Jersey City, NJ ― Writing for NBJIZ’s Industry Insights, Dan Doran, principal of Quantive Business Valuations, a professional business valuation practice specializing in small to medium-sized closely held and family-owned businesses, provides his insights on growth from fast-growth tech startups. Doran writes:
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The surest way to failure is to build great technology that no one wants. Need some proof? Friendster. Blackberry. Google Glass. The common theme is a company building a tech product that can be super-great … but doesn't fill a market need.
Google Glass is a technological wonder, but walking around with a funny-looking set of Peeping Tom glasses on? That happens to be a really, really niche market.
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The surest way to failure is to build great technology that no one wants. Need some proof? Friendster. Blackberry. Google Glass. The common theme is a company building a tech product that can be super-great … but doesn't fill a market need.
Google Glass is a technological wonder, but walking around with a funny-looking set of Peeping Tom glasses on? That happens to be a really, really niche market.
Conversely, we have other technology success stories with valuations that soar into the billions. From selling workplace communication tools to medical technology, some of the fastest-growing tech startups are clearly doing some things right to drive growth.
What lessons can we take from these examples of success and failure, and how do we apply them?
Understand The Market. While we are talking about focus, it bears repeating that you have to build technology that the market wants. And your choices here are limited:
Option 1: Build better technology and do something vastly better than the incumbent. Option 2: Find a niche that is begging for a solution. Anything short of those two options increases the odds of failure. Why build a widget-maker that is 5 percent better than the incumbent?
For example look no further than tech darling Slack. What is Slack? It’s really not much more than MSN Messenger from the days of yore. But it’s a really, really good messenger. And it happens to easily integrate with every other app you love. Slack hasn’t added bells and whistles and it hasn’t tried to expand out of what is really a tiny niche.
But what Slack does incredibly well is understand its customer. It has taken a dated product, made it feel incredibly intuitive, and in the process absolutely delighted its customers.
The result? It has grown from about 15,000 daily users in early 2014 to 500,000 in early 2015. With no real advertising or marketing effort. The company clearly understands its market.
Ruthless Focus On Growth. First, let’s start here: The lifeblood of tech companies is growth. There’s good reason for that. Growth attracts capital, and more capital often facilitates further growth.
So I’d like to suggest that, from a strategic perspective, the imperative as a founder of a tech startup is in pairing down all activities that don’t lead to growth as ancillary to success. And that’s a common theme we see in the technology space: Successful, high growth companies often have a ruthless focus on initiatives that enhance user base and revenues.
Just like Slack, the common theme among other high-growth companies is their laser focus.
Getting To Traction. Traction is a pretty common term in the startup world, somewhat vaguely defined as “evidence of market demand.” There’s no bright-line definition. It may be $1 million in monthly recurring revenues, or MRR. It might be 50,000 subscribers. But, universally, it equates to “Hey, I think we’re on to something here!”
Growing beyond the craftsman. Growing a company is usually a two-step process. First, you build something. Then, you go sell it.
At the outset, it’s often the same folks who are creating and developing (builders) that are also out selling and closing (closers). Just like the craftsmen of yore, new entrepreneurs do it all. But what successful technology companies have learned is that you can’t do this and grow.
In 1776, long before the world of tech startups, Adam Smith in “The Wealth of Nations” recognized this simple fact: The division of labor is fundamental to economic development. In some ways, not a thing has changed.
Startups go through a transformation that sees them separating out builders and closers. Growth means growing up, developing a sales team and a marketing team and infrastructure. The way you get to $1 million MRR is that you have sales reps that are working leads from marketing, and passing qualified leads to account execs.
Your company may look a little different, but ultimately the same blueprint applies: You have to scale beyond being a builder. You need folks that market your technology and you need folks that sell. As a founder, your job is either to grow up and run the company, or move out of the way so someone else can.
Driving MRR. This is the big deal. Monthly recurring revenue. In the valuation world, we always ask the question “What is driving value here?” It often boils down to two things: consistent growth and mitigation of risk. One of the biggest single factors we see driving value is recurring revenue.
Why? The consistency of a recurring revenue stream is perhaps the strongest way to mitigate risk. If you have a comfort level with predicting next month’s revenues, you’re going to feel confident about the risk level. Is your work project-to-project, with no insight on next month yet? That’s a little scary.
Driving MRR is perhaps the single biggest way to enhance value and mitigate risk, wrapped up in one tidy little bow.
Conclusions
While high-growth companies have been known to fly too close to the sun, they can also teach great lessons on how to grow a business. Their laser focus on getting big fast means that they have to put a lot of pieces together, and they need to do it faster than the average old economy business. Applied correctly, smart entrepreneurs and business leaders can borrow from this high-growth playbook to supercharge their own business.
What lessons can we take from these examples of success and failure, and how do we apply them?
Understand The Market. While we are talking about focus, it bears repeating that you have to build technology that the market wants. And your choices here are limited:
Option 1: Build better technology and do something vastly better than the incumbent. Option 2: Find a niche that is begging for a solution. Anything short of those two options increases the odds of failure. Why build a widget-maker that is 5 percent better than the incumbent?
For example look no further than tech darling Slack. What is Slack? It’s really not much more than MSN Messenger from the days of yore. But it’s a really, really good messenger. And it happens to easily integrate with every other app you love. Slack hasn’t added bells and whistles and it hasn’t tried to expand out of what is really a tiny niche.
But what Slack does incredibly well is understand its customer. It has taken a dated product, made it feel incredibly intuitive, and in the process absolutely delighted its customers.
The result? It has grown from about 15,000 daily users in early 2014 to 500,000 in early 2015. With no real advertising or marketing effort. The company clearly understands its market.
Ruthless Focus On Growth. First, let’s start here: The lifeblood of tech companies is growth. There’s good reason for that. Growth attracts capital, and more capital often facilitates further growth.
So I’d like to suggest that, from a strategic perspective, the imperative as a founder of a tech startup is in pairing down all activities that don’t lead to growth as ancillary to success. And that’s a common theme we see in the technology space: Successful, high growth companies often have a ruthless focus on initiatives that enhance user base and revenues.
Just like Slack, the common theme among other high-growth companies is their laser focus.
Getting To Traction. Traction is a pretty common term in the startup world, somewhat vaguely defined as “evidence of market demand.” There’s no bright-line definition. It may be $1 million in monthly recurring revenues, or MRR. It might be 50,000 subscribers. But, universally, it equates to “Hey, I think we’re on to something here!”
Growing beyond the craftsman. Growing a company is usually a two-step process. First, you build something. Then, you go sell it.
At the outset, it’s often the same folks who are creating and developing (builders) that are also out selling and closing (closers). Just like the craftsmen of yore, new entrepreneurs do it all. But what successful technology companies have learned is that you can’t do this and grow.
In 1776, long before the world of tech startups, Adam Smith in “The Wealth of Nations” recognized this simple fact: The division of labor is fundamental to economic development. In some ways, not a thing has changed.
Startups go through a transformation that sees them separating out builders and closers. Growth means growing up, developing a sales team and a marketing team and infrastructure. The way you get to $1 million MRR is that you have sales reps that are working leads from marketing, and passing qualified leads to account execs.
Your company may look a little different, but ultimately the same blueprint applies: You have to scale beyond being a builder. You need folks that market your technology and you need folks that sell. As a founder, your job is either to grow up and run the company, or move out of the way so someone else can.
Driving MRR. This is the big deal. Monthly recurring revenue. In the valuation world, we always ask the question “What is driving value here?” It often boils down to two things: consistent growth and mitigation of risk. One of the biggest single factors we see driving value is recurring revenue.
Why? The consistency of a recurring revenue stream is perhaps the strongest way to mitigate risk. If you have a comfort level with predicting next month’s revenues, you’re going to feel confident about the risk level. Is your work project-to-project, with no insight on next month yet? That’s a little scary.
Driving MRR is perhaps the single biggest way to enhance value and mitigate risk, wrapped up in one tidy little bow.
Conclusions
While high-growth companies have been known to fly too close to the sun, they can also teach great lessons on how to grow a business. Their laser focus on getting big fast means that they have to put a lot of pieces together, and they need to do it faster than the average old economy business. Applied correctly, smart entrepreneurs and business leaders can borrow from this high-growth playbook to supercharge their own business.
