1. Image Credit: Chad Dickerson, CEO, Etsy
Scaling Startups
Asif Ali
azifali@gmail.com | twitter: @azifali
Originally Presented at IITM’s RTBI, Chennai
2. About Me
• Entrepreneur, technologist with over 13 years
of experience.
• Worked on a multitude of technologies
• Loves technology.
• Co-Founded ZestADZ (Sold to Komli)
• Lives in Chennai, India
3. Meaning of scaling
• Scaling businesses has slightly different
meanings to different audiences:
• Higher growth of revenues than Operating
Expenditure growth
• Business growth in general
• Ability of the business to sustain growth
5. Broaden your Vision
• Often startups start with a Narrow focus;
• When you’re beginning to scale out, it might
be time to revisit that.
6. How does your growth stage look like?
• High margin positive cash flow (ideal but mostly not possible) and profitable
• Low margin, positive cash flow, nearly profitable
• Low margin, negative cash flow and high growth, not profitable
• Choose your model depending upon the stage and available funding.
• Some models may not allow you to scale linearly
• Most VCs tend to accept high negative cashflows and even low margins at Growth
stage in exchange for very high growth.
• There is no preferred model of growth. Entrepreneurs need to decide the right
growth path. But remember without enough backing and cash, your business
could die despite having great revenues / margins..
7. How much and how fast do you want
to scale?
• Depending upon your biz model, you might end up
needing more cash for higher growth.
• However, if you don’t have enough cash, your startup
might get killed, even if it were profitable
• A positive cashflow is required for unfunded startups
• Assuming that you want to raise funding, keep a plan A
and plan B ready..plan A without funding
8. Problems start with Cash
• For most startups, not having enough $$ is
reason enough for not being able to scale.
• Prepare two different financial models
simulating a) without cash b) with cash and
identify clearly what are your needs.
9. The right meaning for a scalable
business
• Businesses that scale are businesses with operating
leverage. Put simply, if you add operating costs (sales,
marketing, administrators, R&D, etc.) at the same rate
you grow revenue, then your business does not scale.
• Alternatively, if additional revenue requires relatively
smaller and smaller additions to operating costs, then
congratulations… your business scales!
Source:
http://finance.fortune.cnn.com/2011/06/01/but-does-
it-scale/
10. However several VC funded startups
are taking the opposite meaning
• Opex grows with size of business
• The business swallows down large loads of cash
• Margins are low and cash flow is extremely negative
• Profitability is not in sight
• Should not be acceptable in normal circumstances but
this is the new ‘normal’ in growth stage startups
funded by VCs
• My advice – stay away from such a situation.
12. Google P&L
• Margin growth is exponential, operating expenditure didn’t
grow proportionately.
13. Chart your revenue goals
• Since you already have a business model, it helps relook at some of
those revenue goals to ensure that there is an aggressive plan in
the coming quarters.
• Some of those numbers may look unrealistic (say getting to $10m
from $2m in 2 years) but unless you think about it, plan about it
and execute on those goals, you are NOT going to get there.
• You are not going to gain revenue and traction with revenue as a bi-
product of success (doesn’t happen so easily in Product cos in
India).
• Go after revenues
14. Relook at hiring
• Its time to hire those top level rock
stars..maybe its time to hire your VP of
product or VP of marketing.
• An important milestone is that while growth
continues to come, as a startup founder – you
might want to defocus on a few things and
focus on fewer things that can help the
business scale
15. Growing Pains – small to big
• Getting good people is paramount
• Establish processes but don’t over do..
• As a startup CEO, stop doing everything
yourself (hire great people, delegate and
review)
• Focus on execution
• Establish your financial model based on your
needs
16. Things that you should scale to help
your business scale
• Users; usage; and reach
• Revenues
• Technology
• Hiring People
• Processes
• Product
• What do you want to scale?. Most startups would
want to scale on everything..
17. Identify your business limitations
Opportunity Market
Operational
People
Efficiencies
Technology Cash
Business Your Execution?
scale? business
19. Market
• Does your product meet the market need? Conserve cash as much as you can..
• Find the right strategy and pivot.
• Change your model OR Product if you need to and investing aggressively when you
have found a repeatable, scalable sales model.
20. Re-evaluate Opportunity
• It is important to identify the opportunity
ahead for your business
• Are you going to be able to pivot by changing
your business focus entirely?.
• Is your existing market largely untapped?
21. Re-evaluate opportunity – An example
scenario
Video
Mobile Downloads
movie clips
Hybrid Video
Model
Streaming Something bigger
that you’re
missing?
Your business DVD Maybe your
Rental business needs
focus
to pivot to this
opportunity
22. People
• In a growing startup, people make all the
difference.
• Make it a point to hire great resources, whom
you can delegate instead of micromanaging
everything.
• Several key units of your business should be
managed by your hires who report to you.
23. Product
• Traditional businesses grow by adding more
people but those are generally non scalable
practices.
• In a tech business, a highly efficient, automated
product is a key ingredient to a scalable business.
• Plan for growth: you must now plan for non-
linear growth and bursts of growth to ensure that
you have the right features and the infrastructure
to
24. Product
• Needs a great well defined roadmap
• If it is the core of your business, then the
technology must be built to scale
• Establish a repeatable process that can help add
features to your product.
• Product development requires insane focus,
especially if you business is a product business
25. Where is your Product currently at?
Your Product?
Early
adopters
Middle
Ground
You need to find out what
features are needed or
what is missing for mass Mass Adoption
adoption
26. Insane focus on Product is required to
scale the business
Define
Vision
Define
Rollout Product require
ments
Build
and
validat
e
• Have a repeatable process defined that helps build out and launch your product
features
• Use agile methodologies
• Innovate on your product features and then in technology but not the process itself.
• Optimize your technology at this stage
27. Resources vs productivity: our actual
numbers
90
80
70
60 Resources (# of people)
50
Cost of hardware ($1000s
40
a month)
30 Impressions (Billions)
20
10
0
Year 1 Year 2 Year 3 Year 4
29. Technology as a driver of growth
• Technology is a key driver of growth and it should
be leveraged as a strategic advantage for startups
going to scale.
• At a stage that you’re beginning to scale, start
optimizing your technology to deliver 10X more
than what you’d expect the market to use.
• Build a hacker culture within your
organization, encourage problem solving and
30. Process
• Define simple, repeatable processes to get
things done.
• Don’t make the process a bottle neck
• Understand different culture of global teams
as you grow.
31. Scaling Geography
• At some point, scaling your business also means scaling your
geographic presence.
• Startup founders must be willing to spend days on a plane travelling
to meet customers, employees and partners.
• If you have a world class product, take it to the right global market
instead of just selling it in your backyard.
• Don’t ask Why should you do it, instead why you shouldn’t do it.
• Hire people with deep local expertise and connections.
32. Sales Model
• Master your sales funnel..
• Set a defined, repeatable process for sales
• Understand your economic model – cost of
user acquisition, cost of lifetime model and
use that model to scale out your sales over a
period of time.
• If cost of acquisition is high, focus on reducing
it.
33. Adding more people for sales in
geographies needs more cash
Information and graphic source: http://www.forentrepreneurs.com
34. Revenues could grow
• MRR – Monthly recurring revenue
Information and graphic source: http://www.forentrepreneurs.com
35. If you stop adding sales people
Information and graphic source: http://www.forentrepreneurs.com
36. Lowering Churn
• Lowering churn results in better net profits..
Information and graphic source: http://www.forentrepreneurs.com
37. Execution
• Be Paranoid about execution
• You need to be able to get things done well, on
time, every time about everything.
• Execution is huge priority in Chennai’s startups.
• Remove the mindset that sloppy product and
execution is OK in a market like ours.
39. Master and grow your deal flow
• This requires that the marketing department be constantly looking for their next
source of leads. A great VP of Marketing will be ahead of this problem, and
working to create scalable solutions
•
Source: http://www.forentrepreneurs.com/saas-economics-2/
40. Use tools to grow
• Use tools such as
Salesforce, highrise, skype, google
docs, dropbox, etc to grow your automate
your business
41. Dashboards
• Set up real-time OR daily dashboards for your
business that provide key metrics around the
following units of your business
– Revenues and margins
– Cash flow
– P&L
– Product status
– Sales funnel
– customer acquisition costs
– Customer churn
42. Funding
• Funding is really important and it is upto you
and your business to decide how much, when
and who to take it from.
• Funding preparation can be distracting
43. Final thoughts
• This presentation should give you some ideas
about strategies needed to scale startups.
• There is a wealth of information already
available out there; use them to your
advantage.
44. Thanks
Asif Ali
Twitter: @azifali
Email: azifali
