There is a growth strategy you can follow in order to properly position your startup for sustained success.
With only 50 percent of startups making it successfully past the five-year mark, it’s important to have a smart growth strategy – a roadmap for long-term success – to ensure you’re not only prepared for the various inevitable bumps and roadblocks along the way but have the tools to overcome them.
Know Your Value Proposition
If you don’t fully understand your startup’s value proposition – what makes the benefits of your products or services crystal clear – you’re already behind the proverbial 8-ball. The first fundamental step towards developing a smart and effective strategy for growth is being able to explain, without hesitation, how your idea or startup is uniquely qualified to meet or even exceed your prospective customers’ expectations.
Unfortunately, it’s not unusual for many startups to either bury their value proposition in buzzwords or trite, meaningless slogans neglecting to highlight it in their marketing or on their website – or it’s so vague they have difficulty identifying it at all!
“Many entrepreneurs lost out, due to never truly articulating a compelling value proposition,” says Michael Skok, VC and Forbes contributor. “Establishing a substantive value proposition is critical if you want to start the journey from your ‘idea’ to building a successful company.”
Your startup’s value proposition is arguably the most important component of your overall messaging, for marketing and otherwise. Startups that can’t identify and clearly convey their unique value proposition will be challenged when it comes to converting sales, growing the business, engaging with potential investors, and becoming market leaders.
You don’t need a huge marketing budget to clearly articulate what makes your business uniquely beneficial – just careful consideration of your product or service from the perspective of your users. It only has to be as long as a headline, sub-headline, and maybe a few succinct bullet points.
Thoroughly Identify Your Customer
Identifying your target, your customer, is fundamental to the process of creating an effective, yet realistic growth strategy. If you don’t clearly understand your target, you’re less likely to provide your customers with what they really need. In fact, chances are greater you’ll iterate on the wrong product enhancements, run with inaccurate marketing messages, and other costly mistakes.
There are several ways to help identify your customers:
- Draw on Personal Networks: Don’t be afraid to tap your personal network — friends, family, colleagues, funders, mentors — for feedback and to help examine your product or service. You can use their feedback to help validate – or not – the assumptions and hypotheses you’ve come up with.
- Launch a survey: Issue surveys via social media, email, or newsletters. Ask pointed questions with regards to the problem you’ve identified and gather feedback to validate.
- Analyze Market Data: Look to your competitors for information and insights related to target markets. To whom does your competition market? Why do they choose to use them? How are the competition effectively addressing your target and the problem?
Use the data you’ve collected to help develop your buyer personas – the fictional representations of your ideal customers, their unique characteristics, and other qualities.
Keep an Eye on the Competition
Monitoring the competition is helpful for a variety of reasons, not the least of which is that your competitors may very well have already solved the challenges that you are currently facing. Follow their progress and you may discover insights regarding possible shortcuts to success.
“One of the reasons why people do not analyze the competition is, in my opinion, the fear of discovering that their product is not as good as their competitors’ product,” says Gilles Bertrand, global commercial lead at Shire. “But you cannot hide from reality — it’s better to face it and improve quickly or pivot your plan if required. Another reason is that they simply do not know how to analyze the competitive landscape.”
Establish Key Performance Indicators
It’s quite difficult to accurately measure your startup success without first defining a few key performance indicators. Startup founders who focus on the key performance indicators that most affect the growth of their startups and dedicate resources to those areas are those at the top of their game.
“Founders cannot hope to grow a company in any meaningful way without an almost obsessive focus on its KPIs,” says Phil Nadel, co-founder and managing director at Barbara Corcoran Venture Partners. “This focus must not be limited to the KPIs themselves, for they are merely measurements of outcomes. We look for founders to have an understanding of what levers can be pulled and what tweaks can be made to improve the business, which will then be reflected in its KPIs.”
The most popular growth metrics include:
- Customer Acquisition Cost (CAC): The price you pay to acquire a new customer. Calculate CAC by dividing the total costs associated with acquisition by the total number of new users over a period.
- Customer Lifetime Value (LV): The total net profit attributed to a customer during his or her relationship with the company. Calculate LV by dividing average order divided by one minus the repeat purchase rate. Subtract that number by CAC.
- Burn Rate: The rate at which a company spends capital. Calculate the burn rate by defining an observed data period. How much money did you start with at the beginning of the quarter? How much money did you “burn” during the quarter? Divide by the number of months in the observed data period.
- Gross Profit Margin: Measures revenues after paying the cost of goods sold. Calculate gross profit margin by dividing revenue minus the cost of goods sold.
- Conversion Rate: Measures the desired action that consumers take. Calculate the conversion rate by dividing the number of conversions by the number of total visits.
Keep front of mind those KPIs that have the biggest impact on your definition of success.
Hire Very Carefully
A bad hire can cost your startup in many ways and can be as high as at least 30 percent of an employee’s first-year earnings. Bringing on the right people is integral, throughout the life of your business but especially in the tenuous early stages. For early-stage startups, a five-figure investment in the wrong employee can cause a significant loss of traction, momentum, and profits. So, finding the right people to work for your startup is not easy, but it is extremely important.
“The culture is what creates the foundation for all future innovation,” CEO Brian Chesky said in a 2013 company memo. “If you break the culture, you break the machine that creates your products.”
Avoid premature scaling by monitoring spending habits, avoiding debt, and limiting overheads. Spending too much money before establishing a product-market fit is the number one reason for premature failure.
Don’t jump into renting office space prematurely. One of the easiest ways to maintain a low burn rate is renting coworking space and the startups who choose to cowork over traditional office space typically save tens of thousands of dollars per year. It also allows for the room to rapidly scale up or down without incurring fees or breaking expensive lease agreements.
Startup teams that work in tech-centric coworking spaces can also the benefit of exposure and introductions to VC, targeted educational programming, and access to resources designed to help them scale faster.