How Does A Startup Grow? A Guideline for Entrepreneurs

Start-ups worth billions are called unicorns–and some of them achieve that status in record time. Most start-ups never reach unicorn status.

How much is your company worth? A few hundred thousand dollars? Maybe more?

Even these highly successful, young companies started small. They achieved amazing results, and so can your company. Here’s how they did it.

Quick Success with Apps and Social Media

The companies with the fastest growth are those with business models based on apps or social media. For example, Uber, the largest private taxi broker globally, leaped into the “Unicorn Club” after 4.5 years; competitors like Grab Taxi and Lyft were even faster.

From WhatsApp to Facebook to Pinterest to Twitter, well-known names represent social media companies that cracked the billion mark incorporate value in under five years. Snapchat, the new high-flyer among social media platforms, overtook them all: just two years and three months after it started, the video messenger company became a unicorn.

Related: Why You Shouldn’t Use the Asset Approach for Start-ups. 

Growth Paths

We define growth as everything having to do with development. An old article by the Harvard Business Review categorizes the five stages of business growth: 1) existence, 2) survival, 3) success (which has sub-stages), 4) take-off, and 5) resource maturity. In simpler terms, a company can find itself in healthy growth, stagnant, struggling, or failing. Then it’s “game over.”

Every company can be assigned to one of these growth categories. This assessment is crucial when an entrepreneur needs to know what to do to keep his business in a healthy growth stage or find ways to get it there.

A start-up is usually characterized by a new idea for a product, a solution, or a service. The equation “growth = employees” works up to a size of 10 to 15 employees. The more people who work for the company, the more ideas, and implementation power are created. However, new questions arise as soon as it gets bigger or not all employees are at one location.

Internal growth parameters are particularly important; cohesion requires smooth processes and an excellent corporate culture. It is not enough that coworkers only get along well at the work level. An organization only becomes stable when common values and motivations are used in a targeted and result-oriented manner. Otherwise, the team’s growth stagnates or even plunges into pathology, not immediately, but in perspective.

Growing Pains

A company is healthy when sales, earnings, and market share align and an innovative team’s members complement each other’s strengths. Start-ups often begin with a gung-ho team, and no customers are missing; thus, they urgently need sales and earnings. This builds pressure, and pressure changes people. Functioning teams crumble when some previously productive team members can’t handle the pressure. Working in start-up mandates that everyone “grows” every day; to “grow up” as a company, it must evolve from an idea and a small team into a functioning and sustainably successful organization.

Growing pains are the order of the day. They result from the permanent field of tension that consists of budget, time, and quality. Some parameters are always too few or not optimal, at least until the business model has proven its viability.

This Is How Healthy Growth Occurs

Since neither the representatives of the founding team nor key individuals can develop everything simultaneously, development takes place in phases. What should the founder consider at the start? Five principles provide information about what is essential if the goal is rapid and healthy company growth.

Tangible Sales Beats Great Visions

Founders usually have great imaginations. Vision’s excellent, but it also has disadvantages that threaten growth. Big visions and big sales aspirations alone rarely lead to something tangible that immediately attracts customers and sales transactions. In addition to enthusiasm, a start-up needs a lot of money in the short term to fund the development of products and services and offers on the market so that the problems of a clearly defined target customer group can be solved.

Quickly determining the right bus suitable model is necessary to move from vision to production to sales. As soon as it gets there, it is important to look at sales when scaling and constantly orchestrate all other parameters to achieve healthy growth. Companies that do not successfully generate good, paying customers through whom the company can develop over the next few years often remain trapped in stunted growth or disappear from the market.

A Little of a Lot is More than a Lot of a Little

Many start-ups struggle for “bridging finance.” They start with investments from family and friends; but, when the first $100,000 has been invested, and the business model is not on secure, stable footing, the pressure to secure more money builds. Despite the founder’s great vision, the project does attract large investors. In cases in which investors are willing to invest between $500,000 and $5 million, a founder usually does not agree with the investor’s conditions. As a result, most start-ups don’t advance beyond the initial roadblocks.

The founder then has to make the big decision as to whether it may be necessary to give up significant shares of the company to obtain vital and meaningful financing with the right strategic partner. For healthy company growth, this means finding a partner who helps to realize necessary sales and earnings and brings organizational security into the business model.

Energy Follows Attention

A start-up is characterized by agility, which does not mean that it should not establish boundaries and processes. Consider all bottlenecks in the company calmly and, if possible, in context. Wave movements can be observed in start-ups: problems occurring in waves, sometimes with customers, then with employees, then with the products, or with the business model itself. Every company goes through these cycles, but they are often much tighter in young companies. Finding the optimal combination of resources and processes requires constant balancing and learning to make healthy scaling possible.

Maximizing efficiency, performance, and productivity requires full focus. Otherwise, the start-up runs the risk of getting bogged down or overlooking important information. Founders, who have put all their proverbial eggs in one proverbial basket, are usually able to concentrate on developing solutions to problems and enduring setbacks. Healthy growth always goes from the inside out.

Culture Supports Strategy

The best corporate strategy is useless if the corporate culture is not supported by people who can and want to work together. In a tight labor market, founders should think right from the start about why people would want to work for them and not elsewhere. Attracting employees entails a sales process that leads to building an employer brand. Many start-ups depend on top people who put in long hours and great effort for little pay because the company cannot yet afford adequate monetary compensation.

That sounds difficult at first, but a clear concept for the organization’s development that answers the question of how we should work together. Establish a corporate culture that makes it possible to explain why people like to work for the company to attract new and qualified employees.

Entrepreneurs Themselves Can Be the Biggest Bottleneck!

This point admittedly sounds harsh, yet it is often exactly the crux of the matter when deciding whether healthy growth is possible. Many start-ups are founded by people who take on an entrepreneurial role for the first time. Even if you have worked successfully in corporate management for many years, this role is overwhelming because you are now 100 percent responsible, and your own money is (usually) involved.

To grow, a company needs a leading figure with different skills and competencies. Therefore, long-term, successful entrepreneurs regularly check how they can best serve the company and contribute to its healthy growth. Some founders operate most effectively in the background–for example, in technology or strategy–and therefore hire a managing director to handle daily business operations.

Conclusion

In their first years, start-ups must focus strongly on external parameters to win as many customers as possible and build a corresponding market recognition to earn money for future investments.

At the same time, the founder must not lose sight of internal parameters affecting the business. The founder of the founding team should agree at an early stage about the desired organization and management culture and execute implementation steps quickly.

In addition, a founder of the founding team should review themselves critically in the various phases of corporate development as question whether they (still) have the necessary skills and drive to manage the company and contribute to its healthy growth successfully. If this is not the case, then everyone involved should draw the necessary conclusions as soon as possible.

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Alan Lambert

Alan Lambert

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