ENT 600 – Week 8: Discuss scaling issues as a startup evolves through various stages to maturity (Chapter 10, The Founder’s Dilemmas; “Transitioning from a Startup to Growth-Stage Company”)
Finally, you are now officially a founder/CEO of your own company. With so much things going on since your business started from seed that need to be in place then excited and engaged with the startups such as building the business plan, building a team, hiring, attracting investors etc., and business is growing and on the transition to more mature stages. Let look back and discuss what does founder face the challenges from the seed to later stage of the startup process? What are the scaling issues?
- Seed: Your idea that gives birth to a new business. This business opportunity requires skills, experience, passions, business planning with ownership structure, potential financial funds and more…
Challenge: During this very early stage, the young company is really in need of a leader (YOU) who has a vision and flexibility to adapt and enforce your business model to stay in line with the competitive market and later on to convince the potential investors to support you to the next phases. The critical factor that the CEO faces is because of the company is too new, still in the mist of market acceptance, with a little or without the customer base, the company’s fund resources is most basically relay on cash (self-funding) or if lucky, from friend, family or angel investors.
- Start-up: Your business now exists and you should have your first customer who wants to buy your products or services.
Challenge: To keep in pace with market demand, you may burn through the set up with all the cash you have but still there are risks and more opportunities awaits. According to Thierry Janssen – Associate Partner at Just in Time management “Risk stage as 25% the startups do not reach their 5th anniversary”. This stage, the budget best be revised often, more cash needed than expected. The founder may continue with the previous fund resources and may start to consider approach with venture capital, even knowing it is not easily negotiable unless the founder is willing to give up a part of the company’s equity.
- Growth: Growth needs capital to build products, team, customer base and to meet revenue goals. Real secret – people, people, people! Need to hire new employees to deal with the influx of business. However, good people are not enough, exceptional people (A-Players) will do the trick.
Challenge: Dealing with constant needs of more money and time; constant need of business plan adjustment to survive and stay profitable in the market. The CEO must learn how to train and delegate to conquer this stage of development. This stage, to stay ahead of the competition, the founders will have more options for their financial funds. You can be more confident to go to the bank, or partnership or more attracting to venture capitals. The founder must realize that at this stage, sales and marketing are the most focus and are the money makers and growth busters of the company.
When there are “too many cooks in the kitchen” in business scaling, it is difficult to accept for the CEO, who has original ideas now need to reevaluate if the original business plan is still optimal to satisfy and or drive customer needs? If your operating model is still efficient to maximize profit short term and long term. Next challenge is the CEO need to understand where your company stand: is it at the transition or growth, do you have a balanced team etc., Due to business volume, the company has changed and requires more complex communication channels and enforce delegation of authority. These changes surely will affect the motivation of the staff and the outside investors. The CEO needs a lot of courage to accept the advice from peers and board member and investors. The hardest part is even with a strong management team and board besides, you are feeling alone in the decision you have to take. Depending the business circumstances and the founder’s core motivation in deciding on a wealth, control or hybrid strategy, the founder/CEO can be volunteered or forced to step down the position in the sake of maintaining the further growth of the company.
Wasserman, Noam (2012). The Founder’s Dilemmas. Princeton, NJ: Princeton University Press
Thierry Janssen, Associated Partner @ Just in Time Management.
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