Welp MagazineDid you know that only 50 percent of startups survive more than five years? Unfortunately, many startups fail to achieve product-market fit. Without a smart growth strategy in place, startups have no clear roadmap towards long-term success.
The founders of the best startups know that growth is a process, not an event. A solid growth strategy acts as a roadmap, helping them take consistent action towards achieving that all-important product-market fit.
Startup Growth Strategy Defined:
Startup Growth Strategy is a set of metrics, processes, activities, and mindset around how startups grow their businesses.
Why Should You Define Your Startup Growth Strategy?
Without a growth playbook, startups might as well flip a coin to decide what to do next. That’s because startup success is a game of numbers. With a strategy in place, those numbers are more likely to add up.
The numbers are clear: Startup success equals a user base that grows. To convert that growth into revenue, startups need a compelling offer that is relevant to their market.
While this all seems basic, many startups fail to follow through on these principles.
Why? According to the Harvard Business Review (HBR), one of the issues is that most growth strategies take too long to implement. In many cases, a startup is ready to scale, but it takes on average of 5 years to implement and deploy a strategy. So, what can startups do to speed up the growth process?
Startups should start by defining a process that allows them to take action on growth on a week-to-week basis. The process should be structured after these key principles:
Startup growth is a process, not an event. Go where your market is. To build a growth machine, employ cross-functional teams. Get data, decisions, and despatch working together. Get smart, act fast, and learn from mistakes.
How to Create a Consistent Growth Strategy
When it comes to startup growth, your business has to be planted firmly in its own market. If not, your startup is likely attached to someone else’s growth engine, like a limpet on a whale. This is NOT the ideal place for a startup.
Asteroid the image of a startup
A solution-based startup is born when an entrepreneur in search of a problem finds a solution. The key pitfall is when a startup begins to focus only on that solution, forgetting its market, and chasing outbound growth.
Identify your market
Let’s say you’ve developed a solution to a problem you’ve identified in your market. Maybe you’ve built a better mousetrap.
The problem is, how do you know for sure that you’ve created a solution your user base will love?
The solution? You start with product-market fit.
Startup Product-Market Fit Defined:
To put it simply, product-market fit is when your startup’s solution meets your customer’s needs. A startup achieves product-market fit when it consistently receives four specific types of user feedback:
Feedback on the product. Testers tell you whether their needs are being addressed. Feedback on the solution. Test results show whether your solution is capable of addressing their needs. Feedback on your startup. Testers tell you whether you’re capable of delivering your solution and supporting your market. Feedback on the underlying value. Every test makes a valuation, either positive or negative, of your product idea.
When you get all four of these types of feedback, you know you have achieved product-market fit. Until you get them, your product is not ready for startup growth.
Getting Started:
How can startups ensure they get product-market fit? Start by defining a growth test plan. Define a prioritized list of user feedback you need to obtain and map it to important product-market fit gaps.
To do this, consider a simple decision tree:
Where does your product-market fit program begin? You start with product-market fit at the top of the tree, as shown in our tree diagram.
Startups will pursue a sequence of tests to fill in gaps and build towards product-market fit. Because your startup’s growth potential increases as you fill in those gaps, it is logical to execute the tests in cascading succession, as shown in the figure above.
That means the smartest thing to do is to sequence the tests from top to bottom.
Next, you need to decide where your startup growth journey begins.
Predict Your Startup Growth:
In order to set the right foundation in your development, you need to determine your approach to growth. To do this, you need to make a big decision about your objective, and your approach to achieving it.
For example, in the diagram below, you can see that the investor, who is at his best, decides to take a swing at growth because he wants to become an entrepreneur and not a VC. To help him, he needs to realize that all of his potential direct paths have been somewhat difficult. That’s because this is a highly competitive industry.
- In essence: All roads to growth have been unimproved.
- Investor: Your Growth Potential is Not Fixed
There are at least three opportunities to get maximum financial returns from your startup.
- You can sell to a strategic acquiror.
- You can sell to an IPO.
- You can pull off one or more large exits from Series A to later rounds.
In all of these cases, it’s possible to achieve several-hundred-times returns. The major challenge here is to get such a deal done. As an entrepreneur, your only real job is to develop your startup. The investor, in the mean time, is tasked with reaching an acquisition or IPO for your startup.
Note: If your startup does not have an exit strategy, it’s missing a vital element of the investment process.
Startup Growth Strategy Begins Here:
As an entrepreneur, your goal is to build a sustainable and scalable startup. This is a deliberate process of building a startup that realizes dollar growth and increased user base.
Startup Growth Strategy takes time to execute, so always begin at the beginning.
Step 1: Define Your Startup’s Big Question
In order to define your big question, first determine where your startup fits into the market using the marketing funnel.
If you’re at the top of the funnel, you may be pre-commercial and pre-launch. In this case, you need to work out how you’re going to grow a customer base. Then, you need to work out how you’re going to build a sustainable business out of your growth process. This is how you break out of the bottom of the funnel.
If you’re somewhere in the middle of the funnel, you need to work out where you’re going to get the money to grow your business. Can you raise venture capital, or will you have to bootstrap it?
If you’re stuck at the bottom of the funnel, you need to work out how you’re going to acquire your first few customers.
In order to do this, you should start by asking the hard questions about your startup-level growth obstacles.
Step 2: Define Your Business Model:
In order to determine how to profit from your startup, you need to create a business model map.
A business model map is a visual representation of your business model. It maps the main sources of revenue, how they make you money, the main sources of cost, and how they make your business vulnerable.
In essence: A good business model map that balances the other areas of your startup.
You can model your business model in a spreadsheet equation or on a piece of paper. The goal is to map the key elements of your business model so that you can understand how they all fit together.
For example, if you’re building a freemium business model, you need to work out how you’re going to make money from users signing up and free users. Are you going to make money through advertising or data collection? Is your freemium model going to attract growth investors or traditional investors? Once your business model comes together, will you be able to scale it? If so, by what method?
The trick to moving from a startup to a growth startup is to build a business model that can transfer demand to product. A good business model map helps you visualize this process.
In short, it will help you understand how you’re going to make money from your customer base.
Step 3: Define Your Valuation and How to Raise Money:
In order to understand your startup’s valuation, you need to analyze its key metrics. In doing so, you will be able to draw a map that connects your startup’s key performance indicators to the form of startup funding you’re likely to achieve.
If your startup is at the seed stage, it is likely you will have to bootstrap it with debt or equity.
If you’re at the Series A stage, it is likely you will need to raise venture capital.
How do you get venture capital? By building a startup with the right metrics. For example, you need to build a startup that is likely to grow at twice the rate of other companies in the same vertical. You need to build a startup that is likely to pull in a certain number of users and revenues.
You also need to work out how to create a growth business model. For example, how are you going to create a scalable business model that can pull in high levels of money, yet is also low-cost and low-risk to you?
For example, if your startup is based on a freemium model, you need to work out how to cut your customer acquisition costs. Can you cut your marketing and sales costs by 75%? That will turn you into a winner.
In general, it takes two rounds of venture capital to achieve a $10 billion dollar valuation. When you’ve achieved that, it creates a bubble in your industry. That’s why the next stage is always a downturn, as shown in the graph below.
Focus on Growth:
When an entrepreneur starts talking about growth, his peers think he’s crazy. They tend to become happy with their progress on an annual basis.
However, you need to be tuned into the cycles of your industry. If you excel in growth, you will cause a bubble. If your startup is a shitty product now, you will soon be forgotten as investors become risk-averse.
The secret, then, is to start working on your startup-level growth milestones only after you’ve proved your basic product-market fit.
Once you’ve achieved this milestone, it’s a smart idea to start working on your first set of growth milestones. The main growth process is a clear process of stringing together and achieving a set of growth triggers. As an entrepreneur, your job is to focus on the right milestones, with the right triggers.
Following this, you need to focus on your MVP (minimum viable product). In order to create your MVP, you need to work on your minimum viable product development process. This process is dicated by your startup’s product roadmap: The key milestones you need to achieve to get your MVP delivered and launched.
The reason you need to create a product roadmap for your MVP is simple. Your roadmap needs to place a timeline over the tasks needed to achieve your Mvp development process. When you determine your MVP launch date, you need to work out the growth milestones you will be expecting to achieve up to this point. Visualize these, as a list, on the product roadmap.
Next, work out a list of growth milestones you will be expecting to achieve as your startup moves through your international growth process.
For example, which countries do you need to launch in first? What kind of marketing do you need to put into place to generate sales in these countries? What is the likelihood these strategies will bring in a certain number of users?
Once you have this list of growth milestones tied to your international growth plan, visualize them on a product roadmap. In doing so, you will be able to track your startup’s growth progress against the goals you need to achieve.
When you achieve each of these goals, you will be doubling your valuation. This is what you need to do to grow your startup past a $10 billion dollar valuation.
This is how you become an entrepreneur.
