GUEST POST from Nicolas Bry — originally published on Innovation Excellence.
Last November, I attended the speech of David Skok at Web Summit 2018: it was related to startups scale-up in B2B business. I’m sensitive to the topic, being a participant of the Scale-Up Peer Group, and having drafted the Scale-Up Canvas for intrapreneurs who want to scale-up. Nevertheless, I was quite impressed by the quality of David Skok advices, probably deriving from his 10 years experience at VC Matrix Partners. I will try to summarize them hereafter.
Though the Product/Market fit is the step that precedes scaling in B2C markets, it seems an additional step is necessary in B2B markets claims David: B2B founders don’t reach consistent results when turning up on sales & marketing, and a lot of cash is burn.
The missing steps is to achieve a repeatable, scalable, and profitable growth model.
The 2 most important questions for startups are:
- When will we run out of cash?
- Are we on track to reach the milestones needed for a successful fundraise?
Startups are a race against time, where one needs extreme focus, and total alignment across all departments.
If you want to get a new breath of fresh cash by closing your next round, a startup needs to prove true the following milestones.
The journey continues with the key startups inflection points:
When you in the search for Product/Market Fit, you focus on testing hypothesis (problem/solution fit), proving the value (does the solution actually creates value for the user?), and that it can be sold (is someone willing to pay?).
When you’re in the search for repeatable, scalable, and profitable growth model, your focus changes: first of all, the startup must find a repeatable sales motion, and prove non-founders can sell, in other words a repeatable sales process that an ordinary representative can do before to scale.
In this phase, you will avoid the common mistakes:
- Trying to force progress, and jumping ahead to the next phase; as it can take long, you need to conserve cash until the scaling phase;
- Building products before meeting enough buyers to validate hypothesis, and reach features stability;
- Hiring salespeople before founders have proven they can sell;
- Scaling sales before growth process is repeatable, and before solving churn problem;
Your growth model is scalable according to the following exit criteria:
Finally, your growth model has to ensure customer loyalty (negative dollar churn), and profitability:
- LTV:CAX>3
- Time to recover CAC > 12-18 months;
- Gross margins > 70%.
Once achieved, David considers you’re ready to hit the gas and scale. Get out of the burn avoidance mode, and invest for fast growth.
As growing team and culture accordingly is tricky, I would suggest to take some time before scaling to prepare the scale-up of the organization, reviewing the various touchpoints: shared vision and culture, core team for scaling-up, missions, governance, sharing co-leadership with CxO, space, people hire (based on where the core-team is expected to grow, especially sales people) and on-boarding.
Then nothing can stop you!
In a nutshell, adapt focus, and roll-out actions, depending on which stage you are:
Credit: David Skok slideshare, web summit pictures featured thanks to the courtesy of Helen Poetri
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