Growing & Scaling

Achieving consistent positive cash flow signals your transition into growing and scaling. How to define growth and set realistic expectations merits careful strategic consideration.

Download Our PDF Guide to Growing & Scaling >>

Growth STrategy

In our section on Gaining Traction, we explored key steps to growing an engaged audience, generating and nurturing leads, turning leads into paying customers, and achieving profitability.

Reaching the milestone of consistent positive cash flow signals your transition into Growing and Scaling.

Your business is taking on increasing levels of sophistication and complexity. Some of that is necessary and good. Some of it isn’t.

Growth isn’t, per se, a target. Each business has to decide what it means and how to set realistic expectations.

Only those who will risk going too far can possibly find out how far one can go.


A myopic focus on top line growth – bringing in more revenue – can lead to banner headlines but catastrophic financial performance.

An excessive obsession with bottom line performance – generating more (or more predictable) profit – can limit overall growth and lead to missed opportunities.

Paying attention only to financial targets can negatively impact employee relations, social reputation, environmental impact, and other essential measures of sustainability.

Even with those factors in balance, becoming too concerned with near-term results can cause you to miss weak signals about longer-term threats and opportunities. A failure to innovate and adapt often only becomes apparent when a disruptive competitor storms by and casts your business into an existential crisis.

In this section, we’ll talk about several aspects of Growing and Scaling your business that merit careful strategic consideration, including:

  • Customer Loyalty – how to turn customers into repeat buyers and advocates
  • Marketing Automation and Metrics – using technology to market one size bigger than you currently are
  • Product Development – figuring out what to develop next
  • Scaling Operations – working smarter to keep delighting customers
  • Financial Performance – managing cash and sustaining profitability
  • Triple Bottom Line – measuring performance in terms of people and planet as well as financial profit
  • Building Resiliency – creating a business that can withstand challenging conditions
  • Raising the Next Round – making the transition from seed investors to venture capital and private equity
  • Inorganic Growth – adding to your business through mergers and acquisitions

But first, let’s discuss growth strategy more broadly.


Your business plan should include an explicit set of assumptions and strategies for growing the business.

Simple tools, such as the Ansoff Matrix, can help you devise and evaluate options for organic and inorganic growth.

Organic growth refers to selling existing products to new customers (Market Penetration and new Market Development) or adding new products and selling them to existing customers (Product Development).

Inorganic growth means adding business by diversifying into completely new markets (Diversification) or by acquiring new businesses from others (Mergers and Acquisitions).

Attempting to focus on more than one or two growth areas at once can have devastating consequences. Conflicting priorities and strained resources are not a recipe for team harmony and success.

Prioritize and select the approach that best fits your situation and your investors’ appetite for adventure.

Lay the groundwork for longer-term growth by mapping out opportunities in each of the four quadrants but limit the resources you devote to planning or implementing them until your chosen, near-term strategy is nearing completion.

You must also pay attention to weak signals in your market – an early warning system that can alert you to trends and technology developments with the potential to disrupt your business. These can represent huge opportunities if you are able to harness them or existential threats to your company in the hands of a competitor.

"Weak signals are like breadcrumbs scattered on a path – irregular, with missing data, but leading somewhere."

-Samuel Bacharach, McKelvey-Grant Professor, Cornell University

Many companies’ growth plans are contingent on expanding beyond their home turf – often into international markets.

Opening a facility in a new country sounds like a great way to achieve stepwise growth, but cultural and operational differences affecting customer needs, buying habits, and what it takes to do business can turn an exciting expansion project into a financial nightmare.

Even if you’ve run a multinational enterprise before or have already expanded your current company across country borders, it’s important to treat each new market entry like a brand-new business.

Start with the basics and make sure your key assumptions and strategic choices still hold true for the new market you’re targeting.

Additional market research might be needed to confirm assumptions about what is or is not similar to the markets into which you’re already selling.

Refer to our section on Getting Started for suggestions on key topics to consider.

Next Section: Customer Loyalty >>

Customer Loyalty

As the business grows, you’ll have the opportunity to turn first-time customers into repeat buyers.

As a rule of thumb, your probability of closing a sale to an existing customer is over 70%, compared with less than 30% to a new prospect.

This makes investing some effort in cultivating customer loyalty a no-brainer from a financial point of view.

Loyal customers can also become advocates for your brand. This is your ultimate goal: people who buy from you on a regular basis and tell their friends to buy from you as well.

The key is, no matter what story you tell, make your buyer the hero.

Chris Brogan


The recipe for loyalty isn’t complicated. Your customers must be delighted by your solution to their need and have a high level of trust that you will be honest with them and deliver on your promises.

The first part is a product issue. For as long as the value your solution delivers to the customer is at least as high as they believe they could get from any competing solution, they should remain delighted.

They might even remain loyal after a slightly better solution becomes available if the hassle of switching to the new product and supplier creates enough friction to be a disincentive.

Some customers are neophiles, always chasing the latest, greatest thing. Unless your company is the technology leader and these are your target audience, it’s a fool’s errand trying to earn their loyalty – they don’t have any!

The rest of us, however, will wait until the shine has worn off the latest gizmo, which often also means it has come down in price.

The second element of loyalty – trust – must constantly be earned.

Trust is the belief that your counterparty – a vendor, customer, or partner – is concerned about your wellbeing and acts with your best interest at heart. It’s the belief that they will keep their promises and live up to your expectations.

Trust is an important foundation for a smooth business relationship, allowing both parties to fully commit and feel secure.

Unfortunately, it can only take one incident to completely undermine trust that has been built up over years.

If one party breaks their promise or fails to live up to the other’s expectations, it’s like pulling one leg out from under a stool. And the resulting injuries can take a long time to heal.

When your product or service fails, which it inevitably will at some point, it is vital to take full responsibility.

Even if the failure isn’t readily traceable to something your team did wrong, taking accountability and working to make the situation right will go a long way to preserving the relationship. You might lose money on that transaction, but it will potentially preserve the future revenue stream coming from that customer.

The era of social media has magnified this type of situation.

Have you noticed how often posts go viral that show customer service agents (of one sort or another) reacting inappropriately to a customer issue?

How many posts get the same attention showing the multitude of times those same agents got their response right? Yup. Very few.

In summary, pay close attention to your existing customers’ happiness with your solution and your relationships with them.

Use analytical tools to track customer churn (the percentage of customers who do not make a repeat purchase or discontinue use of your service) and measures of customer satisfaction, such as Net Promoter Score.


We’ve spent considerable ink/many pixels describing the process of gaining customer awareness (building an audience), convincing them to evaluate your solution (lead generation and nurturing), turning them into paying customers (conversion and sales), and earning their repeat business (customer loyalty).

The last stage in the buyer’s journey is when they become an advocate for your company, brand, and product.

Influencer marketing, where highly recognizable people (such as sports and entertainment stars) are paid to promote a certain brand or product, has become increasingly effective in the digital media era.

The influence economy has changed the way we buy things.

Conventional advertising barely works, with over 60% of consumers saying they are overwhelmed by too many marketing messages and 90% saying they ignore digital ads.

Conversely, 90% of consumers say that word of mouth recommendations are the leading factor that influences their buying decisions.

Influencer marketing provides a cure for ad fatigue by connecting the consumer with an authentic voice that they trust (and who also happens to have a huge social audience).

"Nothing draws a crowd quite like a crowd."

-PT Barnum, Founder, Barnum & Bailey Circus

Unfortunately, the cost of influencer marketing can be out of reach for most early-stage businesses. The exception is where someone on your team or within your network is highly recognizable to your target audience and willing to promote your product without demanding massive compensation.

There is also an opportunity to identify and work with micro-influencers who have smaller, niche audiences. Take advantage of these opportunities when they arise!

The next best thing is advocate marketing.

This approach focuses on incentivizing your already loyal customers to share their appreciation for your brand or product, usually in the form of product reviews, customer testimonials, peer-to-peer networking, or co-authoring of papers and presentations.

How do you get someone to go that extra mile for you?

This will be one of the sections in your customer journey map, identifying specific needs and wants that your ideal customer has when transcending from loyal customer to advocate.

Typically, advocates don’t want – and often aren’t allowed – to receive direct compensation for promoting your product, although referral schemes that earn a rebate or discount for the advocate’s business can be highly effective.

More often, they’re motivated by appreciation for their early adoption of your solution or leadership in the field, and recognition by their peers as someone who can be trusted to recommend great ideas and products.

So, how can you find and cultivate advocates to market for you?

Begin by building trust. Always put the customer first and demonstrate time and time again that their needs are important to you.

If you are a technology-driven business, stay ahead and build a reputation for delivering things your customers can’t get anywhere else. This is the Apple phenomenon.

Involve your customers in product improvements and new product design. Showing that you listen to customers’ feedback and ideas is a great way to build a relationship with them that boosts loyalty.

For software companies, consider forming a customer advisory board that can influence your product roadmap, and add your VIPs to this group.

Regularly express gratitude for your customers’ business and feedback – even when that feedback comes in the form of a complaint. See all feedback as an opportunity to improve and demonstrate that attitude to your customers. Amid all the noise, a simple thank you message or call can have a huge impact.

Over time, advocates will emerge. You shouldn’t have to ask people if they will advocate for your brand; it’s an organic product of the loyalty building process.


Customer churn is the number of customers who leave you during a given time period.

And while every business loses customers for myriad reasons, it’s important to minimize churn because of the repeat business statistics we cited earlier in this section.

It’s much more profitable to sell products to existing customers than to new ones, especially if your cost of customer acquisition is high.

The first step to minimizing churn is measuring it and analyzing why it occurs. How? By asking the customer.

According to SuperOffice, 68% of customers leave a company because they perceive the company doesn’t care about them. Only 14% cite dissatisfaction with the product or service, and less than 10% report being lured away by a competitor.

This is one reason why regular communication with your customers – across whichever channels they frequent – is so vital. It allows you to demonstrate that you do care about them, and to pick up any early warning signs of dissatisfaction before they evolve into churn.

Informing and educating your customer about your products and services provides additional insurance.

Providing them with support in the form of free training, webinars, videos, how-to guides, and new product demonstrations keeps customers feeling comfortable and appreciated.

It also gives you an opportunity to remind them how different you are from your competitors – in other words, what they would lose if they decided to leave.

Another prevention tactic is to monitor for disengaged customers who might be most at risk of leaving you.

Automated customer relationship management workflows can help you to spot customers who haven’t heard from you in a while and prevent follow-up opportunities from getting forgotten.

If you can intercept a disenfranchised customer before they leave, tactics such as price incentives, special renewal offers, and opportunities to pause and resume subscription products can help secure their ongoing business.

Last but not least, identify your best customers and make sure they always feel special. Create a “VIP” program that rewards them with priority access to customer service, supporting resources, and new products. This incentivizes them to remain loyal and motivates other customers to try and ‘earn’ their way into the program.

<< Last Section: Growth Strategy
Next Section: Marketing Automation & Metrics >>

Technology must become part of marketing's DNA.

Scott Brinker

Marketing Automation & Metrics


The universe of marketing technology tools continues to expand rapidly. In the 2020 update of his annual Marketing Technology Landscape, Scott Brinker reported over 8,000 solutions – up 13.6% from the year before.

The fastest growing category is tools that handle data, underpinned by the inexorable application of artificial intelligence (AI), machine learning (ML), and other data engineering technologies.

Of this vast array of tools, several hundred can be considered category leaders, followed by a long tail of aspiring tools that have yet to achieve widespread adoption.

The fastest growing category is tools that handle data, underpinned by the inexorable application of artificial intelligence (AI), machine learning (ML), and other data engineering technologies.

Of this vast array of tools, several hundred can be considered category leaders, followed by a long tail of aspiring tools that have yet to achieve widespread adoption.

As Brinker discusses in his report, leading martech companies have realized that their path to sustained success involves becoming platform ecosystems. That is, the backbone of a marketing technology stack onto which specialized apps can be easily integrated.

As we have discussed elsewhere, Strategic Piece is a HubSpot Partner. We run our own marketing on the HubSpot platform and will happily recommend it to our clients.

Nevertheless, we recognize that there are numerous other excellent platforms available and gladly work with them when a client has already made their choice.

The power of these tools has to be seen to be believed. Capabilities that used to require a marketing team (or working with a beefy marketing agency) and were therefore exclusive to larger corporations are now accessible to the individual marketer.

One of the things we like most about HubSpot is the way it has remained accessible to the non-specialist, even as it has grown to service a full range of companies from startups to enterprise.

This is important if you want to market like the big guys before you’re ready to build out a dedicated marketing team.

Key opportunities that come from upgrading your martech stack are in the ability to automate more – and more complex – workflows, to integrate your email and social media marketing, to apply your brand guidelines more consistently, to tap into AI and ML-based tools that help improve the focus and success of your marketing, and a wider range of analytics to help make sense of it all.

Some things to consider when making the decision to invest in more sophisticated martech tools are:

  • Be clear about your objectives. Different platforms and tools are best suited to some tasks than others, so set your objectives first, then look for the tech stack that can help you get there.
  • Check integrations carefully. It’s easy to assume that all modern software plays nicely with the other apps on the block. Unfortunately, this is far from true. So, while third-party integrators can help you kluge together a solution, we recommend picking readily integrated tools even if that means sacrificing some functionality offered by the tool that doesn’t want to socialize.
  • Invest in a platform that will grow with you. The hassle of migrating to a different tech stack is something you want to deal with as infrequently as possible. Look for tools that will scale with your business as it grows, both in functionality and price.
  • Use free tools like and to study the competition. This can give you insights into the tools they are using and where their web and social media traffic is coming from.
  • Seek advice from experts familiar with the tools you are considering. With the technology moving as fast as it is, you should consult folks who are working with it every day. They should know which tools are working best and which ones have fallen prey to a clunky update or ill-advised change in functionality (which, sadly, we see happening all the time).


Measuring marketing performance can be tricky.

For starters, while some tactics are readily measured – for example, how many times unique visitors click on the link in a social media post – others are decidedly hard to quantify – for example, how many prospects became more likely to evaluate your product because they saw your logo on a banner of event sponsors?

Nevertheless, you must try.

Attribution is the technical term given to identifying what actions contributed to a desired outcome (e.g. a purchase) and then assigning a value to each action.

It’s a complicated and subjective process. Was it the magazine ad that finally sealed the deal, or the visit she made to your website, or the email you sent her in response to that visit?

In the early days of digital marketing, many marketers would use either first-touch attribution or last-touch attribution, assigning all of the revenue and value to either the first measured touchpoint or the final one before a conversion, respectively.

Multi-touch attribution is a more advanced model in which different touchpoints are assigned a certain proportion of responsibility for driving the outcome. This is where you will find more sophisticated models like time-decay.

While you may have a preferred approach, even free software like Google Analytics allows you to study how your analysis changes using different models.

You should define what success will look like for a given marketing tactic – for example, generating a certain number of qualified leads through an online ad campaign – and measure performance against that target to decide whether to continue, adjust, or discontinue.

More sophisticated attribution solutions can wait until you’re a multi-million-dollar enterprise.

We recommend taking a few basic steps. Unique URLs (using UTM codes) and landing pages help to distinguish between online visitors from different sources and campaigns. Tracking code on your web pages can feed web analytics that help you understand who came from where.

Once you are generating and monitoring web traffic, search engine optimization (SEO) tools can help improve your visibility to prospects who are searching online for the things that you offer.

"My recommendation for SEO is very simple. It's Write Good Stuff. In my mind, Google is in the business of finding good stuff. All you have to do is write the good stuff; you don't need to trick it."

-Guy Kawasaki

There are also several website activity monitoring tools that give deeper insight into visitor behavior than traffic data alone (such as Hotjar, Crazy Egg, or Mouseflow).

It might seem like professional stalking, but studying on-site behavior can help you diagnose where visitors are getting stuck or lost, then tweak your website to improve their user experience.


Not all marketing efforts should be directed to promoting your brand and pushing your product. There’s also a need to keep tabs on how your target market is changing.

Gathering and assimilating market intelligence is an important and often overlooked role that your marketing team should play.

Establish a process for collecting market observations from staff and clients and funneling them to a central point.

Trends in supply, demand, price points, and available features are all important to monitor and discuss.

<< Last Section: Customer Loyalty
Next Section: Product Development >>

Product Development

Although many startups arise from a single idea that solves a specific problem, they quickly spawn concepts for related products – both within and beyond their original problem area.

There’s nothing wrong with envisioning a suite of products targeting the same customer or that apply your core technology or process to different markets. In fact, it can make you more attractive to investors.

Problems tend to arise when you can’t decide where to focus or try to satisfy the demands of too many customers at once.


Any damn fool can make something complex; it takes a genius to make something simple.

Pete Seeger
Product Director, Docusign

We recommend creating a product development roadmap that shows all the different potential products and how they relate to each other.

This will provide a landscape within which you can decide in what order they should logically be developed and launched, if at all.

Coupled with a budget estimate, this becomes the heart of your product development strategy.

Be sure to document your assumptions and rationale for the chosen development sequence. You will want to regularly review and update the product development roadmap as you learn more about your target market(s) and customer needs.

Blindly developing products despite contradictory market feedback is a recipe for disaster!

There can be some tough choices to make between focusing on a narrow product range at which you become very good (if not the best) and expanding to a broader portfolio where you meet more customers’ needs but cannot achieve the same level of differentiation.

This is a very situation-specific problem, with no right answer. Absent a clear winner, we vote for focus over breadth. Pick one thing, do it very, very well, and then build from there.


Innovate or die. Or, as author and educator, Erica Brown, more eloquently puts it: “To be successful in the future, the rate of internal innovation must exceed the rate of external innovation.”

This means that your company must continually be formulating new ideas and deciding whether they are worth adding to the product pipeline – and doing so faster and more effectively than your competitors.

The generation of valuable new ideas won’t necessarily happen easily or spontaneously, though. The most prolific product companies employ a carefully honed innovation process to stimulate, capture, and process new ideas.

This can be as simple as rewarding employees for submitting ideas into a suggestion box to structured and scheduled ideation sessions tackling specific opportunities.

To find the next great concept, you need to generate lots of ideas and then sort through them to separate the precious metal from the gangue.

Whatever approach works best for your team, be clear about the creative boundaries. Excessive innovation can drown a small team, distracting them from delivering the core business.

Another important source of ideas comes from competitive intelligence. Watching your competitors’ developments can give vital clues to previously unrecognized customer needs or changes in customer preferences.

Depending on the size of your organization and, more specifically, how many of them occupy market-facing roles, you will need some mixture of deliberate competitor investigation and capture and analysis of information flowing in from the front lines.

There’s also a balance to strike between totally ignoring your competitors and over-reacting to their every move. Just because they develop a particular solution or feature doesn’t necessarily mean you must rush to produce something similar.

You should understand your customers’ needs and buying habits well enough to determine the importance and necessity of the new feature and react accordingly.


"The only way you are going to have success is to have lots of failures first."

-Sergey Brin, Co-Founder, Google

When you find and develop a promising idea, test it with customers as soon as you can. The only way to know whether it’s really a good idea is to ask potential customers for feedback.

Then – and this is the hard part – nix any idea that doesn’t receive a warm welcome or needs fundamental changes to address issues the test group has raised.

Finally – and this can also be hard! – don’t wait for perfection before putting a bow on it and triggering the launch campaign.

Agile methodologies have thankfully spread from the software world into product development more broadly. This encourages iterative improvements in tightly controlled time periods, helping to mitigate never-ending projects that are always “almost finished”.

<< Last Section: Marketing Automation & Metrics
Next Section: Scaling Operations >>


Why Product Development is Different in a Small Company - Steve Owens, Small Business Bonfire
Building Better Products by Understanding Values - Jennifer Choi, Mind the Product

Scaling Operations

A very quick route to failure is found by those who disappoint their early customers.

Sure, every company misses the occasional delivery date or falls behind on a project deliverable, but when you’re new, customers are evaluating your every move and you have yet to earn their loyalty.

As the adage goes, always try to under-promise and over-deliver, not the other way around.

Managing a growing operation can quickly become overwhelming. Requests are coming in from all directions and it seems as though a new fire breaks out every time you think you’ve brought one under control. At this point, another adage – to work smarter rather than harder – has never been more apropos.

Companies that build scale for the benefit of their customers and shareholders more often succeed over time.

Jamie Dimon
President and CEO
JPMorgan Chase


With insufficient human resources, critical tasks will either go uncompleted, be delivered too slowly, or at substandard quality.

Failing to deliver, delivering late, or delivering something of poor quality are all likely to irritate your customers and potentially cost you their business. Of the three, it’s better to deliver a quality product late than to leave your customer empty handed or give them something substandard.

Watch out for team members showing signs of overload and fatigue.

Asking too much from your team can be a lot like running an engine at high speed for a long time. It’s okay to demand long work hours and ask people to defer their vacations during a particularly busy week or month, but you can’t run the business like that for too long otherwise something – more importantly, someone – will break.

As the business grows in scale and complexity, regularly reevaluate the roles and responsibilities assigned to each team member.

Although individual tasks might not grow exponentially, the combined effect of many tasks each getting a little more demanding can quickly overtake even the most capable person.

Whenever you add a person to the team, consider how best to reassign responsibilities across the group. Regular rebalancing ensures that you are taking full advantage of the group’s skillset and keeping individual workloads within healthy bounds.


Inadequate equipment or a lack of physical materials will also mean you cannot keep up with demand. Lead times will become longer and, even if you make realistic promises to them, your customers will eventually turn to other sources instead of waiting for you to deliver.

Supply chain management will become essential if you are a product company. If you’re a service provider, it will be scheduling and, where appropriate, repair and maintenance.

There are many software tools available to help you manage these processes – broadly called enterprise resource planning (ERP) systems.

Don’t wait too long before you implement something; the later you try to retrofit a software system, the more painful it will be!


Within the company, growing pains occur in much the same way as they do in the human body. The pieces don’t fit together quite as nicely, and new structures must be created to support its increasing size.

Maintaining alignment between key members of your team is of paramount importance. It’s hard enough to be successful when everyone is pulling together in the same direction, let alone if someone on the team is pulling in a different direction.

Hold regular leadership team retreats to help reconnect, assess, and strengthen the team.

Day-to-day activities usually take precedence over more strategic, longer-term thinking, which creates a fertile ground for divergence and disconnection to take hold. Bringing everyone back to center every few months will ensure those seedling issues are weeded out before they put down deeper roots.

We deliberately used the term retreat because it’s important to pull your leaders away from the front lines to a place where you won’t get disturbed and they won’t get tempted back into the fray. Force them to delegate their responsibilities and set out-of-office autoreplies so that the sessions can be as focused as possible.


Another challenging dynamic – at any stage of the business, really – is how to make decisions in the face of significant uncertainty.

Even though you’re making sales and growing your brand, there will still be far more unknowns than knowns in your decision-riddled world.

In fact, the magnitude of the decisions will seem to grow much faster than the information you have available to help make them!

One of the best pieces of advice we can give you is to slow down. Instead of running around multi-tasking and distracted, slow your decision-making process down and stay on task to make a well-researched and analyzed choice.

This might even mean stopping altogether. Taking a mental break – such as going for a walk or meditating – can refresh you and clear debris from your mind that’s obstructing clearsighted decision making.

Ask yourself: how am I feeling about this whole leadership thing?

For many of you, it’s the first time you’ve sat atop the proverbial totem pole. Is it everything you expected and more? Are you overwhelmed yet? Do you have all the answers?


Hopefully you didn’t answer ‘yes’ to the last question. Continuous learning is a given for any of us in leadership positions, especially first-time management team members and entrepreneurs.

"When most people hit failure, they give up, but good entrepreneurs simply treat failure as a learning experience and use it to fuel and inform their next move."

-Trip Adler, CEO, Scribd

Unfortunately, many investors – not to mention, employees and customers – treat their CEOs as if they do have all the answers. In reality, they don’t expect you to know everything, they expect you to figure everything out.

So, what should you do when the uncomfortable realization dawns that you’re missing answers to some critical questions or lack the necessary skills or experience to make the call?

Leadership development and coaching is offered far too infrequently and usually much later than it could have been. Either the sponsors or the executive(s) are reluctant to admit that outside help is needed or worth paying for.

Ironically, while entrepreneurs and early-stage businesses are most in need of coaching and support, it’s usually larger enterprises that provide their leaders with these sorts of resources.

What a difference it could make if investors took the time to support the fledgling leadership teams across their portfolio and viewed the cost of providing that support as part of their overall investment.

Our recommendation is to go out and find the help you need, then explain to sponsors how it will de-risk their investment and equip you to lead the business more effectively. (Read our blog on working with an executive coach).

Never be afraid to admit what you don’t know and ask for input from others.

Getting help from friends and associates is a lot easier than asking a complete stranger. This is one very good reason to invest time in growing your network. The more you contribute to helping others, the easier it becomes to tap into their expertise when you need it.


Sometimes, no matter how much great advice you receive or how well thought through your decisions are, things just don’t work out well.

In the uncertain world of early-stage business, there will be times when you simply guess wrong or follow an incorrect combination of assumptions into a dead-end.

At times like that – or when you’ve been charging hard for weeks and can feel your performance beginning to suffer – it’s vital to learn how and when to take a break.

Everyone responds differently to stress, sustained workload, disappointment, and failure. You need to figure out your own response pattern, warning signs, and effective modes of rest and recharge.

A common mistake is staying at the controls too long because taking a break might give subordinates the impression you aren’t committed or tough enough, or that they can slack off rather than redoubling their efforts. More likely, they’ll think you’re losing the edge, running out of steam, and don’t give a damn about their wellbeing either.

Look after yourself and the people around you. Set a positive example by maintaining a high level of energy and performance and having the self-awareness to take – and grant others – breaks when fatigue and mental burn-out are beginning to affect your performance.

You’ve probably heard the term ‘grit’ used to describe a beneficial, if not vital, characteristic of successful business leaders. It’s a level of persistence that goes beyond what one might typically expect to see, allowing them to adapt, overcome, and succeed when others might fail.

That’s great, but grit has become an overused cliché for persistence under any circumstance. And, sometimes, sticking to your guns is exactly the wrong thing to do.


When is it better to change than to persist? How long should you stick with something when it doesn’t seem to be working? This could mean your business concept as a whole or something tactical within marketing, sales, or operations.

Long enough, we would argue, for randomness and shear bad luck to reverse themselves, and for a positive outcome to be reasonably expected at the activity’s normal cadence.

In layman’s terms, if your assumptions are correct, it should’ve worked by now, even on a bad day.

Persisting beyond such a point isn’t about grit. It’s about clinging to hope when objectively there is very little. Your efforts could be more valuably applied to revisiting assumptions and changing tack.

In entrepreneur-speak, this is usually called a ‘pivot’ (or, if it’s more of a tactical change than a strategic one, a ‘micro-pivot’).

This is another over-used word. Startups are “pivoting” left, right, and center, as if failing to pivot might mean not having learned and matured as a business.

We prefer to reserve the term pivot for a deliberate reformulation of the company’s primary goals and strategy. It’s a fundamental change in direction that rewrites the vision statement and leads you to reevaluate pretty much everything from the team you’ve assembled to the market you’re targeting.

When this sort of pivot is warranted, don’t wait, make it happen. It takes superior leadership to admit you’re heading in an unpromising direction, stop, reevaluate your objectives, and then realign the team and its stakeholders toward a new goal.

A particularly difficult situation can arise if your spouse, partner, family member, or any other significant individual in your life no longer supports you and your business. What should you do then? We recommend working with a professional business coach or therapist who can help you examine your priorities and manage the affected relationships.


Speaking of extended family, what about your financial in-laws – the Board of Directors?

Whether you appointed the directors or had them foisted on you when raising capital, you have both the responsibility and the opportunity to manage them and take advantage of their capabilities.

Managing a board of directors requires setting realistic expectations, ensuring the right people are on the board (to the extent that you can influence this), and holding them accountable for supporting you and the business in appropriate ways.

In addition to their legal and fiduciary duties, which you should take time to understand, it’s reasonable to expect your board to do more than just critique company performance on a quarterly basis.

They should serve as a source of ideas and a sounding board for yours.

They should help promote the business and connect you to potential partners, customers, and suppliers through their contact networks.

They should bring both real-world experience and ‘tribal wisdom’ to complement your own knowledge.

And, they should mentor you and members of your leadership team as you grow and develop.

Is there anything you can do when the board interferes too much, becomes a distraction, or fails to provide enough support?

This depends on how your board is structured, but you should certainly raise your concerns to the chairman or a majority investor if either can intervene to remedy the situation.

Unless you’re also a significant shareholder, deteriorating relations with your board of directors could signal an exit point from the company for you. Just like employees leave bad bosses more than they leave bad companies, so leaders should walk away from bad boards of directors if differences in style or opinion become irreconcilable.


As many leaders are discovering of late, managing in a market downturn – especially something so acute as the recession propagated by COVID-19 – can be an incredibly difficult situation.

This is especially true when you are the founder or co-founder and have built the business from nothing.

Despite your best efforts, sales growth stalls and maybe even reverses course. You’re dealing with disappointed investors and faced with making tough choices to keep the company solvent.

Figuring out what to cut first and making the cuts both fast enough and deep enough are company-saving skills that we’d all rather not have to master. But, when the time comes, it’s essential to act swiftly and decisively.

Some leadership teams think about this scenario ahead of time and develop a contingency plan that can be dusted-off and implemented as soon as the crisis is recognized.

Whatever the severity of the crunch, a primary concern for you as a leader should be maintaining morale among the surviving team members. You need them performing at their best to help the company weather the storm. You might even gain an advantage over less well-prepared competitors.

People can be surprisingly resilient and sanguine when tough times strike, provided they are kept informed and understand that market forces – not management incompetence – have forced the company to take drastic measures.

Of course, if management incompetence has played a role, it’s important that this too is acknowledged, and appropriate changes are made in response.

Your purpose and mission statements should still inspire and motivate the team no matter how badly things are going.

A downturn is a great way to test and refine those guiding principles. Get through the crisis and then ask yourself whether they proved effective or if they can be refined.


Let’s wrap up this segment with a word on adding new locations.

As your business gains visibility beyond your initial market, you may begin thinking about geographic expansion. Whether that means a second spot on the other side of town, in the next closest city, expanding to cover the entire country, or heading overseas will depend heavily on the nature of your business.

Regardless, be sure to surface and challenge all your assumptions before you commit. Even within the same country or state, differences in regional market behavior and customer expectations can be critical.

Are all the factors that made your original business a success replicated (or exceeded) in the proposed new location? Can you hire equivalent staff and procure the necessary resources? Does the competitive landscape look similar?

We recommend opening locations in sequence and not in parallel. As a small business, you won’t have the bandwidth to handle all the issues that can (and will!) arise during an expansion project.

Even though this means delaying the revenue stream that you plan to generate from the other location(s), it’s far better to get each one right than to mire your company in multiple expansion nightmares at once.

You will also be able to learn as you go, making successive expansions smarter and more effective than their predecessors.

<< Last Section: Product Development
Next Section: Financial Performance >>



Disrupt Yourself, by Whitney Johnson
The One Thing, by Jay Papasan and Gary Keller
Hacking Innovation, by Josh Linkner
Lead from the Future, by Mark Johnson and Josh Suskewicz

Online Articles

27 Ways to Engage Employees in 2020 - ContactMonkey
How to Fire an Employee - Rob Starr, Small Business Trends
A New Approach to People Ops That Puts Employee Experience First - First Round Review
From Thinking About The Next Normal To Making It Work: What To Stop, Start, and Accelerate - McKinsey
Seven Smart Ways To Help Out Your Exhausted Employees - Brendon Schenecker,
How Can a QMS Template Help My Small Business? - Richard Keen, ISO 9001 Checklist
Create A Productivity Workflow That Works For You - Harvard Business Review


The Power of Laughing At Ourselves At Work - Tom Fishburne (TED)

A small business can survive for a while without making a profit, but if its cashflow dries up, the impact is fatal.

Theo Paphitis
Retail Mogul
Dragons' Den Judge

Financial Performance

Let’s change the channel and talk about money.

Without capital, your business can’t function. You can’t pay the human resources or replenish the physical resources, and your business will grind to a halt.

Until you achieve sustainable profitability, pay close attention to your monthly burn rate, and seek new investment in a timely manner – at least six months before the balance is forecast to hit zero.


As we’ve mentioned several times, cash is king – and it will remain so long after the company becomes profitable.

Cash flow management never loses its importance. Forgetting this simple idea leads seemingly successful businesses to fail because they run out of working capital – a situation known as ‘over-trading’.

Building a reliable cash flow forecast, understanding and minimizing the time it takes to collect revenue (usually referred to as Days Sales Outstanding, or DSO), balancing payments when they’re out of sync with receivables, and using financial instruments to bridge the gap (for example, receivables-based lending) are all vital elements in a cash management strategy.

If you haven’t yet added a full-time financial leader to your team, consider doing so sooner rather than later.

Implementing financial processes and discipline early can help you avoid the build-up of inefficiencies that are more difficult to identify and eliminate later. It will also make you more attractive to investors if you decide to raise capital.

Hiring a fractional executive can be a helpful way to fill the Chief Financial Officer (CFO) role if taking on their full salary and burden would consume too big a slice of your limited resources.


Taking on debt and finding the right lender are definitely areas where financial expertise is needed.

Many financial institutions offer a range of credit facilities, secured against the company’s assets, accounts receivable, intellectual property, and often a financial guarantee from the founder or majority shareholder.

It can be quite a task to sort through these offerings and then interact with one or more lenders as they do their due diligence before underwriting a loan.

You will hear some business leaders proudly declare that they run a debt-free business and have no intention of owing anyone any money. While this sounds like an admirable achievement, debt isn’t always a bad thing.

They could be starving their company of much-needed working capital, causing it to grow more slowly, and depriving shareholders of faster and greater returns on their investment.

Utilizing an appropriate amount of debt to supplement the company’s working capital (known as ‘leverage’) without creating excessive financial risk is a solid way to fuel your business’ growth. Plus, debt is cheaper than equity.

However, be sure to get help from a reputable financial advisor if you and your team lack the skills to manage debt appropriately.

What happens if you’re running out of cash, can’t access new debt, and your investors don’t want to put in more capital?

This is a sticky situation! Unless you can find someone willing to recapitalize the business – that is, buy out existing shareholders or debt and inject new capital into the business – your company’s future is in jeopardy.

For this reason, always keep an eye on the financial future to anticipate cash needs and avoid putting yourself – and the company – in such a position.


"No one else knows the cost of a defective product – don't tell me you do. You know the cost of replacing it, but not the cost of a dissatisfied customer."

-W. Edwards Deming

You’ve probably heard of the cost-quantity-quality triangle. It illustrates the relationship between three primary forces in a project:

  • Time - the period within which you deliver the project or product.
  • Cost - the amount of money or resources needed to complete the work.
  • Quality - the fitness-for-purpose that the project or product must achieve to be a success.

We see many entrepreneurs worrying excessively about driving down Cost and increasing capacity (to reduce Time) while assuming Quality will somehow take care of itself.

Do you understand the level of quality that customers expect of your product or service to consider it acceptable?

Do you have a quality management system in place to monitor the actual quality your company is delivering and ensure it exceeds customers’ minimum requirements?

This can be as simple as having two people proof-read a document before it gets sent to the client (since typos can seriously undermine the value of great content) or having someone double-check a packing list to ensure the client receives exactly what was ordered.

Look for the most likely sources of poor quality and implement systems to eliminate (or at least catch) them before they reach the customer.

Incidentally, producing excessive quality can also be a problem. Over-engineering a solution or spending unnecessary time ensuring it meets a level of quality that isn’t of incremental value to the client is simply a waste of precious resources.

<< Last Section: Scaling Operations
Next Section: Triple Bottom Line >>

Triple Bottom LIne


Let’s chat about earning and maintaining your License to Operate.

Unlike driving a car, this isn’t just a matter of sitting through a few classes, taking a test, and spending time behind the wheel.

We define a License to Operate (LTO) as demonstrating to your stakeholders’ satisfaction that the business practices and operating procedures you follow are acceptable.

In this context, your stakeholders include your employees and the general public, as well as actual shareholders if you have them.

Strictly speaking, this is your Social LTO – to avoid confusion with any regulatory licenses that your business might require from local, state, or federal authorities.

Social LTO has become a lot more significant in recent years. Public scrutiny and investor selectivity have both made it increasingly important to demonstrate compliance and continuous improvement.

“If a values-driven approach to business can begin to redirect this vast power [that lies in the hands of business] toward more constructive ends than the simple accumulation of wealth, the human race and Planet Earth will have a fighting chance.”

Ben Cohen
Co-Founder, Ben & Jerry's

Key areas within Social LTO include health, safety, environmental, and security performance (HSES), environmental, social, and governance performance (ESG), and compliance with anti-corruption statutes such as the U.S. Foreign Corrupt Practices Act (FCPA) and the U.K. Anti-Bribery Act (ABA).


The term “Triple Bottom Line” (TBL) was coined a quarter-century ago by the British author and serial entrepreneur, John Elkington.

TBL is a sustainability framework that examines a company’s social, environmental, and economic impact. It recognizes that a company’s performance should be measured in terms of the wellbeing of people and health of the planet, not just financial profit or loss.

Since TBL was first proposed, myriad related solutions and frameworks have evolved, such as the Global Reporting Initiative (GRI), Social Return on Investment (SROI), ESG (Environmental, Social, and Governance reporting), and BCG’s Total Societal Impact.

As Elkington himself commented in a 2018 update for the Harvard Business Review, “the bewildering range of options now on offer can provide business with an alibi for inaction.”

Importantly, he goes on to note that, “we have a hard-wired cultural problem in business, finance and markets. Whereas CEOs, CFOs, and other corporate leaders move heaven and earth to ensure that they hit their profit targets, the same is very rarely true of their people and planet targets.”

We can – and must – do better.

As Elkington advocates, it’s time for breakthrough change where progress on a minimum of two of the three dimensions becomes the default for next-generation solutions.

We recommend preparing an ESG statement for your business – or its equivalent under whichever framework you decide is most relevant for your business and target market.

Then, report your performance against all the metrics with equal emphasis – even if you are compelled by financial investors to spend a disproportionate amount of time counting and recording beans.


It’s no secret that VC has lagged other sectors in recognizing and adopting ESG practices.

This might be because VC has been dominated by tech of late – and tech companies don’t usually have big environmental footprints. Or, it could be that the people leading VC are genuinely obsessed with making outsized financial returns at any cost. Either way, it is changing.

Recent scandals surrounding VC-backed companies’ social and governance performance (think: Uber or WeWork) have brought ESG into focus for many investors.

In the world of social media, one high-profile incident or lawsuit can sink an otherwise promising startup.

VCs are therefore playing catchup, adding systematic ESG evaluations to their due diligence processes. And, by adding these requirements early in a company’s life, they are setting a solid baseline for longer-term sustainability.

As responsible investing becomes increasingly the norm, ESG and its sister frameworks will become an essential component for companies seeking funding investment, as well as recruiting top talent and attracting discerning customers.

Similarly, the cascade of ESG requirements from publicly traded and larger private corporations to private equity backed acquisition targets will make auditable ESG performance a differentiator in exit pathways.

Lay the foundations now and ensure your business records its total cost of doing business – financial, social, and environmental – on the profit and loss statement.

<< Last Section: Financial Performance
Next Section: Building Resiliency >>

Not a day should go by without some kind of improvement being made somewhere in the company.

Masaaki Imai
Founder, Kaizen Institute

Building Resiliency

Leading an increasingly sophisticated business can be a painful journey for those who relish the freewheeling, every-day’s-an-adventure life of an entrepreneur. Unfortunately, ‘real’ businesses require structure, processes, and a whole lot of not-so-much-fun effort to succeed.

Recent interruptions in business and social systems – supply chains, points of sale, in-person events, communications – have left leaders around the world with a lot to think about.

Without realizing it, we had become frighteningly complacent. One virus pandemic later, and the fragility of our systems became painfully apparent.

How should you react? How can you build a resilient business that avoids similar crises in the future?


There are two definitions of resilient in the dictionary:

re·sil·ient (rəˈzilyənt, adjective)

  1. (of a person or animal) able to withstand or recover quickly from difficult conditions.
  2. (of a substance or object) able to recoil or spring back into shape after bending, stretching, or being compressed.

So, which one should we apply when thinking about a business?

We’re certainly interested in the company being able to withstand and recover quickly from difficult conditions, so the animal definition works quite well.

And, it sounds appropriate for our business to spring back into shape after having been stretch or compressed, so the inanimate definition could also apply.

However, to us, resiliency is more than just how the business reacts after its conditions have been perturbed, which is where the animal and object definitions focus.

We think a third option is needed – something like this:

  1. (of a business) able to assess, adapt, remain viable, and remain relevant after a sudden change in its operating environment.

To be resilient to change, a business has to be able to understand what’s changing, design and implement an appropriate response, and – importantly – remain viable and relevant once the change is over (which need not mean things have returned to their prior state).

Springing back into their previous shape is how many established businesses have responded after previous crises (e.g. 2008-09 recession in USA), but it hasn’t led to long-term resiliency. In fact, it probably made them even more vulnerable this time around.


There are two levels of assessment needed here: one that is applied on a recurring basis, even when skies are blue and the sun is shining, and the other for application when a crisis is upon us.

Start with your why. Are you still committed to the purpose that underlies your business?

If you are, carry on. If you’re not – how significantly different is your purpose now from before? If it’s similar enough, you can probably pivot the business to align with your new purpose. If it’s too big a leap, then you should step back and reformulate the business.

Similarly, is the vision you articulated for the business still relevant?

Your vision can either be tweaked (recalibrated) or reformulated, depending on the degree to which things have changed. Either way, spend time recommunicating the vision to your team – even if it hasn’t changed one bit.

What about your customers? Has the need you address become more, or less, acute? How else has your ideal customer been affected?

An increased need could lead you to double down, investing more in product development and marketing.

A reduction in need means you must adapt your solution or, if that can’t be readily achieved, rethink your business model.

Other changes – such as those we’ve seen propagated by COVID-19 – may mean reinforcing your customer relationships, meeting your customers in new places (e.g. digital channels vs. in-person), or building an entirely new audience.

Finally, regularly revisiting your key assumptions is a vital process that all business leaders should employ.

Whenever assumptions are satisfactorily reconfirmed – whether they are related to customers, markets, macro trends, and so on – you can confidently continue building your business.

Whenever something has changed, however, it’s time to assess the impact and revisit your business model.

One of the most dangerous things we’ve seen business leaders doing in the wake of COVID is dismissing key changes in market behavior as transient effects that will soon revert to normal.

What if they’re not? Business leaders who ignore cracks in their company foundations expose their companies to the risk of sudden collapse.


We’ve already mentioned a few adaptations – to recap:

  • Pivot the business to align with a change in purpose
  • Recalibrate or reformulate the vision to reflect new reality
  • Modify your solution to address a change in customer need
  • Meet customers in new places/on different channels

What about more serious or sustained changes?

Ask yourself which resources will be most critical to your business going forward.

The first step, which every business turns to quickly when a serious negative event occurs, is to eliminate excess. Reduce any spending that can be considered discretionary.

However, keep an eye on the future as well as the present. Cutting a service or releasing an employee today doesn’t always mean it/they can be added back as soon as they’re needed again. Focus on excess that can be lived without for some time, even once the business begins to recover.

When deeper cuts are needed, prioritize the pain.

Remain as objective as possible - there will always be considerable subjectivity when deciding which staff reduction, facility closure, or benefit elimination will have the most negative impact on morale, customer perception, or your future ability to hire talent.

At a certain point, you will be forced to make hard, future-focused choices. For example, releasing one of your early employees whose skills got the company to where it is today in favor of a newer hire whose skills are going to be more critical moving forward.

It may also be necessary to temporarily repurpose part or all of the business to generate revenue that keeps the lights on.

Can idle equipment be used to manufacture an unrelated product that is in greater demand?

Can your team’s collective experience be redeployed to deliver project work for a different industry or segment?

Can facilities or equipment be leased to other companies whose operations are less affected than yours?

None of these options is ideal and some may require more investment than is justified by their potential returns, but all feasible ideas should be considered before turning off the lights and locking the door.


Waiting for the storm to pass and then cleaning up the mess works fine when an unpleasant event is transitory, and things quickly return to normal.

When change becomes permanent or creates significant hysteresis, your business needs to begin its assessment and adaptation process as quickly as possible.

Two main criteria must be addressed: whether the business can remain viable and whether it is still relevant.

Steam engines are still a perfectly viable technology, but they are no longer relevant because newer technologies are more effective. In fact, train companies are a common business school case: because they defined themselves as train companies rather than transportation and logistics companies, when a better technology came along, they essentially got replaced (or at least massively downsized).

Selling a wide range of products to consumers is still relevant, but doing so in the department store format is no longer viable because Amazon and other online retailers can provide greater selection and convenience.

In 2020, businesses that existed to procure low-cost products from international manufacturers and distribute them in the U.S. are still relevant (assuming the product itself is still needed), but the viability of their single, extended supply chain is very much in question.

If you conclude that your business fails either of these tests and that the underlying change is permanent (or will persist too long for you to survive), don’t wait to act. First, discuss the situation with trusted advisors to make sure you haven’t missed or miscalculated something. Then, follow the mantra of General Electric legend, Jack Welch: “Fix, Close, or Sell” the business.

If you are confident that the business will remain both viable and relevant, make sure you have enough cash to survive.

We recommend having enough cash in the bank to cover at least six months projected spend (factoring in any changes in cash flow that you expect to see or make during that period).

If you’re at or below that threshold, it’s time to carefully control your spending and begin work to raise new funds.

Investors don’t go into hiding during crises and downturns, but they do sharpen their pencils. Expect them to perform some serious due diligence and to be seeking exceptional projected returns (since there are always bargains to be had when businesses get desperate for cash).

Finally, if you can see the bottom of the cash barrel and are unable to raise new money, don’t wait too long to think about an exit.

Give yourself chance to make the best of a bad situation by negotiating a reasonable deal to merge or sell the company to an interested acquirer. It’s usually better to own a smaller piece of a viable and well-funded company than end up with nothing.


Much of this section has focused on assessing and responding to change that has already been inflicted upon your business.

How can you see change coming and be better prepared?

Pay attention to macro trends and weak signals in your market.

"All overnight successes take about 10 years. So many things improve if you can take a long-term approach. It is not natural for humans. It's a discipline that you have to build."

-Jeff Bezos, Founder, Amazon

Macro trends tend to unfold over long time periods – often years, occasionally decades – which can create the impression that dramatic change has suddenly happened overnight when in fact it had been brewing for ages.

Therefore, spend some time thinking about long-term trends that could – or have already started to – affect your market.

In particular, think about combinations of trends and events and what they might mean for your business. Create best and worst cases for two trends and then evaluate the four possible combinations, giving a name to each scenario. How would your business respond?

In her book, Seeing Around Corners: How to Spot Inflection Points in Business Before they Happen, Columbia Business School professor, Rita McGrath, shares practical tips for anticipating disruptive change.

As we mentioned in the introduction to this Growing and Scaling section, weak signals act as an early warning system that can alert you to trends and technology developments with the potential to disrupt your business.

A weak signal is information that doesn’t seem relevant now but may have important implications in the future.

They can represent huge opportunities if you are able to harness them or existential threats to your company in the hands of a competitor.

Weak signals are, by definition, difficult to pick up. They require some interpretation and extrapolation to guess what might happen next.

Several factors are conspiring against us.

Humans are very susceptible to what psychologists call selective perception. We pay attention to things we expect to see, frequently distorting reality to make it fit our expectations rather than accepting something that challenges our assumptions.

We’re also strongly biased towards rationalization, which causes us to interpret evidence in whichever way sustains our existing belief – culminating in wishful thinking when we deny overwhelming evidence to the contrary.

Things get worse when we work in groups. Groupthink and other narrow-minded organizational phenomena lead us to favor reaching agreement (playing nice with each other) over figuring out the correct, but less popular, answer.

To overcome these inherent biases, successful anticipators of change apply the following approaches:

  • Tap into local intelligence – avoid centralized interpretations
  • Leverage extended networks – customers, partners, and suppliers can extend the eyes and ears of the company
  • Create task forces – remove blinders and actively scan for change
  • Create multiple scenarios and test multiple hypotheses – avoiding a single dominant view
  • Pay attention to the grapevine – avoid management groupthink
  • Actively confront reality – seek new information to confirm or invalidate important signals
  • Encourage constructive conflict – leads to wider exploration of options and deeper examination of issues
  • Trust seasoned intuition – experienced managers learn when and how to trust their hunches, which are often based on weak signals they don’t realize they have detected

No single technique will cause you to pick up every relevant signal, nor will you interpret every signal correctly, but some combination of these methods will give you a fighting chance of anticipating change.

And, with even a little foresight and forewarning, you can be better prepared, making your business more resilient than its competitors.

<< Last Section: Triple Bottom Line
Next Section: Raising the Next Round >>


Seeing Around Corners, by Rita McGrath
Five Lessons From Past Crises - Chris O'Neil, Medium

People in private equity complain that they have so much capital and so few places to invest. But you have lots of entrepreneurs trying to raise money at the low end and find that they can't get funding because of this mismatch.

Clayton Cristensen
Father of Disruptive Innnovation

RAising The Next Round

You might imagine that there is a seamless continuum of funding available to entrepreneurs, from angels to venture capitalists to private equity and the public markets. Unfortunately, it’s not that simple.

Each layer of the financing cake operates across a range of investment types, risk levels, and sizes of check. The boundaries between those layers look more like a staircase than a smooth ramp.

In our blog post on sources of funding, we included the table below that summarizes the main categories of investor and their general modus operandi.

As a growing business, where technology and commercialization risks are dropping and profitability is within sight, you’ll be making the transition from seed investors to venture capital and private equity.

You will notice that there’s a big jump between the upper end of what a typical seed investor will invest ($500,000) and the lowest amount for which a VC will get off the couch ($2 million).

Types of Investor - Summary TableAs a growing business, where technology and commercialization risks are dropping and profitability is within sight, you’ll be making the transition from seed investors to venture capital and private equity.

You will notice that there’s a big jump between the upper end of what a typical seed investor will invest ($500,000) and the lowest amount for which a VC will get off the couch ($2 million).

These are approximations, of course, and the amounts can vary wildly between freewheeling tech investors in Silicon Valley and more conservative funds in Houston or Nashville, but the same principle applies.

Seed rounds can also be syndicated across multiple investors/funds, making a bigger raise possible at that level.

Nevertheless, we see many companies having to raise intermediate capital (e.g. a third or fourth seed round) to cover their working needs until the business reaches a size where VC gets interested.

Similarly, if you’re VC backed and want to raise more capital (which will usually coincide with the VC fund monetizing its investment), you’ll have to cross the threshold in profitability, growth potential, and valuation that brings you into private equity territory.

If you are looking for ‘patient’ capital to fund your business – perhaps because you expect to take several years to develop and commercialize your product – and can demonstrate that the technical and commercial risks are low, then Single Family Offices could be viable option.

Organized to manage the investment assets of a wealthy family – although frequently operated as Multi-Family Offices these days to help manage overhead – SFOs tend to make fewer, longer-term investments because their objective is to maximize long-term wealth, rather than generate outsized short-term returns.

As we discussed in the previous section on Gaining Traction, the impact of selling more shares in return for greater investment will be a reduction in control – as well as a smaller percentage stake in the business.

There’s a tradeoff to be made between taking on more fuel to go faster (and further) and using available funds that result in slower growth but retaining a greater ownership stake.

There’s a pernicious trend to celebrate CEOs that that close massive funding rounds for their ventures without stopping to think what that means for their ultimate outcome.

Unless the investment is made at a correspondingly jacked-up enterprise valuation, founders and other individual shareholders could get horribly diluted and end up with a relatively paltry payday while the institutional investors walk away with the lion’s share.

Carefully evaluate your company’s capital needs under a range of possible growth scenarios and weigh the full range of financing options (including debt) before plunging into an equity raise.

<< Last Section: Building Resiliency
Next Section: Inorganic Growth >>


How to Blow Through Capital at an Incredible Rate - Equity by TechCrunch

The historical evidence shows that shareholders usually greatly benefit from mergers.

Stephen Moore
Writer & Economic Commentator

Inorganic Growth

We are all familiar with organic business growth. Sell more, reinvest the profits, add new products, open new locations, sell even more…

However, to generate greater returns, it’s often appropriate to consider inorganic growth opportunities. This means adding a product line, division, or entire business to your enterprise through some sort of consolidating transaction.

There are several transaction types to consider, usually generalized as mergers and acquisitions (M&A). For more on the specifics, we’ve provided some informative links under Additional Resources, below.

The nature of the deal will depend on what’s being transacted, the relative size and situation of the two businesses involved, and how the acquirer will compensate the seller.

There may also come a point where, to further pursue your mission, it’s necessary to join forces with a larger or more established business.

Making your company attractive for acquisition then becomes a critical corporate objective.


Striking a balance between short-term and long-term growth can be very challenging.

For example, if your only objective is to achieve maximum profitability by the end of the year, you’d be foolish to invest anything in the betterment of your staff or innovating new products.

Long-term profitability, however, likely relies on investing judiciously in both – and a raft of other near-term things that pay longer-term dividends.

Investors with pre-determined time horizons, such as venture capital and private equity funds, can leave you with conflicted objectives.

Their goal is to maximize the enterprise value of your business within a relatively short period of ownership – typically 3-7 years, depending on how far through their fund’s lifecycle they are when making the investment.

As that time ticks away, they will become increasingly focused on maximizing free cash flow, since that’s usually the basis for calculating enterprise value. Meanwhile, you might still consider it more important to invest in product development, hiring and training new staff, or paying bonuses to key individuals who have stuck with you.

Unfortunately, we don’t have an easy answer to this conundrum.

Hopefully, you can demonstrate that continuing to invest in your business will lead to more sustainable growth for a potential acquirer and find ways to factor that into the calculated enterprise value.

Another important way to keep shareholders happy is by maintaining optionality around how they will eventually monetize their investment.

In other words, while their short-term return on investment might be modest, you can show them numerous ways to grow and sell the business for much greater return later.

If your business can become a consolidator – i.e. the merger and acquirer of other related businesses – or position itself as an attractive acquisition target – i.e. be desirable for merger or acquisition by other related businesses – then its future value will look rosy and investors will show greater patience and be willing to contribute more capital.


"The key to making acquisitions is being ready because you really never know when the right big one is going to come along."

-James McNerney, Former President & CEO, Boeing

To decide when and where to pursue an acquisition, it’s necessary to build and maintain a detailed map of the M&A landscape of interest to your business.

This means identifying, understanding, and collecting relevant details about companies that could become your merger or acquisition targets.

Direct competitors are an obvious starting point.

Second, add companies who offer products and services that are similar or complementary to your own and who target the same markets and customers.

Third, add companies who either offer similar products into different markets or different products into similar markets.

Finally, add a category for entirely distinct businesses – different products and different markets – with which you see some commonality that might result in a virtuous combination.

You will end up with several dozen, or even several hundred, companies on your list. To keep it manageable, rank them according to criteria that you feel are most important in identifying potential targets.

This could include:

  • Size – too small = too little impact to justify the effort, too big = can’t afford to acquire them
  • Product line – ranging from low-quality and undifferentiated to high-quality and unique
  • People and culture – can you see them working well with your current team?
  • Geographic location – ease of pursuing a transaction, immediate market expansion

At this point, you should be able to draft a shortlist of M&A targets for further evaluation.

Prepare some initial thoughts on how each of the targets would contribute to your mission, vision, and hitting corporate objectives. Then, discuss the list with your board of directors or shareholders and gauge their appetite for pursuing one or more of them further.


How you approach a potential acquisition target will depend a great deal on how well you know them.

If you’re already on friendly terms, setting up an exploratory meeting shouldn’t be difficult. However, if you’re arch-rivals or there’s some acrimonious history between you or your teams, think seriously about finding an intermediary to lead the conversation.

Advisers specializing in M&A facilitation can often short-circuit the typical roadblocks to a constructive conversation based on their experience and their knowledge of market trends and the businesses involved.

Irrespective of the pre-existing relationship, don’t plunge straight into business! Take time to get comfortable and build rapport.

The seller will probably be skeptical of your motives and perhaps even your credibility. Are you serious? Or are you just fishing for competitive information?

You should also prepare thoroughly for the meeting. If you haven’t read their latest news, can’t name the key employees who would be joining your team, or haven’t come armed with answers on how the combined enterprise would compete more effectively to all parties benefit, don’t expect things to go smoothly.

Do your homework and be ready to sell the other side on your ideas.

A similar approach applies if the company to be acquired has approached you. Study them carefully before holding a meeting to discuss the idea.

If you see potential, arrived armed with your views on synergies and potential value. If you don’t, either politely decline their approach or be clear that the meeting is being offered as a courtesy to give them chance to make the case.


If both sides see value in a transaction and are ready to proceed with more serious discussions, confidentiality agreements will need to be signed so that designated representatives can look “under the hood”.

This process, known as “due diligence”, became common practice in the 1930s following the passage of securities legislation designed to protect buyers from unscrupulous sellers.

The law requires full disclosure of any material information to potential investors or buyers but keeps things reasonable by stating that parties who have exercised “due diligence” in investigating each other cannot be held liable for information that wasn’t discovered during the process.

"Part of any acquisition process is what's loosely called 'due diligence.' Taking both technical and legal forms, it's the snooping around an acquiring company does to make sure it's actually getting what it thinks it is."

-Antonio Garcia Martinez, Tech Entrepreneur & Author

Due diligence can be a complex, invasive, and time-consuming process, especially when the companies involved are large or their records disorganized.

Acquirers typically submit a list of requested information, which the target company then prepares and organizes in a structured way, usually known as a “data room”. Modern data rooms are usually managed through an online portal.

You should retain legal counsel to guide and assist you through this process. They will come armed with standard due diligence lists, which can be tailored to suit your business and the transaction you are evaluating.

Assuming due diligence uncovers nothing to prevent a transaction from proceeding – and confirms to everyone’s satisfaction that a fruitful deal can be struck – terms can be negotiated.

If successful, this will result in a non-binding term sheet that lays out how the deal will be structured and consummated, including the value assigned to whatever is being acquired and how the seller will be compensated (e.g. amounts in cash, stock, or other consideration).


By this point, you’ll need to have figured out how to finance the acquisition. For most early-stage companies, this will involve raising new capital or drawing down investment that has been previously committed by existing shareholders.

It’s uncommon for a growth-stage business to make an acquisition entirely in cash but, if you have enough liquidity on the balance sheet, this is the simplest approach.

Most buyers use cash in combination with some form of debt to leverage their money and go after a larger target.

This may include seller financing, where the seller provides a loan that is amortized over a period of time, a bank loan, a specialty loan (e.g. via the U.S. Small Business Administration) or issuing new equity.

Many hours later – many, many hours, in some cases! – the lawyers on both sides will reach agreement on how to craft, punctuate, and perfect documents that you and your counterparty can sign, and the deal will be done. Congratulations!

Or not – and that can be okay, too. There comes a point in any negotiation where walking away is the right thing to do – and should not be seen as weakness or defeat. No deal beats a bad deal any day of the week.

Take some time off to recharge your batteries (which will be exhausted after long, fruitless negotiations), then review the acquisition process to see what you can learn and how things might be approached differently the next time.


Now, how are you going to welcome the alien you’ve just acquired into your existing business?

Integrating an acquired business is another delicate process, featuring cultural melding, delivering promised synergies, and taking and explaining some very difficult staffing decisions.

Even the most compatible of businesses have been raised by different parents and have grown accustomed to unique sets of values, objectives, visions, processes, and practices.

The assimilation process is less about learning a new way of working and more about unlearning established habits and assumptions.

Depending on the size of your team and the group you have just welcomed, it might be possible to get everyone in a room to talk through the major issues. If not, you should organize cross-functional working groups to study and solve them.

Either way, confront and tackle things head-on. Waiting under the misguided impression that “time heals all wounds” is likely to result in deepening divisions and growing disillusionment.

You won’t please everyone, of course. Sometimes a leader must simply lead.

Take your time to listen to everyone’s point of view, make a balanced decision in consideration of your purpose, mission, vision, values, and objectives, and then communicate it clearly.

Most people – even those whose views you have chosen to go against – will accept and support the outcome if they feel their opinion has been heard.


What happens if you realize – sooner or later – that a business unit you have built or acquired no longer fits your overall mission or vision?

We’ll defer to former General Electric CEO, Jack Welch, on this one: fix, close, or sell.

He applied this three-option philosophy to businesses that were underperforming financially, but the concept is equally apropos here.

If you can’t adapt the misfit business unit to align with your mission and vision, you should either find someone to buy it from you or close it down.

In the case of an acquisition that, for whatever reason, simply didn’t fit once you got it home and tried it on, the sooner you can reverse course, the better. There’s no sense investing heavily on integration – potentially tearing apart the acquired team in the process.

Get back around the table with your board of directors or shareholders and figure out the options for spinning the business back out or selling it on to someone else.

<< Last Section: Raising the Next Round
Next Section: Finding the Exit >>

Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.


Finding the Exit

The second habit recommended for highly effective people in Dr. Stephen Covey’s seminal text is to “begin with the end in mind”.

He’s referring to figuring out your personal mission and starting each day with a clear vision for what you wish to accomplish, but it applies just as well to highly effective entrepreneurialism.

From the moment you embark on founding, leading, and growing a business you should have a clear idea of what the end game will look like.

For most businesses, this means:

  • Handing over control to a future generation of owners and leaders (typical of a privately-held lifestyle or family business)
  • Selling control of the business to (new) investors
  • Selling the business to a strategic acquirer
  • Floating shares in the business on the stock market (known as an Initial Public Offering, or IPO).

Since most of our clients are neither lifestyle businesses nor large enough to stage a viable IPO, we’ll focus here on selling your company to investors or strategic buyers.


We already touched on one important strategy – maintaining optionality – earlier in this section.

Building your business in a way that makes it attractive to a broad group of acquirers is generally preferable to something that appeals only to a small group of specialized potential buyers.

To do this, build and maintain an exit landscape in much the same way as we discussed mapping out the M&A landscape. Except, in this case, you’re interested in how your business will fit within theirs rather than the other way around.

Be sure to include investment firms that invest in your type and size of business since replacing one set of institutional shareholders with another (usually larger) one is quite a common exit pathway.


A major question will be: how do I value my business?

The more mature your business, the more straightforward this becomes. Consistent, growing revenues, profit margins, and free cash flow are readily converted into a valuation based on historical and, in some cases, predicted future performance.

The most common valuation methods involve applying a multiple to the company’s most recent 12 months (known as trailing 12 months, T12M) revenue or profitability (typically Earnings Before Interest, Taxes, Depreciation, and Amortization, EBITDA).

For example, you might hear a business valued at “1.5 times T12M revenue” or “8 times T12M EBITDA”.

If the business is being sold before consistent revenue or cash flow have been established – or in the aftermath of a material change in market conditions or business performance – its value might be estimated based on projected future performance.


Should you engage an investment bank to help with an exit process?

This depends on whether you already have one or more potential buyers in sight, and whether you have the bandwidth to handle the sales process without their help.

If outreach to potential acquirers has already yielded some expressions of interest, you might not need a banker at all.

Conversely, if you don’t see any likely buyers out there, even the most creative of bankers might not be able to magically find you a deal. Go back to work and make your business more attractive.

The most likely acquirers are existing members of your network – including customers, partners, suppliers, and competitors. You shouldn’t need a banker to start a conversation with them.

We recommend engaging a banker when you expect the buyer to come from outside your established network (e.g. international or financial buyers), you want to handle multiple potential buyers in order to drive up the sale price, or you need help structuring an unusually complex deal.

Otherwise, rely on experienced board members, consultants, and a good transactional lawyer to help you close the deal.


We’ve mentioned them a couple of times, so exactly who are strategic acquirers?

Unlike a financial buyer who is looking simply to grow the value of the capital they invest, a strategic buyer is looking for a business that can be integrated with its existing operations, yielding synergies and long-term value creation.

"Because strategic buyers know your industry, they can often build your business rapidly after the sale. If you are interested in seeing your business grow, strategic sales can be a great way to go."


Strategic buyers are almost invariably competitors from within the same industry. They see an opportunity to expand their product line, gain presence in previously untapped geographical markets, or gain scale and operational efficiency.

They might also value taking a competitor off the market, removing the cost of keeping up with or counter-marketing you and preventing you from falling into the hands of a third player in the market.

How a strategic buyer values these synergies and value creation opportunities will vary. But they will usually pay a premium to get the deal done because they expect to get more out of the acquisition than just the intrinsic value of the company.


There are a few steps you should take when preparing for an exit process, some of which can best be accomplished with the help of an expert.


Pull all of the company’s important documents into a coherent file structure, ready for easy upload into an electronic data room.

If you’re not sure what information to include, ask board members or investors for a boiler-plate due diligence checklist and start there.

Think about exiting in much the same way as you did when pitching for investment (assuming you’ve gone through that stage of the business).


Put together an investment memorandum and management presentation that gives the buyer a coherent and complete overview of why you’re in business, what you have accomplished, the strengths (and weaknesses) that allow you to win customers and market share, your financial performance and projections, and why they should jump at the chance to acquire your business.


One last point that sometimes surprises exiting business owners: the acquirer might insist on keeping you around, as well as rolling over your stock position rather than cashing out.

Here’s why lock-in matters. The acquirer knows that you’ve been instrumental in leading the company to the point of exit, so it’s a fairly safe bet that allowing you to walk away from the company as soon as it’s acquired might derail the train.

Typical lock-in periods range from six months to four years, depending on the type of business and what incentives are offered to reward you for complying.

Similarly, by obliging you to accept stock in the combined company rather than cashing out, the buyer is hoping to keep you aligned and motivated to help the venture succeed.

There’s usually a compromise to be negotiated where you get to take some hard-earned cash off the table but still keep enough skin in the game to get you out of bed and into the office each morning.

<< Last Section: Inorganic Growth