Startups — En route to scaling — Part 2

In our previous article, we looked at the steps involved in setting up a startup, with a particular focus on the importance of execution, testing the idea, and the preparation of a business plan. This time, we explore how a startup team can become a scalable company.

We have a Solution — Now What?

You and your team have developed a solution to a real, existing problem. You have your first customer, and you are paying for it. At this point, let us briefly summarize how we got here:

The idea: You had an idea, from which you started to peel off the features that were not essential to get started, and that’s how (on paper) you came up with a Minimum Viable Product concept. Before you made any investments, you talked to your potential customers and found out if such a solution would help them.

Validation: To validate the idea, you ran tests as inexpensively as possible — adapting the product or service until customers said it was real support because they could show visible results.

MVP: At this point, you and your team of probably 2 people developed the Minimum Viable Product that you presented to more potential customers and asked for their feedback. Based on that, you gradually built a product with additional features in an agile way, as the goal was to get it to a stage where it could make money for your company as quickly as possible.

What’s the next step? Further development, attracting an investor, a quick exit, and off to Hawaii?

Creating a Long-term Plan

Before you take any further steps, you should already have a business plan in place at this point. You could have done this earlier, but as we all know, it’s easy to become a billionaire with Excel. Until you had a real foundation for your plans, they were only good for showing that you had a vision for the future of your business. But now you have some data points to base your financial strategy on.

Pricing is one of the most arcane arts of our time because no one knows how much a service or product is worth. So what do companies base their pricing on? Usually, the following approaches are used:

  • They take their acquisition cost for the product as a basis and convert the expected profit into a price that seems rational
  • Others want to be cheaper than their competitors’ prices
  • Some companies set prices significantly higher than their costs to create a sense of exclusivity
  • And, of course, there are also mixed models.

Financial planning is difficult because you need to balance many aspects to run your business successfully. In addition to price, you must also consider costs and plan for the cash flow you will need. This matrix should be designed to match the realities of financing and growth expectations.

There is no point in scheduling a new customer every day if you have a one-year sales cycle and your sales team will only consist of you and your technical co-founder. So the vast majority of startups begin building their team because they need a serious sales and marketing team to grow financially.

Before you take any further steps, you should already have a business plan in place at this point. You could have done this earlier, but as we all know, it’s easy to become a billionaire with Excel. Until you had a real foundation for your plans, they were only good for showing that you had a vision for the future of your business. But now you have some data points to base your financial strategy on.

Financing the Scaling Process

For the scaling process you need money, which you can raise from various sources:

  • Your funding: In this case, the company’s revenues will be the engine of growth. This means balanced, slower, but more predictable and predictable growth. In industries where there is no serious competition (e.g. special patents), this is a perfect solution.
  • Bank financing: Raising capital from a financial institution, usually in the form of a credit facility, is not a financial product designed specifically for startups, but if you have a proven track record, this is not an unexpected solution. It allows you to raise a larger amount of money, and the bank certainly does not take control of your business. The downside, however, is that you will have to keep paying — the bank is much less tolerant of downtime than venture capitalists.
  • Attracting investors: A common goal of startups is to find an investor who will provide a large sum of money. In the columns of TechCrunch and other startup magazines, you can always read better success stories about how some lucky twenty-something from San Francisco has received as much as $10 million for an idea. That kind of thing happens, but let us look at reality. Raising funding for VC carries at least as much risk as a bank loan, because while you are not usually putting your assets at risk, there are very high-performance expectations on the other side. And if your team can not deliver the expected results, you could easily find yourself out of your own business.

The product or service, the market, the team, the plans, and the economic environment all have a big impact on how best to fund your growth plans, so it’s important to consult a financial expert who can show you both sides of the coin.

What is scaling?

Scaling is the exponential growth phase of a business that distinguishes a startup from a traditional small business. The process is based on building a system for your product that has already proven itself on a small scale (in one city, one country, one niche market) and creating the conditions to multiply sales volumes.

However, scaling does not always mean opening fancy offices in Singapore and Dubai but rather building in automation that helps you operate more smoothly. For some products and services, a local presence is essential (especially in APAC and MENA), but the key to scaling is the ability to repeat the sales process over and over again.

To do this, you need the right team, internal expertise, well-designed processes, and rules. During this time, the main task for founders is to find the people to take over a lot of the management tasks and allow the owners to stop being present at every step of the workflow.

The IOOGO team is happy to support you with the know-how to scale your business. With our outsourced financial management service, you can even get ongoing help setting up the right funding structure and internal finance processes, as well as recruiting new talent.

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