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Start-up Advice

8 Milestones You Need To Reach Before You’re Ready To Scale

Is it the idea? The team? The will to keep pushing forward? The money? It’s all of these things, working together.

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The rapid uptick of the hockey stick on a high growth start-up can look spectacular from the outside as you watch the company grow. It all appears so easy, but it’s the classic story of the five-year overnight success — when you just see the last few months.

Building a start-up is tough. They’re full of high-intensity stressful periods, scattered between drawn out frustrating spells of not growing fast enough, inadequate revenue or problems with your team. Building a start-up that’s poised for high growth is even harder, and the emotional roller coaster flies higher and drops lower as the pressure increases.

Customer apathy kills more start-ups than anything else and getting over that to grow the company takes a lot of trying new things and learning. There will always be a few years of drudgery before the rocket ship takes off.

Here are some things you need to have in place before you try to scale:

1Have the right team

It all starts with the right people. Picking trustworthy co-founders with complementary skills is paramount. Beyond that, you need to have key support structures in place both internally, with domain experts who know more in their field than you, and externally with a network of advisors and mentors to rely on for solid guidance.

Related: 5 Books To Read Before Starting Your Business

2A culture of learning

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You’re going to have inaccurate assumptions about your product and market. There are things you can’t know at the beginning, and your market is going to shift and evolve over time.

Building a company culture that embraces learning by studying the data around you and experimenting with new and better ways of doing things will help you weather these changes and emerge stronger and more resilient. It’ll also help you adjust to internal change as you grow.

Having open communication and tight feedback loops is great to increase and share team learnings.

As Darwin said: “It’s not the strongest or fastest species that survives, but the one most adaptable to change.”

3Focus on your customer’s needs

One of the easiest ways to evolve with your market is by being focused on the needs of your customers and continuously finding better ways to fulfil these. If you focus internally on your product, you’re likely to miss outside changes, but if you’re focused on how you are solving your customer’s problem, then you’ll be the first to notice external changes, threats or opportunities.

Also don’t try to solve every customer need. Rather do one thing ten times better than ten things only slightly better. Focus is key and that means saying ‘no’ and doing less.

4Control your core value proposition

It’s very tempting to find partners to help launch your idea, and it can be a very favourable way to get started. But over time, as you grow and prepare for scale, ensure you have complete control over the business core that delivers the value proposition to your customers so their satisfaction is not reliant on other parties.

You can outsource many things, but if you’re a software-as-a-service company you should have your own developers working on the code. Or if you’re an online retailer, ensure you manage your own customer service — even if you use partners for warehousing and deliveries. Whatever the essence of the value you provide to your customers, you’re going to need tight control over it, which is very hard if it’s not in-house.

5Don’t raise too much (or too little)

If you plan to grow faster than your organic revenues would typically allow, you’ll probably have to raise some capital. Raising too little is the obvious mistake as you’re going to prematurely run out of money. But, raise too much and it can dilute your shareholding so much that you’re disincentivised, or you lose control of your board and direction.

Having too big a war chest can also mean you’re pressured into doing wasteful things you wouldn’t have done otherwise and can distract from the critical focus you need to get the growth you require. Being over-funded can also force you into decisions you don’t want to take, as investors push you down more risky paths for their required returns, but which increase your odds of failure. It’s a careful balance to achieve, so weigh your options carefully.

Related: 9 Answers You Need About Yourself Before Starting Your Own Business

6Know your exit strategy

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Building something with huge potential to scale can be really exciting, but it helps to start with the end in mind. What you’re working towards will be the litmus test you apply to thousands of smaller decisions.

If you’re driving for sustainability, you’re going to hold back on over-investing in growth. If you’re aiming for an acquisition, then pushing for user numbers or partners might be the most important. Or if you’re going for an Initial Public Offering, growth with at least the option of huge profitability and dividend yield will be the most important.

You also need to ensure you and your investors are aiming for the same outcome. If you’re not clear on what you’re hoping for, you’re less likely to achieve it. As Zig Ziglar says, “If you aim at nothing, you will hit it every time.”

7Know your metrics

Linked to the above point, you need to understand the numbers in your business and what levers you can pull to change them. Track as much data as you can from as early as possible — it’ll help you dive into the nuts and bolts to see what’s really going on.

But no two metrics are equal and looking at too many makes it hard to prioritise. It helps to have a high-level dashboard with three to five of your most important actionable metrics or KPIs (avoid non-actionable vanity metrics). What are the top three metrics for your business, that if they go up, you know you’re succeeding? These are the things your team will prioritise over all else and will be the standard to which they compare their actions. Make these visible to everyone in the company so they know what’s most important.

8LTV > CAC

Of all the metrics you can track, ensuring your customer Lifetime Value (LTV) is greater than your Customer Acquisition Costs (CAC) is possibly the most important. If it costs you more to get a customer than you ever make from the person, then you’re scaling a loss-making machine. Tweaking the systems and processes in your business to get LTV > CAC should be your biggest priority before you try to scale.

You can experiment with automation, different pricing models, customer segments, marketing channels, ways of billing, set of product features and a number of other elements to get this right. But don’t try to scale or raise money to scale before you master this point.

A solid foundation will give you the best opportunity to create a fast-growing success story, and getting these eight things in place will take you a long way towards achieving that. So dream big, but make sure you have the basics in place so those dreams can become a reality.

Roger Norton is the CEO of Playlogix , the author of Start Here, as well as the creator of the Lean Iterator methodology, which has been used by the likes of UCT GSB, Idea.org, Alan Gray Orbis Foundations and Standard Bank Innovation.

Start-up Advice

Should Entrepreneurs Lie? It’s A Tricky Question

In the hustle of the startup world, entrepreneurs often drop little white lies – and don’t even consider them to be lies. Where’s the ethical line?

Jason Feifer

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Gary Hirshberg knew the exact amount of money he needed to save his company: $592,500. It was 1988, and his fledgling yogurt brand, Stonyfield Farm, was near collapse – rocked by the closing of its third-party manufacturer, hemorrhaging money as it struggled to fulfill orders and unable to find new investors. But with that exact amount of cash, Hirshberg and his co-founder, Samuel Kaymen, calculated, they could open their own facility and regain their footing.

So Hirshberg drove down to his local SBA office with an informal proposal. “We’ve got a bank willing to provide the loan,” he told an officer, and he said his shareholders agreed to put up $100,000. All he needed from the SBA was its 85 percent loan guarantee, which would make the bank comfortable executing the financing.

The SBA liked what it heard, and that positive response set in motion the funding that would save Stonyfield Farm and enable it to grow into one of today’s most recognisable yoghurt brands. But in truth, the SBA didn’t know the whole story. Hirshberg didn’t have a bank lined up. His investors hadn’t committed the money. All he had was a vision for his company, a plan to save it…and, ugly as it may sound, a lie that would pull it all together.

Let’s put it bluntly: This is common. Entrepreneurs lie. It’s not like they regularly drop Theranos-level falsehoods to defraud customers and investors, but the scrappiness of entrepreneurship inevitably leads to some kind of deception. People say their company is bigger than it is, that they’re more prepared than they are, that they know how to do something they don’t. They spot an opportunity and they lie to get it, and that becomes part of their story – an origin that may one day even be celebrated, like how Steve Jobs famously faked his way through the first iPhone demo at Macworld even though the device itself was a buggy mess.

But here’s a question the entrepreneurship community has been struggling with for centuries: Is it OK to lie? And when does a lie go too far?

It’s tricky, because most entrepreneurs don’t see their deceptions as lies at all. Hirshberg doesn’t. “I mean, look – you beg, borrow, steal, stretch. You do what’s necessary,” he says today. In truth, the editors of Entrepreneur can get drawn into this logic. Just recently, this magazine ran a series of articles on bootstrapping, which featured a number of stories about entrepreneurs stretching the truth. One of them, for example, was about Anthony Byrne, the CEO of a Dublin-based company called Product2Market.

In the start-up’s early days, Microsoft considered hiring it but first wanted to conduct a site visit to make sure Product2Market had the necessary manpower. In reality, it didn’t. So in advance of Microsoft’s site visit, Byrne brought friends, family and neighbours into his office, having them pose as employees to make his startup seem twice its size. It worked. Microsoft signed on.

Related: 10 Successful SA Women Entrepreneurs’ Top Advice On Balancing Work And Family

After that story ran, an Entrepreneur reader emailed an objection. “I don’t think the magazine should be promoting people who got ahead by lying as an example for others to follow,” he wrote. But Byrne doesn’t think of his action as lying; he sees it as a simple act of survival. In a crowded industry dominated by big players, he needed to look larger and capable.

“As soon as we got our first big deal, I did in fact hire the right number of people to fulfill the contract,” he says.

This is also how Hirshberg of Stonyfield Farm sees his own circumstance. Rather than lying, he was creating an opportunity he knew he could fulfill. True, he didn’t have a bank or his investors on board with his plan. But he knew a banker that was interested in his brand and figured that if the SBA seemed on board, the bank and investors would follow. And that’s what happened. “It’s OK as long as you ultimately do deliver,” Hirshberg says.

But context is also important, he thinks. If entrepreneurs lie for the sake of lying, or for their own personal gain, that’s a problem. But what if it’s for a common good? Consider his plight, he says: Stonyfield Farm may have been small at the time, but it was employing people and supporting their families. Hirshberg’s wife was pregnant, and his mother-in-law and other family and friends had put significant money into the company. He’d tried repeatedly to save it by more direct means. He even found a potential manufacturer that promised to step in and help – but at the last second, the manufacturer tried changing the contract to steal the brand away.

Hirshberg and his co-founder nearly gave up. Then they made one last-ditch effort — going to the SBA. “I believe that determination is the most undervalued and essential ingredient for success,” he says. “More than a great product. More than financial acumen. More than great marketing. It’s just absolute determination, and as a corollary, believing in yourself when no one else does.” If they went out of business, lots of people would lose. He was determined for that to not happen. The lie was worth it, he says. It was just an entrepreneur doing what was necessary.

Not everyone is going to accept this. Purists will surely say Hirshberg and Byrne and others are just liars justifying their actions. But Tomas Chamorro-Premuzic, a professor of business psychology at University College London and Columbia University, who has written about lying in entrepreneurship, thinks they’re onto something.

“If you can somehow measure harm to others, that is the limit,” Chamorro-Premuzic says. He believes most entrepreneurs tell lies when they think the falsehoods will do no harm. Had Hirshberg failed to get bank financing, the SBA simply wouldn’t have offered the loan guarantee. Had Byrne been caught, his deal with Microsoft would have fallen through. They were largely victimless crimes, wasting little more than someone’s time.

Related: “See The Gap, Be Decisive And Love What You Do” – Advice From A Fempreneur

The way Chamorro-Premuzic sees it, the greatest lie we all tell is that we don’t lie. “There’s a reason why we have to all pretend the world is more honest than it actually is,” he says, “and that’s because we’re part of the same world that thrives with at least a certain level of getting away with some deception.” And he says creative people — the kind of fast-thinking, big-dreaming people who often become entrepreneurs – tend to lie more than others. The truth, he says, is that people in business expect some kind of transactional lie – whether it’s from a job applicant, a potential partner, or someone else.

“The system is encouraging at least some form of fact distortion, and rewards it,” he says. “If you ask an interviewee if they enjoy working with others and they say, ‘Most of the time I don’t,’ they won’t get brownie points for being honest. You’ll say, ‘This guy is antisocial.’”

So what’s an entrepreneur to do? Simple, says Chamorro-Premuzic: Treat lying as a tool to be used in very particular moments. It cannot result in harm to individuals. It must lead to an opportunity you can genuinely succeed in. And very critically, it cannot become a foundation you build on with other lies. “The brands that people trust, the products that people trust, clearly are created and run and owned by cultures that respect the customer,” he says. “Long-term focus requires honesty.”

Seen this way, a lie is a gamble – a slight tilting of the odds in a critical moment. But what follows must be truthful, because, as our liars say, that’s the only way to build an honest company.

This article was originally posted here on Entrepreneur.com.

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Start-up Advice

The ‘Anything’ Entrepreneur

Most entrepreneurs are told to ‘stick to their niche’ but what happens when you make diversification your key to success?

Rowan Fine

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Traditionally, entrepreneurs are told to stay focused and stick to their niche. But what if this advice isn’t always the right thing to do? What if this isn’t the perfect plan for your business, especially when you are facing a mercurial economy and a complex market? The instructions to build a thriving business aren’t set in stone, they’re as fluid as the customers and markets that inspired their creation in the first place. So, instead of hugging that niche rut, here are seven steps to intelligent diversification that could make a huge difference to your business…

1. The price tag

Having a niche business can become expensive, especially if you purchase stock from a specialised or niche supplier. They tend to charge a premium as they have the expertise and market position that allows them to do so. If you instead look to selling a variety of products and solutions, you can reduce the prices for your own bottom line as well as that of the customer.

Often, you are paying for a brand and not the deliverables so ensure that you’re investing into solutions that add value to your business not weight to your bottom line.

Related: How to Start A Business When You’re Flat Broke

2. Variety is key

To survive in this economy, small business owners can no longer afford to only offer single product lines. By adapting and diversifying, you ensure your business isn’t the one left behind. Your competitors may very well be planning on introducing complementary products and services that boost existing offerings or add value. Don’t be the business that hasn’t been paying attention to the customer’s need for more bang for their buck.

3. Bolt on is bolting in

Offer your customers bolt-on extras where you can. This furthers the value you can add to your service and the value that the customer perceives you are offering to them. Extended warranties and value-added services not only add value, but they add longevity to your customer relationships. This means that you build depth with your customers as opposed to a hit and run sale.

Related: How To Start A Business With No Money

4. Build a fence

When you diversify into a variety of solutions and services, you are giving yourself the opportunity to ring fence client spend. They won’t need to go to a multitude of suppliers as you will become their trusted one-stop-shop. You can then use this as an opportunity to showcase other products and services and to use your relationships to pitch clients into new areas of your business.

5. Client retention

When you have a rich pool of resources and strong client relationships, then you build trust and you prove to your clients that you have what it takes to get them what they need. When you’re trapped into single product lines you can’t offer this level of depth to your clients and they will simply go elsewhere.

6. Communication and collaboration

Diversification also offers you the opportunity to communicate more regularly with your clients. Instead of only selling to your customers seven or eight times a year, you can talk to them several times a week. Instead of just supplying products, you are helping them to deal with their day-to-day challenges and requirements. This allows for richer upselling and even more opportunities to engage.

Read next: 21 Steps To Start-Up Success

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Start-up Advice

How To Forge Your Own Path In Business

Finding your own way doesn’t require reinventing the wheel.

Timothy Sykes

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You don’t need to be a visionary to forge your own path in business.

Honestly, you don’t even need to be a business owner to forge your own path. It’s more about a state of mind where you’re able to think for yourself professionally. To clarify, that doesn’t mean you’ve got to be a lone wolf: ideally, you want to be able to to work with and even for others, but without being a follower.

The ability to balance being an independent thinker yet simultaneously remaining accountable for your actions will make you a much more valuable worker, no matter what field you’ve chosen. The good news is that with targeted effort, anyone can adopt this mindset. Here are some of my tips for how to forge your own path in business, and why it matters.

Learn the rules first

This might sound out of place in a post about how to forge your own path in business. After all, aren’t we talking about independence?

Here’s the thing. Before you want to break the rules, you have to actually learn what they are. Take the time to learn the “rules” of your trade before you start trying to reinvent the wheel. You’re likely to pick up wisdom that will serve you, even if you intend on using the rules to inspire new and creative ways of breaking them.

Related: 30 Top Influential SA Business Leaders

Seek guidance

Once again, you might find yourself thinking: Why should I seek out guidance if I want to forge my own path? Picture a cliche movie scene of a parent teaching their kid how to ride a bike. There’s that magical moment where the parent lets go of the back of the bike, and the kid is doing it on his own.

In business, you often need that initial helping hand before you can ride smoothly on your own. Before you can think for yourself, it can be helpful to absorb all of the wisdom you can from others.

One powerful way to do this is to find a mentor, or someone established in your field or a similar field who can give you words of advice and help you avoid making mistakes. Another is to make sure to take part in networking groups and to engage with other entrepreneurs. The more people you connect with and the more knowledge you gain, the better!

Set realistic and specific goals

If you want to gain confidence, become an independent thinker, and a better problem solver, do this one thing: Set realistic and specific goals.

Say that you want to increase sales for your business. It may not be realistic to say that you want to double your sales, but to simply have a goal to “increase sales” isn’t specific enough. However, setting a goal of increasing sales by 20% this year might be more realistic and is definitely more specific.

A goal like this is motivating, as it gives you something specific to work toward. It also allows you to break it down into actionable steps. You can begin to problem-solve, making specific plans for ways in which you could make your goal a reality. As you reach these milestones, you’ll gain more confidence in your abilities, which can help you move forward more confidently in your career.

Observe, but don’t copy

It can be very helpful to look at what your competitors and other entrepreneurs are doing. It keeps you relevant, gives you ideas, and can help keep you nimble in your chosen field.

However – this is important – you should never copy what others are doing. For one thing, it doesn’t work. Say you see someone killing it with a brand new hummus restaurant start-up. You can’t just start crushing chickpeas and expect success. There are lots of inner workings to the business that you’re not privy to, so even if you were to try, you couldn’t quite replicate someone else’s success.

Further, by the the time you copy, you’re already a follower and behind the curve. It’s better to use the information you observe as data, so that you can gain insight on things like effective marketing techniques and aesthetics, and apply these things to your own original ideas.

Think for yourself

You probably already guessed this one, but to forge your own path in business, you need to learn to think for yourself. So…how do you do that? Education is key. You need to absorb all of the knowledge you can, talk to as many people as you can, and observe as much as you can.

It’s almost like you’re forming your own personal library of data and resources. As time goes on, you’ll become better able to use this knowledge that you’ve gained to put your own unique ideas out in the world. You’ll be better able to generate ideas and to come up with intelligent solutions.

Related: Business Leadership – Learn How To Embrace Change

Let yourself grow over time

Ultimately, if you want to forge your own path in business, you need to be patient. Expertise, independent thinking, and autonomy won’t all happen overnight, so take the pressure off of yourself.

Remember: Patience is a trait of some of the most successful people. Focus on progress, not perfection. If you want to be successful for the long haul, allow yourself to learn and grow and continue to improve over time. Slow but steady, right?

This article was originally posted here on Entrepreneur.com.

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