Scale-up Gap Challenge - Why do mid/late-stage startups fail to maintain their growth levels as they scale?
There is much written in business and technology publications about the trials and tribulations of launching your own tech startup. During the early phases in the lifecycle of a startup the founders will often fail to find MVP or establish a working business model. Then the focus shifts intensely to find “Product/Market Fit”. Marc Andreesen famously coined the idea of Rachleff's Corollary of Startup Success: "The only thing that matters is getting to product/market fit." Statistically most startups will not be successful in this quest (CBInsights research shows 70% of startups fail to survive past Series B which is often the milestone of reaching P/MF).
But life isn’t guaranteed to be all sunshine and roses once you reach Product/Market Fit. In fact in, many ways this is just the beginning of the journey not the destination, as you begin the quest to scale-up the business and achieve a successful exit. This is insanely hard and takes time, typically years… and the quest to break the fabled $100m ARR barrier is such a herculean feat that startups are often in this phase of the journey for an extended period of time. During this period of attempting to find scale, it’s not unusual for many startups to experience slowdowns in growth and find that their progress towards a successful exit gets harder and more elongated. The exit success rate in these later stages of the lifecycle drops significantly, with only 6% of startups having a successful exit by Series C; and this drops to 2% once they reach Series D. They may not go out of business, but Startups start hitting market turbulence and new competition which impedes their ability to successfully exit. I refer to this as the "Scale-up Gap" challenge.
So why do Startups get “stuck” in the Scale-up Gap in later stages? Even if a startup has had early successful growth and previously reached Product/Market Fit, continuing to successfully build on this prior success and scale (and ultimately have a successful exit) is hard and never guaranteed, regardless of past performance and plans. The market and competition are incredibly dynamic and can disrupt the successful product / market fit and business models of the past. This is truly a lesson that the only constant is change – and those which continue to execute on their existing product plans without anticipating change often can hit plateaus and struggle.
While there are many possible reasons for getting “stuck” here are a few of the more common trigger events:
Drug on by the lethargy of your install base requirements - As they add customers, the Startup can often over-extend their product into many different directions as a result of feature requests that are driven by their initial install base. This may be expanding opportunistically into new verticals, customer segments or use cases; ultimately however, the loss of focus on product roadmap priorities can diffuse the areas of new innovation and make repeatable sales growth difficult. Also, the ever growing and demanding requests from their existing customer base can ultimately result in slower velocity of new innovation on the product roadmap. (aka the Innovator’s Dilemma)
“Get the next big deal” syndrome - As Startups seek to continue growth, it's tempting to chase big opportunities that might not be perfectly aligned with your strategic focus or product vision. However landing new big deals - while seemingly exciting in the moment - can have longer term consequences if too many are chose that deviate from your Product / Market Fit. The needs of these new large customers can disproportionately start requiring more focus and resources than the rest of your customer base and start to slow the velocity around repeatable growth innovation.
Maturing of Market - The Startup may have been an early innovator in their market and able to command premium pricing, by virtue of selling to early adopters. However as the market matures, the Startup may now be having to sell to late majority or laggards. Unless they successfully adapt their Product to reflect the changed market and buying criteria, they often may struggle with lower ASPs longer sales or evaluation cycles.
Maturing of Competition - As markets mature, they also invite new competition - especially from the large cloud/SaaS platforms or from open-source alternatives. The pace of industry innovation is accelerating rapidly and the windows of time that startups have to innovate and breakout - before attracting large competitors -is increasingly shrinking. It is essential for Startups to exercise a full range of strategic options – build, buy and alliances – in order to accelerate their time to market before they attract attention from significantly larger competitors with massive scale and distribution advantages.
Too focused on “land”: churn or expansion is an after - thought - Landing the first deal is hard and takes a lot of work and requires specialized selling expertise. Too often the ownership of an account often transitions post the initial sale which can sometimes make retention or account expansion less of a focus.
So, what paths does a Startup have to re-activate their previous growth? Sometimes the answer is simply “work harder” with renewed focus on execution, hoping that this leads to improved results. However, if something has shifted in the market or competition this is unlikely to change the outcome. Another option is to bring in outside management consultants to take a fresh look at the company strategy; but this can be expensive and time consuming and may not lead to success during execution. Another common response at this juncture is to consider hiring a Chief Product Officer (CPO) to bring a fresh new perspective to their product vision and roadmap. Each of these different options is not necessarily bad, but neither do they guarantee becoming unstuck and reaching a successful outcome.
This is precisely when you should consider a different solution – a holistic and proven methodology for solving the "Scale-up Challenge and optimizing your Product / Market Fit using a set of processes and tools for aligning and prioritizing your efforts towards growth. Tachyon Solutions has a distilled a unique and proven methodology (the Product / Market Optimization Framework) grounded in pragmatic real-world success that directly supports the needs of mid/late-stage Startups, to help them navigate through the difficult process of becoming unstuck. Furthermore, unlike traditional strategy consultants who may simply make recommendations and then walk out the door, Tachyon Solutions partners with you throughout your execution to achieve breakout results and deliver success. Our background and perspective from hands-on, roll-up-the sleeves execution experience will stay engaged supporting with your team to help you monitor and optimize your execution to ensure the highest impact results.
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