you’d hoped. 

Terminating an employment relationship when you’re still a small, tight-knit team can be disruptive and uncomfortable – especially if the person in question occupies a senior role at the company.

However difficult it might seem, once you’ve decided there’s an irreparable issue, make the move. We endorse the mantra “hire slow, fire fast”. Once a team member becomes a “dead man walking” it’s usually apparent and can be toxic to the work environment.

We recommend being clear and direct and, above all, working hard to preserve the person’s dignity. Hold the meeting behind closed doors or, if necessary, off site. Have someone else from the company present to witness the conversation just in case there is any dispute afterwards about what was said or meant.

Sadly, not everyone will take the news well and maintain their composure. In the heat of the moment, they might say some harsh and hurtful things and even threaten to take legal action against you or the company. Stay calm, say little, and show empathy. It’s okay to acknowledge their anger and frustration but you shouldn’t agree with or give credence to their objections.

MANAGING ACROSS GENERATIONS

"Each generation imagines itself to be more intelligent than the one that went before it, and wiser than the one that comes after it."

-George Orwell

Another thing that regularly catches us off guard is generational differences. We hear broad statements about how one generation has lost the plot (Millennials seem to be the current target) or can’t keep up with the latest technology (Boomers at bat, Gen-X on deck), but the reality of generational differences is much larger.

Each generation forms its belief system and opinions based on its collective experience growing up and entering the workforce. 

Part of that experience is shaped by parents and grandparents from the generations before, so it’s not surprising that successive generations often embrace views that oppose (or seek to correct for) those of their predecessors. This can lead to stark differences in workplace expectations and behaviors.

Why should you care? 

Growing businesses typically hire a mixture of seasoned leaders (expensive but credible) and less-experienced worker bees (much cheaper, technologically savvier, and open to asking “why has it always been done this way?” and looking for new solutions). This creates a fertile environment for generational differences and conflict. 

Inform yourself on the topic, watch out for the effects, and mediate where necessary.

PERFORMANCE MANAGEMENT

Performance management is one of the key processes within any successful organization. And yet many early-stage businesses either take a cursory, inconsistent approach or ignore it altogether. This can lead to considerable angst when trying to retrofit a performance management system after the company has grown.

A basic performance management process need not be complex or overly time-consuming: 

  1. Define each employee’s role and responsibilities.
  2. Set a manageable number of SMART goals for them to achieve.
  3. Measure their progress on a regular basis, taking corrective actions when needed.
  4. Link rewards to exceptional performance and take steps to retrain or remove those who consistently underperform.

TRAINING & DEVELOPMENT

Staff development should run hand-in-hand with performance management. 

Each employee should know what future role(s) they might grow into and what skills they must to develop to win a particular role when it becomes available.

As a smaller enterprise without the luxury of an in-house training department or a rich training budget, you’ll need to get creative. There are many, very good, low-cost (or even free) online resources that can keep your team learning and growing.

However, don’t scrimp entirely on traditional, in-person training events for key development needs. Virtual training continues getting better but is often still a poor substitute for the interaction that in-person training provides, both with the instructor and other participants.

MOTIVATING YOUR TEAM

What makes you get out of bed and go to work in the morning? 

Hopefully, you’re passionate about whatever it is that you do, which intrinsically motivates you to work hard. You might also be motivated by money, status, achievement, or peer recognition. The same is true for your colleagues and employees.

Knowing that people are motivated by different things, what sort of incentives should a growing business employ to retain and motivate them?

There are a broad range of options, from work environment sweeteners (think nicer office or reserved parking) to lifestyle perks (earning flexible hours or more time away from work) to bonuses and employee stock grants. Which one(s) are best for your company will depend on the company culture and the types of people it attracts.

The key is to pay attention and not assume that simply having a job or working for a ‘sexy startup’ will be sufficient. That shine will wear off after a while, especially when the path to success feels more like a theme park ride.

COMPENSATION & BENEFITS

There are usually four primary things that attract people to work at your company: why it is in business, who else works there, the company culture, and compensation.

We’ve talked earlier about articulating the company’s purpose, mission, and vision and the importance of those foundations to the hiring process. We’ll touch on culture in just a moment. But, what about compensation?

Most people understand that early-stage businesses can’t afford to pay top-quartile salaries while their cash flow is limited.

Instead, stock grants or options to buy future stock at a preferential price are commonly used to incentivize qualified candidates to take a lower salary in return for a potential future payoff.

Should senior team members always be given equity in the company?

We don’t think it’s essential but being an owner in the company – however small the stake – can certainly influence an employee’s behavior.

Your decision to give out stock (including stock options) to certain employees should be based on the loyalty and performance they will give you in return. How likely are they to leave if no such long-term incentive is provided? How much less likely are they to leave if it is?

And, is the probability of a lucrative outcome great enough for the incentive to be real? 

We’ve seen numerous companies experience high-level turnover because there was no liquidity event in sight, rendering their long-term incentives worthless.

Another way to attract and retain talent is by offering superior employee benefits. This is especially true in the U.S. where a majority of the population depends on employer-sponsored benefits to afford healthcare.

A candidate evaluating your job opening – or a team member contemplating moving to another employer – takes many factors into account. These will include the compensation package (salary, variable pay, and bonus), health benefits, retirement benefits, work location (including work-from-home opportunities, especially post-COVID), work environment, policies on flexible work time and vacation, and the company’s approach to social and community activities.

MANAGING COMPANY CULTURE

"It doesn't matter what's written on a coffee mug or on a 'culture' slide; what you do as CEO, day in and day out, and how you behave will define your company culture."

-Peter Levine, VC, Andreessen Horowitz

As your business grows from a one-room startup to a larger enterprise operating from multiple locations, the culture will very likely change. 

This can be seen, for better and worse, in numerous global organizations. The cultural norms at Google, Uber, 3M, Wells Fargo, and Chrysler have all made the headlines – just not always for positive reasons.

Some of that change reflects the inevitable introduction of departments and processes. Another major contributor will be the types of people you hire as you build out the team. 

Nevertheless, you can – and should – take intentional steps to shape the culture that you want your business to embody.

Be mindful of your role in shaping company culture. It starts from the top and its strength depends on how actively you demonstrate behaviors and take actions that are aligned with its values. 

Indifference breeds its own, inconsistent culture.

<< Last Section: Path to Profitability
Next Section: Venture Funding >>

Venture Funding

To grow a business takes money. Often, a lot more money than you’d think. And, almost always, more money than the founders are willing or able to contribute from their own savings.

Friends and family are usually the next source of capital into which an entrepreneur taps but, unless you have some very wealthy friends, it’s also limited. Most people’s friends also aren’t experienced investors who can bring useful advice to the business, either.

In our section on Getting Started, we covered several different sources of capital and focused on pitching your idea to angel investors to raise seed capital.

Seed funding will usually cover the first couple of million dollars that a company needs – although that’s a very rough number and seems to shift with the seasons.

It's important to choose initial investors who are not twitchy and rushing for an exit.

Roelof Botha, Sequoia Capital

Some companies reach breakeven on the back of their seed investments and can fund future growth using cashflow from operations and bank loans. Most, however, require additional capital either to reach profitability or to fund more expensive growth activities than traditional bank financing can cover.

This next tranche of capital is usually called Venture Capital (VC), although smaller rounds (typically below $1 million) are sometimes referred to as “late seed” funding. 

VENTURE CAPITAL

Venture capital investments are characterized by high risk, but also high reward. VC funds focus on emerging technology and solutions with the potential for huge success, but which aren’t yet profitable and where significant technical, commercial, and sometimes regulatory risks remain.

Anecdotally, over two-thirds of VC-backed startups eventually fail, and less than 1% of them go on to become a unicorn (worth over $1 billion).

Research by CB Insights found that less than half of VC backed startups managed to raise a second round of funding.

Investments in early-stage companies can also take a long time to pay out – often 5-10 years, during which the invested capital is essentially illiquid (i.e. very difficult to pull back out).

This means that VCs play a portfolio game, taking stakes in numerous ventures, each of which has a small chance of becoming a huge success. In baseball parlance, they swing at a lot of pitches, striking out a lot but occasionally hitting a big home run.

The most successful VCs lose money on over half of their investments, break even or see a modest return on most of the others, and make massive returns on a few winners.

For this to work, most VCs look for investment opportunities that are disruptive rather than incremental. Backing “safe” ideas that are likely to do fairly well but will not deliver transformative success actually lowers their overall odds of superior portfolio returns.

This means that companies seeking VC funding need to tell a strong story and back it up with market data and a team capable of delivering the vision.

WHY SEEK VC FUNDING?

Whereas an established company can borrow money from a bank (or other asset-based lender) using equipment, accounts receivable, and other assets as collateral, an early-stage company generally doesn’t have enough assets to secure a loan or cash flow to meet the banks repayment criteria.

VC investors are used to looking beyond financial reports to see the future potential of a business, even if its current financial performance isn’t anything to write home about.

Unlike a loan, where the lender profits from whatever interest rate is agreed at the start (and only loses their money on a small percentage of borrowers who end up defaulting), a VC investor’s upside is unlimited (but they are also at much higher risk of losing their money).

So, the company gets access to otherwise unavailable capital to fund accelerated growth and the investor gets to capitalize on successful startups when they exit.

Since VCs take an equity stake in the business, this reduces the pay day for its founders and early shareholders. 

Consequently, it makes sense to raise only as much capital as the business really needs to minimize the number of shares that must be sold and the associated reduction in existing shareholders upside potential.

LOSING CONTROL

Most first venture rounds result in the VC taking a minority stake (i.e. less than 50% ownership) but occasionally – and frequently after a second or third round is raised – the investor(s) will acquire a majority stake in the business. This means you’ve given up control.

For many entrepreneurs, ceding control of their business is almost unthinkable. How is someone else going to tell you what to do?

In reality, if the implementation of your idea requires so much capital that you are forced to sell more than half of your shares to raise it, giving up control is inevitable.

Get used to the idea and focus on carefully managing your relationships with the investors. If you’re working with a reputable VC firm, odds are that they’ll have valuable insight and advice for you as you work towards your next milestones.

The main battleground where control issues will play out is the board room. Major shareholders will be awarded seats on your Board of Directors according to rules established in the shareholders’ agreement negotiated as part of the investment round.

Since it is the shareholder representatives’ responsibility to maximize value creation for their investors, this can lead to disagreements over key business decisions, especially ones that weigh sustainable, slower, or longer-term growth against increasing the odds of faster, more spectacular growth.

Recent trends toward more sustainable investing – such as the Triple Bottom Line approach and ESG (environmental, social, governance) criteria – are changing some of these dynamics.

The chapter is still being written and it will be interesting to see how things play out. We’re hopeful that VC will embrace the opportunity to back more sustainable businesses, even if that comes at the expense of outsized returns.

<< Last Section: Growing Pains

Additional Resources

A Peek Behind The Veiled World of Venture Capital - Below The Line