Young Upstarts

All about entrepreneurship, intrapreneurship, ideas, innovation, and small business.

The Three Benefits Of Nailing Before Scaling

by Courtney Reum and Carter Reum, co-authors of “Shortcut Your Startup: Speed Up Success with Unconventional Advice from the Trenches

Too often we see leaders who have the entrepreneurial instinct to move quickly go wide before they’ve nailed the most crucial early steps. Part of this is avoidable by setting, prioritizing, and achieving the mile. But even with those in place, we still see founders trying to go wide too early.

Here are three of the biggest benefits to using our “walk, then sprint” philosophy:

1. You minimize risk.

Although taking a little bit of extra time may sound like a scary undertaking, having the discipline and patience to “nail it” can save you time and money in the long run. We know of a lifestyle startup that ordered 10,000 mattresses once they believed they had enough of a customer base. Three months later, customers started returning the mattresses, feeling that they became less desirable over time. The company hadn’t taken the time to get a true PMF. You can bet they wished they’d dug deeper before ordering such a big production run.

As an entrepreneur, you are going to have to take risks. It’s a part of the game, but working out the kinks before you go big is a way of mitigating  them. You should always be thinking about how to make more educated decisions. The less risk you take on, the more stable the foundation of your company.

2. You create buzz and word of mouth.

Scaling is particularly hard when you don’t have brand awareness, yet brand awareness is built through scaling — it’s kind of a catch-22. Our  approach with  VEEV — going  slow in the beginning — actually made acquiring customers easier. By saturating one market or sub-market at a time, we started building the best marketing channel there is: word of mouth (WOM). We created virality in small pockets, such as Venice Beach, California, and the virality spilled over to the next pocket, Santa Monica.

Typically, marketing dollars are spent in two ways: on awareness building (letting people know your product exists) and conversion (getting  them  to buy  it). That’s why  WOM  marketing  is the most  ef- ficient marketing  channel that exists. There’s nothing  cheaper or more effective than existing consumers describing your product to new con- sumers and telling them why they should buy it. Buzz means that peo- ple are talking about you and you can spend less to acquire your  next customers.

It’s very hard to create buzz when you’re spread thin. Buzz comes from density, and density comes from having a concentrated target audience. Say you’re focused, as we were, on Venice Beach, a submarket of Los Angeles. If you  get thousands of customers  in Venice Beach, you’re going to start creating local buzz. Then you can concentrate your dollars on converting the people who already know about you and spread from there. Think about referral marketing: How can you get people who try your product and like it to tell at least one friend about it?

Interestingly, WOM explains why the “influencer” market has become so prolific. With the rise of social media has come the rise of influencers — mini-celebrities with a following specific to an affinity or interest area. Social media has democratized “celebritydom” and in the process created a marketing phenomenon. One influencer platform that’s particularly interesting, Influential, has a partnership with the famous supercomputer IBM Watson that helps to deliver demographically, psychographically, and contextually targeted campaigns for brands. Behavioral psychology helps us understand how this works. Whereas over 50 percent of customers report that they question and doubt claims made directly by businesses in advertisements, 92 percent report that they are more willing to trust and act on recommendations from people they know  or are familiar with. Leveraging that trust is what WOM and creating buzz are all about.

3. You sell your dream to investors more easily and increase your likelihood of success.

Nailing it before you scale it can change how much you’re able to raise from investors and the valuation at which you raise. When entrepreneurs are selling widely from the start and showing us vanity metrics, it’s clear that they haven’t found PMF and it’s a quick pass for us. We’d much rather invest in a company that’s serving a much smaller customer base but has deep insights. That’s what we want to fund and scale.

Nailing solid fundamentals is crucial because good ongoing business practices offer a greater chance to succeed over the long term. When investment capital flows, companies often find themselves putting extreme growth above all other  factors, creating high burn rates. No matter how much capital your company raises, this is a slippery slope. The amount you’re spending should not be a result of how much capital you were able to raise but a product of your growth plan and trajectory. That’s why we often ask companies,  “If we gave you  a big check, what would  you do with it?” The companies that can’t show us how they would scale or perfect their playbooks using the money don’t get funding.

It’s important to create a sustainable business model with profitable unit economics, regardless of how much you raise. Not only will you be better  positioned to grow and survive long term, but you will be better able to attract investors when you need them, especially when money gets tight. VCs like to give money to companies that look like sure bets. If you’re disciplined with your dollars, you will be that much more attractive.

 

Co-authors of “Shortcut Your Startup: Speed Up Success with Unconventional Advice from the Trenches” Courtney Reum and his brother Carter are former Goldman Sachs investment bankers, entrepreneurs, operators, and investors. Courtney and Carter started their careers working on deals ranging from Under Armour to Vitamin Water and have since left to pursue careers as both entrepreneurs and new age VCs. After co-founding and eventually successfully selling VEEV Spirits, Courtney and Carter started M13, a 21st century investing platform that seeks to affect outcomes for founders, partners, and investors by institutionalizing the process of scaling consumer-centric brands.

Share

Young Upstarts is a business and technology blog that champions new ideas, innovation and entrepreneurship. It focuses on highlighting young people and small businesses, celebrating their vision and role in changing the world with their ideas, products and services.

Tagged as: , , , , ,