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10 ways to make sure your start-up can scale up

By Jesse Schwartz
Published: April 11th, 2018

Writing in the Startup Professional Musings new venture advisor Martin Zwilling notes that most investors are looking for companies that are both scalable and ready to scale. Defining that readiness is not easy, but Zwilling says “it means that your business has the potential to multiply revenue with minimal incremental cost. Ready to scale is when you have a proven product and a proven business model, about to expand to new geographies and markets.”

He cites software as the classic example, “since it costs real money to build the first copy, but unlimited additional copies can be quickly cloned for almost no incremental cost.” On the flip side, he says, are consulting businesses, which are by definition not scalable “since they must be delivered by experts, and cloning experts is slow and expensive.”

To make sure a start-up is scalable and investable, he offers these 10 recommendations:

  1. Start with a scalable idea. Being “cool” doesn’t make an idea scalable, Zwilling points out. “Investors like ideas based on market research from outside experts … proclaiming a billion dollar opportunity with a double digit growth rate,” he says.
  2. Make sure you business plan and model support scalability. Too many business plans are actually only product plans for customers, often with free services and long feature lists. “It’s hard to build and scale a business on free high-support products. Scalable businesses have high margins (over 50%), low support, and minimum staffs,” he observes.
  3. Use a minimum viable product (MVP) to validate the model. Even the highest potential product is not ready to scale “until you can show it working, with multiple customers paying the full price, to validate the business model,” Zwilling says. “Count on multiple pivots with real customers before you get it right, before you ask for investor money to scale.”
  4. Build a strong team to take yourself out of the critical path. As a founder, he comments, at some point you’ll need to be able to stop working “in” your business and start working “on” your business. Until then, you’re not ready to scale. Hire enough of the right people who can take over the day to day decision-making and let you focus on growth.
  5. Outsource what is non-strategic. “Smart entrepreneurs never outsource their core competency,” Zwilling asserts, but the do outsource non-core tasks “since growing all the expertise you need is slow and expensive. Scaling requires leveraging outside resources.”
  6. Focus on marketing using indirect channels to get the message out quickly. While he recommends “heavy” marketing, relying on direct marketing is probably not going to help you scale for long since it is expensive and non-viral. “Word-of-mouth does not scale,” he adds.
  7. Automate wherever possible. “A startup that is labor intensive and staff intensive is not scalable,” Zwilling contends. Look for production automation at the earlier stage possible, along with proven process technologies, before you begin scaling. “Document processes and build online training videos so new people can come online quickly and consistently,” he adds.
  8. Attract and relish investor funding. Relying solely on organic growth won’t yield the “hockey stick” growth you’ll want at exit. “You will give up some control with investors, but their expertise and experience is usually more than worth the cost,” Zwilling says.
  9. Consider licensing and franchising. Especially in crowded markets, making potential competitors into partners “is much more effective for scaling than trying to out-market them,” he offers. In some business types, if you have “a documented and proven model,” franchising that model will allow you to scale much faster.
  10. Define a business that is open-ended and continuously improving. “If your start-up sounds like a one-trick pony, it won’t be perceived as scalable. Don’t try to solve every customer problem at the same time, but build a strategy and plan that shows continuous innovation, leading to follow-on complementary solutions well into the future,” Zwilling says.

Source: Startup Professionals Musings

In From Start-Up to Scale-Up: Stimulating the Growth and Success of University Ventures, learn from expert Chris Yeh what it takes to “blitzscale” a company, how to avoid common traps that cause university start-ups to falter, what VC investors are looking for, and how to establish the milestones start-ups need in order to scale and succeed. CLICK HERE for details.

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