5 first-person advice from an entrepreneur who managed to cross the valley of death and take his startup to scaleup level
Running a business is not an easy task. In fact, this is a segment where it is more common to fail than to succeed. According to data from the Startup Genome organization, 90% of startups do not come to fruition, and only 50% of companies manage to make it through the first five years of life, or what in that world is known as the much-feared “ death Valley”.
But there is another metric that draws attention: less than 5% of startups reach the “scaleup” stage, that is, they manage to establish themselves in the market with a sustainable and fast-growing model. In the entrepreneurial ecosystem, several definitions of scaleup are used. The most traditional is that of the OECD, which describes them as those firms that achieve an average growth, both in turnover and employees, of at least 20% annually for three consecutive years.
However, for technology firms this definition has already fallen short. For Startup Genome, these companies typically grow between 50% and 100% per year. The most successful (the top 10%) grow much faster, at roughly over 100% annually, and typically have more than 50 employees.
A scaleup must meet some characteristics: these are companies that have already managed to find their product market fit, have already determined their unit economics, and demonstrated that they have a repeatable and scalable sales model.
But getting to that point has its challenges:
Build small and move fast is the ABC. At the beginning there is a first stage of research, where the founders must study in depth the industry they are entering and then develop the business plan. Once that foundation is solid, it's time to work on the product.
It is not necessary to make big assumptions, but it is necessary to have a solid foundation, build an MVP – or minimum viable product, for its acronym in English –, and test with customers to validate the hypotheses. The most important thing here is to execute as quickly as possible and implement changes to fine-tune the product.
“We were pragmatic and pivoted quickly. The common denominator, as trite as it may sound, is that you are coming and going all the time. Especially the first years, and it is good that it is so. It's a constant revision exercise: it's a mix of what you wrote on paper, the people you have, what you can execute, and a little bit of luck.”.
Achieving a repeat customer base is a great milestone for the company. To capture them, it is essential to work on the execution of the service. Time will bring, if the task is done well, improvements in equipment and learning. At the beginning there are many unknowns, which are resolved day by day: you have to know how to learn from both the “yes” and the “no” to adjust the business model. At this point it is also a challenge not to lose focus and know how to capture the opportunities that the company can really encompass so as not to go out of business. In the end, all that work will result in an experience that builds customer loyalty.
Both in Argentina and in the region, entrepreneurs tend to establish networks and create networking spaces where they can share experiences and learning. Being present in that world is a fundamental task for founders, not only to look for business opportunities, but to weave ties that will help them grow throughout their journey.
From universities to non-profit organizations, the agenda of activities is broad and is usually open to any type of venture. Furthermore, for those seeking private capital, it is advisable to surround themselves with those investors who can provide “smart money.” That is, profiles that not only provide money, but also advice and experience. These types of investors will also support the project in front of potential clients.
At the beginning of entrepreneurship, it is common for founders to be involved in every detail of what is done in the business, sometimes due to lack of resources and other times due to fear of delegating. As the company grows, it is important to look for the best talent to entrust these tasks to, which will allow the founding team to focus on how to give consistency to the company's future. If the CEO is involved in the day-to-day running of a sale, it means that he is not doing his job well.
Here the path towards professionalization is key. Work must be done to establish processes and find the right professionals to lead each area of the company. And, of course, trust their abilities and give them space to act.
Part of that professionalization comes with establishing and working on the company culture. In the beginning, that culture is still developing. But when you reach the scaleup stage, with a larger employee roster, it is important to work on the points that make up the culture of that company to be able to spread it to the new professionals who are going to join.
In fact, a common challenge for this moment in the business – when teams are larger – is to grow in a controlled way and communicating that spirit. Even maintaining the innovative vision when employees number in dozens is a challenge to overcome. The key will be in the relationship between the founders and the management teams: knowing how to transmit the vision so that it can spread to the rest of the company and a virtuous circle is generated.
With Avancargo I lived the experience of going from startup to scaleup. We went on the market in 2018 and today we employ 55 people, billing US$ 1 million per month. So far we have raised US$ 1.6 million in capital and we are in the process of regionalization.
This path to scaleup involved not only a lot of market research time, but also many mistakes and learnings. “At first there is an environment of uncertainty. You go to the market with an idea, some validation, but until you start billing and see that that billing is repeatable, you keep wondering if you are wasting your time.”.
One piece of advice is not to fall in love with an idea. My partners and I were clear that there was an opportunity to build a business around the optimization of the logistics park, but the truth is that along the way we polished our business model. At the beginning the idea was to set up a marketplace-type business, where supply and demand meet, but soon we found that this was not the ideal model for the Argentine context. So we ended up opting for an on-demand services model with a strong operating arm and, for a year now, we have also offered a SaaS-type vertical.
With Monday's diary, there is one mistake that I would not repeat and that is taking too long to make difficult decisions. In these situations it is crucial to react quickly.
When things don't work out, you have to accept it. Whether because you are forcing a relationship with a client, with a supplier or even with the business model. It's the hardest thing, because we are human.
