How Do You Know When It’s The Right Time To Scale?
The goal of every founder is that moment when you have product-market fit, and you are ready to scale the business, But understanding when that moment has arrived is difficult.
May startups jump the gun and begin to scale too quickly and end up just burning cash. Net; getting the timing right is critical. If you have discovered a pathway to repeatable revenues, and you are beginning to get organic revenues (proving product-market fit), and you are convinced you are ready to scale. In general, you are correct about product-market fit, But these early sales are most likely from innovators and early adopters. These early adopters represent about 16 percent of your targeted market. And, are the easiest market to reach. They are looking for and want to be first with new products.
Introducing A New Product In A New Market
You still have one or two obstacles to get over before you are ready to scale. If you are introducing a new product in a new market, according to Steve Blank, professor, author, and entrepreneur, www.steveblank.com you do not have a ready market, You have to create this new market. So, as you run out of early adopters, you will have to educate buyers who are unfamiliar with you, your product, and its benefits. That will take some time, lots of effort, and money to accomplish.
Therefore, after that early revenue peak, you will get new revenues but revenues are likely to begin slowing down rather than speeding up until you have the mainstream market educated. You have to cross the chasm, the gap between the early adopters and the early mainstream market. This chasm is well documented in the book by Geoffrey Moore, “Crossing The Chasm”, author and consultant.
How long this “education phase” takes depends on the type of product or service and how technical or complex the product is. So timing is critical because marketing costs from scaling up are rising, and revenues are not. A lot of companies have been caught in this trap.
Introducing a new product in an existing market
If you are introducing a new product into an existing market, your goal is to take sales away from your competitors. Therefore, the market exists. Therefore, you should be able to keep revenues growing incrementally with your better value proposition or lower cost.
However, you still have to cross the chasm from early adopters to mainstream customers, and they are more skeptical of your product or service and you than the early adopters. It still takes time to educate and convince current users of a competitive product or service and switch over to your solution. Therefore, you need to keep your revenue scaling more in sync with your revenue growth. Unless, of course, money is no object.
Scaling operations is also very difficult. We will tackle that problem/opportunity in another blog post.
For startups, timing is an essential element that you need to be conscious of all the time. If you know someone with a timing issue, pass this on.
You might also be interested in our blog post, Transform Your Competitive Market Into An Uncontested Market
You might also be interested in checking our website Harbor Capital Group, The Proven Secrets Of Successful Startups