Forward Thinking

Managing change resulting from success

Happy Thursday, 👋

Achieving success with a startup venture can be exciting. Milestones such as reaching cash flow break-even or doubling the number of customers are certainly cause for celebration. However, while celebrating, teams must avoid the trap of allowing success to obscure the ongoing need to manage the business as it grows.

Monitor Customers

Focusing on sales and growing revenue is crucial to scaling a startup. As revenues grow and customer counts increase, it's important to understand what might be driving the success by reviewing existing customers. Often, the earliest customers of a company are the most willing and open to providing feedback, as they initially saw value in the product or service and, as early adopters, have a vested interest in its success.

An experiment conducted several years ago provided half of a company's customers with a satisfaction survey, while the other half received nothing. A year later, those surveyed were three times more likely to purchase additional products and less than half as likely to defect to competitors. Customers who were provided a survey viewed the company as more caring, which reinforced their original purchase decision. The study also found most customers were unaware of all the products and services the company offered, allowing an opportunity for further engagement.

Startups create value for customers by solving existing problems but often struggle to capture this value over the long term. Soliciting feedback from customers and the market allows companies to transition from value creation to value capture.

Market Share

Markets shift over time as new technologies are developed or customer preferences change. After a company captures its initial customer base, it's helpful to continuously assess whether the product is still applicable to the target market or if there are other potential opportunities. Advisors and board members should periodically ask if there are alternative areas worth exploring or if the current product still has the growth potential it had the previous year. 

History is full of examples of companies that either missed or embraced market changes. Kodak, for example, was a leading film camera manufacturer for years and even invented the first digital camera in 1975. Despite this, Kodak missed the key component of digital picture sharing. The company spent years encouraging customers to print digital pictures, while competitors like Instagram gained traction by focusing on digital sharing. Had Kodak embraced the change in customer preferences, we might be posting pictures to "Kodagram" instead of Instagram.

Conversely, Microsoft took a more flexible approach to understanding its market share. Originally a software company, Microsoft expanded into cloud computing as the market shifted. Today, Microsoft generates more revenue from its cloud computing business than from software sales, demonstrating its ability to recognize shifting markets and embrace new technology.

Team

As a company grows from a few founders to a team of hundreds, the culture within the company inevitably shifts. Employee number 100 is unlikely to have the same close attachment to the company as the original founder, as they are joining a larger organization with a specific job description. The startup culture of doing anything and everything to help the company succeed begins to fade as corporate organization charts and specific job descriptions take hold.

The skill set required to launch a company and build a prototype is much different from the skills needed to lead a team of hundreds. A growing company becomes less about individual contributors and more about building a foundation of policies and culture. Decision making also becomes more collaborative, making it essential to build a strong culture to frame challenges and serve as the consistent thread connecting all employees.

Additional Thoughts

The founding team, focused on growing the company, may not notice changes occurring as the organization expands and becomes more successful. Building a strong group of advisors and board members can be instrumental during the growth stages, especially those who can spot changes and help the company transition from a small team to one with hundreds of employees.

Being cognizant of how success changes a company is crucial from a leadership perspective, as founders are often inexperienced in leading large entities. Studies indicate only 15-25% of founders are still leading their companies at the time of an IPO. While success should be celebrated, it is also a signal to be cautious of changing company dynamics. Leadership teams must find a balance between celebrating success and continuing to think forward.

Wishing everyone a great weekend,

-The Caymont Ventures Team.