Top 10 Scaling Myths: Part 2

Successfully scaling a technology company is complex. It’s a non-linear process with lots of ups and downs. Talking to founders and CEOs, we at Tightrope Consulting have noticed there are a lot of myths when it comes to the “perfect” path to scale.

Here are the last 5 of our top 10 myths…

Myths on sales, going global, product diversification, founders as CEOs and start up culture…

Myth 6: To achieve scale, the main capability to invest in is sales

In the early days, companies who bring new propositions to market need to invest a lot of time and effort to get in front of customers, to build brand awareness and to explain the benefits of the solutions so that it can spark interest. As an organisation scales, in existing and new markets, it’s tempting for companies to just keep adding sales capacity assuming that every dollar spent will result in increased growth. Spending money to keep pushing your product to more customers is not scalable unfortunately.

However, to achieve true scale, a technology companies need to work towards moving from a product push model, where you are trying to convince customers to give you product a shot, to moving to a market pull model. At this stage, your product features and reputation, the brand awareness and existing client credentials help to create a situation where clients perceive your product as so appealing, they need to have it. The customer is asking for it, instead of being pushed the product. Successfully achieving a market pull for your solution creates a flywheel for growth as the market pull is reinforced by growing customer adoption, which in turn leads to more awareness and opportunity.

A well-documented example is the difference between palm pilots or PDAs and the smartphone. The handheld PDAs never fully got to a stage where customers were screaming for them (and eventually evolved into the tablet we know today) versus the modern era smartphone that each of us carry in our pocket. No one needs to convince you that you need one. Technology companies need to follow the market pull instead of pushing technology onto consumers.

Myth 7: To be successful, technology companies need to be global from day 1

The benefit of building and scaling technology products is usually that they can be sold with relative ease in different markets. The user needs might slightly differ but in general, the big pain point you are solving is probably a global one. Therefore, a lot of advice (mainly from big VC) has been to go after the global opportunity and do so from day 1. You can go after the biggest market opportunity (maybe your initial customers are even overseas), you can outpace your competitors (as the one who reaches scale first usually wins) and because of the big total addressable market and the larger opportunity, you can get attract the right level funding to succeed at the global strategy.

However, there are downsides to going global from day 1. For one, you need a lot of capital to expand internationally. This means the focus shifts from building a great product to getting the right level of funding. Secondly, you need to quickly understand if you have a global product (useable in every market without significant changes) or a multi-local product where you slightly adapt the product and go-to-market in each market you expend into. It’s harder to build a global product from day 1 as it’s much harder to understand the global market than it is to understand the local market you operate in. Thirdly, going global means dealing with a vast variety of different laws, regulations and different languages making it a more complex task to successfully do in one go.

The best path will differ business by business but thinking global means growing a mindset that your product or service is designed for the international market. It does not mean going global from day 1. To go truly global, you might need some localisation. This is the process of taking a product and tailoring to a specific locale/market. Keep in mind that localisation is more than translation. It’s adapting your product physically, linguistically, and even culturally. What better way to start this in your home market, where you know the customer, have early proof your proposition will work.

Myth 8: To scale, you need a diversified set of products

A lot of the advice to scaling companies is to explore other product or service opportunities to drive continued revenue growth and help solve more needs of your existing and new customers. There is logic in this, as growth with just one product looks quite limiting. However, in digital companies that’s quite different because the nuance of product features, experience improvements and performance improvements. Not diversifying does not mean standing still. It means doubling down on solving your customer’s needs and wants in the best possible way.  

Going after diversification opportunities too early in a company’s journey can have obvious complications. It means you will need more investment to focus on multiple opportunities, build multiple products. It also means the organisation structure will become more complex with different working groups focusing on similar things. Basecamp’s strategy is a nice case study where they went for diversification but went back to product focus as the diversification was too distracting. (HBR article on Basecamps strategy in the comments)

So how do you choose what works best for your company? In general, if you are in a small, low growth, or very competitive market, diversification is most appropriate. Your clients will most likely pick the product that solves most of their problems, not just one part of, or one problem. If you are in a poorly served market, focus is the best option. There is an opportunity to do one thing well and take the market. There are plenty of examples of huge technology companies that have stuck to focus. Facebook (not parent company Meta) for example has evolved and transformed but still does the same thing and has not diversified. Same for Linkedin, MailChimp, Twitter (X) and many others.

Myth 9: To scale, a founder needs to make way for a seasoned CEO

There is a belief in the business world that startup founders can’t scale. Put another way, a company’s growth curve will eventually outstrip the capabilities of its founder’s ability to remain CEO. And the statistics seem to bear this theory out: Only 50% of founders remain CEOs after being in business for three years, 40% after four, and a sadly low 25% of founders make it through their company’s IPO as CEO.

In the start-up stage, you need entrepreneurial founders who get the company off the ground. In the scale-up phase, you need a solid CEO to scale and bring the company to the next maturity level. With scale comes a lot of new challenges. Challenges that are usually of a different nature to those of the early days. They require less creativity and vision, more structure and leadership experience. It means for a founder to become a successful CEO, the need to adapt with the company. They need to evolve from the visionary person who came up with the original idea (product person), to becoming an integrator and delegator who can bring together talented people across domains, and get out of the way to let them do a great job. They become coaches.

There is benefit for founders to stay on as CEOs, with evidence suggesting that companies with founder-CEO leadership get an almost 10% higher valuation at the time of an IPO than non-founder-CEO leadership companies. The key success factors we see coming back with founder CEOs of those that scaled are (1) building the right structures, (2) evolve ways of working, (3) develop the right talent, (4) maintain a cohesive culture, (5) scale leadership capabilities and importantly (6) surround the CEO with a top team c-suite. When these things are in place, founder led scale-ups will outperform the market.

Myth 10: To scale, startups need to retain that startup culture as long as possible

There is a lot written about those unicorn startups, that become hyper growth companies and successfully launch new products, integrate acquisitions and enter new markets. They often talk about their ability to “keep working like a startup” as the key to success in keeping ahead of the competition. However, this statement creates confusion as when we look under the hood of these companies, they look nothing like startups but have been able to maintain some of the cultural traits and behaviours.

In the start-up stage, a small team of people come together to create an innovative solution and successfully take this to market. Most people wear multiple hats, collaboration is high and the speed at which decisions are taken and executed is quick. This is not a scalable model, as with scale comes complexity and the volume of concurrent activities becomes too hard to manage in the way a startup would. Therefore, when founders state they still work like a startup they mean that they have been able to retain some of the cultural components, while deliberately building structure and process into the business

The key thing for scale-ups to keep some of the cultural benefits of their startup phase is to set clear values. They should be specific, measurable, and aligned with your strategic goals. The next thing they do well is hire for values fit. Keep adding people to the team that can reinforce that culture, not dilute it. Thirdly, they empower and reward teams to live those values. This way they create a flywheel where as long as the values are adapted and evolved as needed, the behaviour (and results) follows.