How Startups Grow Their Revenue Beyond Their Resources
Are you turning a little into a lot? And is that showing up in your bottom line?
Question: What does peak success look like with the resources you have today?
In other words, if everything went your way — with the talent, the money, and the traction you currently have — would that result in a break-even return to your bottom line? Could that return be double? Triple?
And is that enough?
At some point, every good company reaches resource perfection, when all the company assets — money, equipment, talent, and so on — converge to produce a state of harmony in perpetual execution at a steady burn rate.
Good leaders know that this is the sign of a problem in the making.
The return needs to be more than the sum of the parts
When you’re a startup or a young company, you need a larger-than-normal multiplier of revenue return on your resources.
In other words, if your company has 10 people who each put in $10 worth of something — money, time, equipment, outside services — the return on that input can’t be $100 in revenue. It has to be $200, preferably $1,000.
Furthermore, this is an inescapable truth at all stages of a company’s life, whether you’re a startup ideating its way through a minimum viable product (MVP) all the way up to a publicly held corporation, where that multiplier is somewhat vaguely quantified in the form of earnings per share (EPS).
All companies need to know their revenue multiplier, and how much each cog is adding to the top and bottom line of the machine.
Now, at Fortune 500 companies, there are entire teams who focus on these calculations. At a startup, there are a handful of leaders who need to make those multipliers happen — in the free time they have outside of their primary role(s) and function(s).
Furthermore, when you’re a startup, you’re saddled with the extra weight of high expectations and low fuel. A public company, with access to cash through the public markets, can maintain an equilibrium of resource stability that generates perpetually low or even negative EPS.
A startup cannot.
Why? Because that equilibrium is a sign that your organization is headed down the path to that corporate nightmare of dead weight, overspending, and eight-hour workdays that produce 20 minutes’ worth of work. You don’t have that kind of runway.
A startup needs not just the best talent, a game-changing product, and a load of potential. It needs to mold all that into a well-oiled machine.
Or in business terms: It needs an efficient, multiplier-producing organizational structure.
Organizational structure is more than just titles and a flow chart
Most of us entrepreneurs and company leaders strive for this dream state — having enough internal “supply” to meet the demand we have today and generate profit, which equals runway.
But the best leaders operate in an always-hungry state, making the best of what they have to reach goals that seem unreachable. This means coaxing the most out of our existing resources to meet the demand we need to reach the next level of company growth.
This is not just a matter of good leadership and positive motivation. This is an outcome of solid organizational structure, refining the components of your company, and building bridges between them that are more than just filling seats and roles and functions. Each decision you make about who does what and how should be based on building that multiplier of revenue versus spend.
If you’re not seeing the 10 times or 100 times return at the end of your organizational rainbow, it might be time to review how well the machine that produces that multiplier is working.
Early Stage to Growth Stage
I don’t want to focus too much on the early stage, but I do want to talk about the dramatic organizational shifts necessary to emerge from the early stages into a full-fledged growth stage startup.
For reference, let’s call early stage under 10 people, less than $1 million in annualized revenue, and very little traction. At this point in the company’s lifecycle, everyone’s job is to find and exploit that traction.
Thus, every cog in the organizational machine not only has to play its own role, but also a number of other roles, and a third role of getting to growth. In other words, everyone on the team is a growth hacker or ninja or whatever it is those folks are calling themselves these days.
It really just means chasing that traction to produce that multiplier.
The problem with early stage startups is that the third role — getting to traction and growth — is the easiest to ignore because it takes so much heavy lifting for each person to do their multi-functional primary and secondary jobs.
When you’re the chief financial officer and you’re also selling, when you’re the lead developer and you’re also looking for a communications platform for your team, when you’re the organizational leader who is also spending 80 percent of their time raising money — these top priorities battle each other in a way that becomes habit in order to survive.
No one wants to take their hands off the wheel to check the map, so to speak.
But growth doesn’t magically happen, it has to be nurtured in every company function from the culture to the product development to the sales process. To get to the growth stage, each person on the team has to be working towards it on top of everything else they need to be doing to keep the doors open.
The growth stage grind
As a company merges onto the growth stage highway, everything accelerates and things happen quickly. At this point, roles and functions should be more one-to-one and logical. But now, inter-functional dependencies will arise and will add complexities that will quickly drain any extra capacity.
In other words, now that your sales team can focus on sales and your product team can focus on the product, those two teams will have to work reactively to address the issues that will arrive with acceleration. They’ll also need to work proactively to realize gains from automation and repeatability.
Here’s what your machine needs to be focusing on during the growth stage:
- Reducing waste and friction: Processes that worked well for single and small groups of customers may not scale well with larger groups and more frequent customers. The transaction, the onboarding, the support, even the features within the product itself may need to be reimagined to keep up with higher usage rates and new use cases. Repetitive parts of these processes should be automated or removed. A one-minute task repeated 1,000 times is 1,000 minutes.
- A broader reach: To keep that steady stream of customers, new markets will need to be targeted. This means that marketing, sales, and product development will all need to come together to give new customers a reason to buy without alienating current customers.
- Partnerships, referrals, and bulk sales programs: One-off sales are great, but group sales are better. It doesn’t matter if you’re B2B or B2C, whether you’re selling a product or a service. All the components of your company need to have an arm that focuses on bigger fish — whether that’s through the combined efforts of a partnership, a distributed customer referral effort, or even just an expansion of how many units you can offer to one customer.
- Reinvestment in the company: In the growth stage, each part of the organization will be screaming for more help in terms of redistributing profits to aid and enable more growth. Unless those parts are working in a coordinated manner, any reinvestment will boost the output of certain departments at the expense of others.
Pivot: Starting all over again
Companies pivot for many reasons. Some of them are proactive, such as when an opportunity presents itself but requires a major shift in the business model. Some pivots are reactive, like when external forces (or internal peril) drive the company to reset how its resources are positioned.
Regardless of the nature, a pivot means realigning company resources to get the most out of them for whatever new direction is required. This restructuring shouldn’t be downplayed or happen without a lot of strategic planning because usually, the lack of organizational efficiency is the root cause of any pivot in the first place.
Regardless of the size, stage, or even the nature of your business, those multipliers will be the scorecard of growth moving forward, and they don’t happen without the proper machine in place to create them. The more a startup’s machine does with less, the better its chances for success.
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