The scaling stage is just one of the stages of a company’s life cycle. At this point, it’s all about growth. You have some early, committed customers and you’re ready to grow those numbers significantly, likely growing many times faster than the overall economy.
We’re going to talk today about how to scale your company, but we thought it first of all would be helpful to just take a step back and see how the idea of scaling fits into the wider life cycle of every business. We believe that every business can go through four stages—startup, scaling, steady state, and unfortunately for some companies, decline. But the first stage is the startup. This is not just about “having an idea.” It’s about having an idea, building a team, demonstrating technical viability—in other words, making sure the product works—and then establishing what we call product market fit, which means that you have found and sold to enough customers to be sure that you have a viable product in a good market. There’s no magic number of customers where this happens. For a typical technology product, it’s somewhere in the 20-100 customers. That’s the point at which you’ve established a product market fit which means you know who your customers are, and now you can start to scale.
The second stage, this is the scaling stage. At this point, it’s all about growth. You have some early customers and it is all about, as the name suggests, scaling your business. At this stage, you are probably growing many times faster than the overall economy. It’s great if you’re profitable, but frequently you’re not.
The next stage is the steady state. This is when growth slows, and you grow plus or minus the same way is the overall US economy. The typical Fortune 500 company is in this stead state. The average Fortune 500 company grew only seven percent last year. But it doesn’t just apply to Fortune 500 companies. Many small businesses have already reached steady state. Your local neighborhood grocery store, your local neighborhood Italian, they’re probably growing plus or minus five percent a year, and are just very typical small steady state businesses. If you’re growing at this rate, if you’re at steady state, you simply have to be profitable, otherwise you don’t have a viable business.
The last of the four stages is pretty self evident—decline. Decline is what happens when revenues stop to grow and start to shrink. Profits then evaporate and at this point you have to change or die as a company. Our focus in this series will be on companies in that second scaling stage. The objective will be to discuss the techniques and disciplines that will help a company scale and take advantage of the opportunity that has been created by the innovation that took place in the startup stage.