Ah, summer. Margaritas by the pool. A little Kenny Chesney on the patio. Wearing flip flops to BJ’s (wait, that’s a different post!) But this is not life during summer inside a start-up company. It is certainly good news if you’re fortunate and smart enough to make through the rainy springtime of your start-up. But all the burgeoning promise of spring can be quickly forgotten if you don’t work twice as hard in the summer of your start-up.
In my previous post, I described how the earliest phase of a start-up, call it the springtime, includes considerable experimentation. The founders fight for their life. They probe their marketplace with a host of messages. They seek out customers anywhere they might be found, even in industries only slightly related to their “business plan” targets. Pricing levels are adjusted…and adjusted again to try to find the right levels. New partners and consultants are engaged. Moderately-related consulting revenue will be taken to pay the bills. There is a scrappiness that is called for and scrappiness is employed! Probe, probe, probe all in the name of survival. And if survival is achieved, and after one or two years the firm is able to nurture a seed of opportunity into marginal self-sustainability, that opportunity could thrive in the summer of the start-up.
I think of the summertime of the start-up as a period of “Tactical Execution”. It is most characteristically marked by fairly rapid revenue growth. Customer acquisition is the critical element to transitioning from spring to summer. Founders figure out a way to frame a message that resonates with a second customer from the same industry as a previous customer. Sometimes this second customer is enticed by the example set by the first customer, or even better, by a direct referral from the first to the second. Usually, the founder stepped back from their first customer and carefully thought about and documented the steps that were taken along the way. Perhaps the wording in an email is copied closely for the second prospect. Perhaps targeting a person with the same title as at the first customer is worth trying. The founder documents the tactical steps in the sales cycle from customer number one and begins to evaluate the stage of that sales cycle that the next several customers are in…and then focuses efforts on repeating what worked to move customer 1 along through to the purchase.
I believe the summer of your start-up is the most character-building period in the life of the company. There is suddenly much less time for the founder to think about next moves. Everything is happening with incredible speed and the founders instincts, guile and reaction time are most on display if the company is to thrive through the summer. The 10 or 15 people being hired at this stage of the company are likely to be the people hiring the next 50+ people if the company continues to grow! The DNA of the founder begins replicating as the firm builds.
Meanwhile, as revenue is growing, stretching past $500,000 to $1 million and maybe as far as $2 million, other dynamics begin occurring in and around the business and the founder must react. What mattered most in the very beginning of the company was its ability to learn from its experimentation. The company tried a few dozen things and only one or two worked. What matters most in this early revenue growth stage of the company is that it execute incredibly well on those few things that worked–those tactics–especially with regard to growth of the revenue line. The founder must understand what tactics are working to bring customers on board. A routinized way of converting customer orders to products must be designed. Product must be delivered to the customers ordering it. Customers need to be billed and collected from in some way. Additional skills need to be hired into the company value chain. These things didn’t matter when revenue was in the $100,000 range. I think of all these tasks as being very tactical in nature. Daily execution in the field…on the fly…improvised actions that require good instincts. It would be helpful at this stage of the business if at least one key management member had been through, and preferably led, this sort of rapid growth-from-zero before. Not mandatory, but preferable.
Like the springtime of your start-up confronted you with occasional heavy bouts of rain, the fast burn of summer can leave behind damage as well. Rapid growth often reveals weaknesses in the team and product. Sometimes attracting new customers means developing new products that may not be viewed as desirable by all founders. Finding the capital to support the growth may include bringing in new board or team members that have poor dynamics with the rest of the team. Lines of communication can get cut and crossed as team sizes might grow from 2 to 15. And by the way, if we’re making so many sales, where the hell is all the cash?! Stressors mount. What I describe as “the extended grinding” occurs. A hot summer can damage the lush green lawn of your spring-time emergent business, leaving patches of cash-deprived growth. The tactics and instincts that allowed the business to lift off were critical to survival, but usually result in a patchwork of systems and relationships that could limit further growth. Cash is the nutrient needed to keep the heat damage down and this is the stage when investors finally start taking your company seriously.
Organizational systems and relationships need to be evaluated, codified, improved and institutionalized–organization operationalization–but there is time for that in the autumn. For now, the summer is all about grillin’ and chillin’ and…wait, is that another order that just came in?!