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Friday
Jun242011

Rapid growth? Congratulations; you’re in trouble!

Every entrepreneur works hard to achieve the ultimate in sales performance – the “hockey stick curve.”  This is not actually shaped like a hockey stick; it is known in mathematics as an exponential curve, and it’s what you get when growth is constant over periods of time.  For example, I recently worked with a company that grew its sales by about 90% per quarter for five quarters after its product was released.

While growth like this is exciting and certainly desirable, it can lead management to focus prematurely on scalability at the expense of keeping an eye on the match between its value proposition and the marketplace.  Early adopters may be purchasing the product for different reasons than the broader market will. This is where high-tech businesses in particular can get into trouble.

The problem is that the exponential curve has some worrying implications:

Early buyers are technology scouts. Most large organizations have applied research groups that serve, among other purposes, as technology scouts.  To you, they will look like they are buying your product in order to apply it to a serious problem that their company faces, and in fact they are doing so. But they look to their employer like they are buying your product in order to learn about using your technology and to assess its potential application to their business. In other words, their decision criteria are different from those of later buyers.

In my first startup, I was very proud to have an early customer list with many Fortune 50 companies. It was only after years of working with diverse startups throughout the high-tech space that I realized that the same early buyers showed up on the customer list of virtually every startup that was having early success.  It’s indeed a very encouraging sign that they’ve bought from you; just be aware that they’ve also bought from the early leaders in every market segment potentially relevant to them, and never bought in volume from most of them.

 

Almost all buyers are late buyers. The nature of the exponential curve is that the buyers you see next year will become the majority of your installed base, and they may not be like the buyers you know and love. They will likely be less sophisticated, buy in higher volume, and be more price-sensitive. Unlike the early adopters, who buy because your product is high-tech, they buy despite the fact that your product is high-tech. “High tech and new” equates to “risk” for the buying organization and, in particular, to job risk for the decision maker. They will buy the lowest-tech solution that meets their need. So you’ll need to evolve your product to hide the technology “under the hood,” and make it as similar to conventional offerings as you can.

 

Later buyers are less sophisticated than early buyers. The product will need to become simpler, easier to understand, and easier to use. The requests from early users for more sophisticated features must be balanced against the likelihood that later users will not only not care about them, but find their presence makes it hard for them to learn your product. Product support will become more critical as the background of your users becomes more diverse.

 

Sales will be made through increasingly indirect channels Your in-house sales team will be unable to grow exponentially. You’ll need to find other organizations who can engage the exponentially increasing number of prospects. Your expression of your product’s value proposition will need to become simpler, so that salespeople who are not your employees can effectively sell it to buyers who are not like the ones you know.

 

These are all challenges that can be met through effective execution. The reason most startups with fast initial growth don’t make it, I believe, is because management fails to anticipate these issues and fails to see that rapid growth means not just scaling up, but also transforming every aspect of the product and the organization to meet the changing nature of the next customer.

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    Response: 9apps
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    The reason most startups with fast initial growth don’t make it, I believe, is because management fails to anticipate these issues and fails to see that rapid growth means not just scaling up, but also transforming every aspect of the product and the organization to meet the changing nature of the ...
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    Response: shopping
    Opero Partners - Silicon Valley Consulting Firm Focused on Growth - Blog - Rapid growth? Congratulations; you’re in
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    Opero Partners - Silicon Valley Consulting Firm Focused on Growth - Blog - Rapid growth? Congratulations; you’re in
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    Response: best fish finder
    Opero Partners - Silicon Valley Consulting Firm Focused on Growth - Blog - Rapid growth? Congratulations; you’re in
  • Response
    Response: best fish finder
    Opero Partners - Silicon Valley Consulting Firm Focused on Growth - Blog - Rapid growth? Congratulations; you’re in
  • Response
    Opero Partners - Silicon Valley Consulting Firm Focused on Growth - Blog - Rapid growth? Congratulations; you’re in
  • Response
    Opero Partners - Silicon Valley Consulting Firm Focused on Growth - Blog - Rapid growth? Congratulations; you’re in

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