You need three things as a successful startup: to start with good people, to make something customers actually want, and to spend as little money as possible.
– Paul Graham, Y Combinator.
Hard to disagree with that.
Reality however, is far, far messier.
Making the shift from insignificant startup to thriving business is a non-linear process, full of twists and turns and ups and downs. The signal-to-noise ratio is horrific: very little signal, significant noise.
You’ve seen this picture before:
In my opinion, this image oversimplifies reality. It doesn’t capture the level of fear and uncertainty you have going through the process.
This is more accurate:
So how do you know when to put your shoulder into it, to drive momentum and scale?
Here’s what I look for: A pattern of repeatability.
From paper prototype to MVP, to the next iteration, and then to the next. from one person to two people, from two people to many people. From friends of Mike, to a broader network, to the broader market of customers.
I do not have any preconceived notions. I start from zero. I test, learn, repeat. I manage my field of view – you can’t focus on everything at once. And, I am always looking for patterns of repeatability.
You build your MVP and start testing it with friends. I have always overbuilt my MVPs (clearly forgetting the “M”) and then I look for patterns. The more analytics the better. What parts of the app do people use? What are they not using? What are the magic moments? What parts of the app do not exist yet?
At Kobo, we had this idea that book lovers really wanted to highlight, note take, share aspects of their reading with others. It turned out that very few people wanted any of this, so we stopped and changed direction. What everyone wanted was to make the reading experience better and more personalized. Fonts mattered. Kerning mattered. Spacing. Gutters. Lighting. Page turns. Eye fatigue. So we started to go deeper on the reading experience and we got a positive signal. And so, we kept responding, creating the best digital reading experience we could.
We monitored reading session lengths and we started to see that people were reading longer and using the app more. Reading experience became our guiding light. That lead to growing our engineering team, but also expanding our base of customers.
2. Demand Gen
Getting the customer acquisition engine going beyond friends and family is always a tough nut to crack, let alone doing it in a way that was economically viable (CAC << LTV). Having attacked this at various different companies in different industries, I have a largely dispassionate view about it. Test. Learn. Repeat.
Specifically, that means brainstorm a bunch of ideas that could work and start trying them. Measure the results. Analyze why things worked and why not. Cross things off the list. Introduce new ideas. Most importantly, keep testing. All. The. Time. Be ruthless about crossing things off the list.
In the early days of League, we thought we were a direct-to-consumer business. So we tried all the typical ways you would engage consumers in this space. We showed up at health-related running races, went to gyms, gave out coupons to try our marketplace, and more. Some of this stuff worked. Some didn’t. Among what worked, we quickly realized that while it was helping us gain traction, it was not viable long-term. So, we needed more ideas. Even bad ideas. We had to keep trying and eventually one of those unscalable, bad ideas, was a great idea. It go us traction with employers. It led us to dozens of business customers and evolving League to a B2B play that provides health benefits for employers and a revolutionary experience for their employees. It led to us ramping up our spend and putting our shoulder into it.
Fast forward to May 2016, I measured demand in terms of $200-$300K of new opportunities per month. Today, I measure it in terms of $20-30M of new opportunities per month.
Direct? Indirect? Inside? Outside? Generalists? Specialists? So many different models and approaches.
With League, we started with one person selling direct to employers in 2016. We saw some traction: from one deal a month to two, to more deals month over month. We decided to test several models: partner with brokers, hire brokers, and build and train an inside sales group. We let the three models go for a few months and saw the results. We learned, made adjustments, and then made more adjustments.
We monitored various activity metrics, pipeline metrics, sales cycles, deal sizes, win/loss reasons. After several months, we decided on a path, shut down the other paths, started hiring and scaling. We have been continually refining our model ever since. And it’s working. Our initial customers were micro, small businesses. Then they became small businesses, and then they became mid-market accounts, and then enterprise accounts. Through continued refinement we have expanded our base of customers and now know where we see success and where we don’t. We also know that we have a way to scale our sales operation.
This continuous monitoring of a wide range of sales metrics is an attempt to read the tea leaves so that we can make good decisions on hiring and investing in the team.
Life at a startup is very different when you move from $10K deals to $100K deals to $1 million deals to $10 million deals. When you see a pattern you like, and you can repeat it, and it makes economic sense – scale it.
I know 10 times more today than I did three months ago
This is a byproduct of a continual approach to testing, learning. And I will feel the same way in another three months if we keep testing, learning, and repeating. With this kind of advancement in your understanding, it is inevitable that you will have to “recreate” parts of your business regularly.
How you run customer care when you have two customers is different than when you have two thousand customers. The philosophy can be the same, but the operations are different. And so the line of success is never straight. The hockey stick is never a hockey stick, but a series of “S” curves that are overlaid on top of each other. Continually look for patterns of repeatability and when you see them, and like them, put your shoulder into them.
I heard this great line recently: “when you know you have an advantage, press it”
That would be my advice.
Always be testing. When you find that pattern and it looks good, press it. That’s what scaling to win looks like for me.