Failure after Product-Market-Fit

Failure after Product-Market-Fit

Has your startup reached Product-Market-Fit? It is time to set your eyes on Product-Market-Domination.

Product-Market-Fit !== Guaranteed Success?

The podcast This Week in Startups (TWISt) covered an interesting listener question. Why do most startups fail after reaching Product-Market Fit?

Interesting question. People often think of Product-Market-Fit is as the only essential milestone. Many founders assume success after Product-Market-Fit is all but guaranteed.

Failure post Product-Market-Fit is Common

“Au contraire, mon frère,” according to host Jason Calacanis. A large majority of startups fail after Product-Market-Fit. He mentions three common reasons:

  1. When the market does not show the scale, velocity or depth to sustain initial margins;
  2. When there are too many competitiors in the market, competing each other to death;
  3. When founders get emboldened and move to the next thing too early.

Failing to Leverage Fit

The common theme between these three reasons? The failure to turn Product-Market-Fit into Product-Market-Domination. With Product-Market-Fit, the startup secures a mere foothold in a market. But a foothold is of little benefit to company and investors. Unless the startup can turn it into unassailable market leadership.

Each of Jason’s reasons above represents a failure to reach Product-Market-Domination in time.

  1. Scale reasons: failure to model serving the entire market, beyond early adopters;
  2. Competition reasons: failure to protect the unique product-market-fit with barriers to entry;
  3. Distraction reasons: failure to stick with the foothold until market leadership is sustainable.

Only One Gorilla

In tech companies, it is especially important to strive for Product-Market-Dominance. Tech industries tend to converge onto one Gorilla that completely dominates the category. Examples:

  • Microsoft Office in productivity software
  • Oracle in enterprise databases
  • Google in search
  • Facebook in social
  • Amazon in e-commerce

Each category may have one or two chimp competitors and a few monkeys fighting over scraps. But there is no mistaking who the gorilla is and who near 100% of the profits.

Adopt a Scaleup Playbook ASAP

Product-Market-Fit proves market potential to your competitors as well as your investors. Without focusing all resources on sustainable market leadership, you will soon turn into an also-ran.

In other words, as soon as you reach Product-Market-Fit, the game changes. Those startups that adopt the scaleup playbook can aspire to become the gorilla. Those that stick with the startup playbook for too long will fail. Even after reaching Product-Market-Fit.

New Leadership Toolkit

The 7 Habits of High-Momentum Silicon Valley Startups

We are marking the start of May with a new toolkit for mid-stage tech startup leaders. “The 7 Habits of High Momentum Silicon Valley Startups”.

The toolkit is available for free from the Scale-up Ally website. It should be of interest if you are trying to move your mid-stage startup to higher momentum.

Inspired by the 7 Habits of Highly Effective People

As a young manager in the 1990s, I felt much inspired by The 7 Habits of Highly Effective People(by Stephen Covey). Now I work with mid-stage startups. I keep seeing seven factors that explain the gap between low-momentum and high-momentum. Thus the play on Stephen Covey’s title. The habits are:

  1. Critical Self-Diagnosis
  2. Crystal-Clear Accountability
  3. Consistent Care for A-Players
  4. Cross-Functional Priorities
  5. Commitment to Real Choices
  6. Concentrated Communication
  7. Coached Team Workshops

Seven one-page tools for startup founders

The toolkit contains a one-page tool to help solve and internalize each of these habits. The tools are a selection of Gazelles International and Scale-up Ally tools:

  1. Rockefeller Habits™ Checklist
  2. Functional Accountability Chart
  3. Current Talent Assessment
  4. Cash Acceleration Strategies
  5. One-Page Strategic Plan™
  6. Strategy Vision Summary™
  7. Sample Quarterly Agenda

Toolkit bonus content from Gazelles International

I have also added some Gazelles International bonus content

  • a sample One Page Strategic Plan for a software company
  • a chapter on how to organize a quarterly workshop

You can download the toolkit for free

With the toolkit, you will also get a set of seven daily emails that explain how to use each tool in more detail. And of course you can reply to each of these emails with specific questions. We answer every email in person.

September 18th in SF: Learn to Scale-up in a Day

Scale up like you mean it

On September 18th, I am co-hosting the Scaling Up Your Business Workshop in San Francisco with Bill Gallagher.

Comprehensive introduction to Scaling Up

The workshop will provide a deep-dive introduction to the Scaling Up methodology. Exercises will include a.o.:

  • Rockefeller Habits assessment
  • Functional Accountability
  • Cashflow optimization
  • Core values
  • Purpose & Promises
  • Strengths/Weaknesses/Trends
  • Quarterly/Annual Priorities
  • Themes
  • Metrics
  • Meeting Rhythms

Every participant will also receive a free copy of the Scaling Up book by Verne Harnish, for themselves or to share with a team member.

Looking forward to seeing you there!

We will add the registration button to this page as soon as it’s available.

The 6 levers for a successful strategy council

The 6 levers for a successful strategy council

1. Understand how strategy changes from startup to scale-up

Strategy should be a primary differentiating factor between a startup and a scale-up. In a startup we hardly distinguish strategy as separate from other activities. But in a scale-up, the strategy should be the key driver for growth.

Startup strategy is iterating on the founder vision until the team finds product-market-fit. Scale-up strategy is preparing for competitive battle. Being ready to win in the chosen arenas of war.

Strategy Startup Scale-up
Type Vision Battle preparation
Desired outcome Product-market-fit Product-market-dominance
Essential elements Product, Market Core competences, core purpose, core customer, brand promise, BHAG
Changes Can pivot any time Quarterly iteration
Link with execution Indistinguishable Input to quarterly priority-setting
Debating forum Brain of the founder “Strategic Thinking Council”
Source of truth Founder thoughts and feedback One-Page-Strategic-Plan

2. Separate strategic thinking from execution planning

When a venture moves from the startup phase to the scale-up phase, it is vital to give strategy its own place:

  1. Document the source of truth into a One-Page-Strategic-Plan
  2. Separate strategic thinking activities from execution planning activities
  3. Commit to the strategy for at least one quarter at a time, so that you can set stable execution priorities.
  4. Start debating strategy with the founder in a “Strategic Thinking Council”

3. Set up a separate Strategy Council

Jim Collins (Good to Great) recommends setting up a “Council” for strategic thinking. This has to be a separate team from the executive team, with a separate meeting. Though some executives should be members of both.

The Executive team contains the 7–9 top leaders of major functions and business units. They represent all major cross-functional resources that must deliver on quarterly priorities. The Executive team has collective decision authority.

The Strategic Thinking Council contains 4–6 executives. They are comfortable debating long-term strategic choices. The Strategic Thinking Council has no direct decision authority. It advises the CEO and the Executive Team. They share both the consensus positions they reach and major differences of perspective.

4. Reflect strategic urgency in the right meeting rhythm

The Strategic Thinking Council should meet more often if it is urgent to update the strategy.

I detect this urgency for clients with the Gazelles double strategy question:

“Can you state your firm’s strategy in simple terms? And is it leading to sustainable growth?”

If the team scores less than 6/10 on sustainable growth, I recommend to start weekly or biweekly meetings. Companies already enjoying sustainable growth can get by with a monthly rhythm.

5. Limit the agenda for each meeting to one pre-defined question

I recommend my clients focus every meeting on one deep dive. Beginning Councils should start with one question of Jim Collins’ hedgehog concept:

  • What are you passionate about (Core Purpose)
  • What can you be the best in the world at (Brand Promise)
  • What drives your economic engine (Profit per X)

Every meeting should show much progress on the discussion on one of these. For a next meeting, the Council can then choose to deepen the same answer even further or to tackle one of the two other questions.

Scale-up Ally clients can download a convenient bundle of the three relevant one-page tools here:

6. Be patient, a breakthrough is imminent

This cycle may go on for weeks, months or even more than a year. As Collins states, teams are done “when they just know it”. This is the moment when all three answers intersect. When the team feels with 100% certainty that this central position is the “sweet spot” for the organization’s strategy.

If the team hasn’t quite reached that point yet, it is important to remember that the open discussion is of value itself. Often, it will be in the course of “normal” work outside of the Council that the ultimate answer becomes clear.

How best to run your Daily Huddles

How best to run your Daily Huddles

Dear Roland,

I recently got hired as the second in command at a well-known scale-up. I have twelve people working under me. The founder/CEO wants me to show that I can make my whole team work together better. I’ve heard about daily huddles—could be the way to go for us? Do you have any tips on how to make the most of them?

Kind Regards,
DynaWoman
Redwood Shores

Dear Dynawoman!

First of all, congrats on your new position! Coming in as a new leader is the best time for both you and your team to try out new ways of working. Your key priority is to improve cooperation. Do you feel the twelve people in your team trust each other enough for that?

Meetings are awesome in potential—but so often terrible in reality. Meetings without anyone knowing why they are there or what outcome you expect, are a huuuge waist of time.

This is why we teach our scale-up clients to set up strict routines for meetings. We advocate daily huddles, weekly team meetings, monthly deep-dives and quarterly offsites. Each of these comes with their own purpose, timing, recommended agenda and output. When everyone knows what each type of meeting is for and how they can contribute, meetings run much smoother.

Especially if you need to build some mutual trust, your intuition is 100% correct. Daily huddles are an excellent practice to get everyone on the same page. Meeting every day clears up your email, your chat channels and especially all the 1-1s you hold. With only 15 minutes a day, everyone stays connected, invested and informed.

To make daily huddles most effective, hold them at the exact same time each day. Make sure they last max. 15 minutes and stay on point. Ask everyone:

  1. What’s on their mind (not only work-wise)
  2. Where they are stuck and/or could use help
  3. What is the one thing they want to doefore the next huddle.

Plan individual talk time to fit into roughly 12 minutes (leaving 25% slack). See the equation. E.g. with seven participants, each person gets roughly 35 seconds to answer each question. Assign someone else than the leader to time people and cut speakers off. This will boost the energy level and the flow.

For those meeting face to face, try standing up. That will give you a more energetic meeting and it is easier for everyone to keep it shorter. For those working remotely, the added overhead of a video conference is not necessary. I recommend an audio-only conference line such as Uberconference, which can also dial out to everyone at the exact time the huddle starts. Very useful!

Finally, have your team commit to daily huddles for at least three months. During that time, steer emails, chats and 1-1 requests back to the daily huddle. Daily huddles are a habit that needs to form, like muscle memory. Do not give people’s initial skepticism an opportunity to derail daily huddles prematurely!

Roland

Find more sales time among internal demands

Find more sales time among internal demands

_Hello Roland,

Lately, networking has become my biggest challenge. I am overwhelmed and soaked up from the pressures of keeping my business scaling up. In the past I have met many amazing clients and partners but I can’t seem to maintain contact with them. I work with an amazing team; they do their best and work their heads off. But they still need me daily to reach our targets. How do I find the time to expand my network and business?

Under Pressure Berkeley, CA_

Dear Under Pressure,

You are not alone in feeling pulled in all directions. First, great that you realize the importance of business development for your company. I see too many founders trying to stop growth while fixing internal problems. That is rarely a course of action I would recommend.

When you feel pulled in all directions

Second, I would think of this as a delegation choice. To keep it simple: a choice between business development and operations. What do you want to delegate first? You could hire a head of sales/CRO or a head of operations/COO. Either would ease your burden and let the company be better at both functions.

Third, over time, as a scale-up leader you delegate every function of the business to someone else. How good have you been at that so far? You say your amazing team still needs you daily. Have you delegated in the form of

  • assignments–individual tasks that need your constant supervision and approval?
  • areas of responsibility–overarching functional metrics that remain open in the what and how?

The Functional Accountability Chart is a great Gazelles tool. It can help you and your team assign true areas of accountability. I use it in all my client workshops, before we even start on the One-Page Strategic Plan. In your next workshop, reserve 1-2 hours to complete this exercise:

  1. It lists actual business accountabilities typical for every Scale-Up. This helps to see beyond arbitrary titles that people on your team may have acquired.
  2. Have every individual fill out the responsibilities as they see them. Most teams show much inconsistency, explaining the constant back-and-forth in day-to-day problem-solving.
  3. Discuss to reach consensus on which name should be in which box. Avoid the same person in several boxes–and identify the names that did not make the list.
  4. Once you have consensus on the who/what, move to the how. I like to start with a lagging metric for each function. Ideally one from the P&L statement or the balance sheet. Let people fill out their individual opinions again before you discuss in group.

Finally, is it better to let go of business development or operations first? My trick answer is: try both at the same time. With your new accountability chart in hand, find a delegate for every aspect that is not “head of company”. Assign to someone below the management team if you don’t have the right person within. Delegate a large enough area of accountability to them, and see what they have in them. You may surprise yourself and the team and save a costly external hire.

Relieve the Pressure!
Roland

Why not run a scale-up like a startup?

Dear Roland,

I run a startup of ~50 people. Using Lean Startup, we hit on a great product when we were eight. Now we’re on track to make $10M in revenue in less than two years! My problem is that the people I hire tell me it’s time to grow up and adopt traditional enterprise ways. But I didn’t found a startup to turn it into a boring corporation. Why can’t I stick with the recipes that have made this startup so successful?

Pivoter Santa Clara, CA


Dear Pivoter,

The answer is that your company is neither a startup nor a boring corporation. It’s in its own category: a scale-up. Scale-up companies are a different breed from both startups and established enterprises. The needs of a scale-up, too, are different from those of a startup or an enterprise. You realize that you cannot run a startup like an established enterprise. But your company is not a startup anymore. And you also cannot keep running a scale-up like a startup.

Scale-ups are a distinct company type.

Between product-market fit and product-market dominance

A startup stops being a startup when it has found product-market fit. An established enterprise only becomes established with product-market dominance. So a scale-up is the organization that turns product-market fit into product-market dominance. Once the startup reaches product-market fit, it becomes a scale-up. Once the scale-up reaches product-market dominance, it becomes an established enterprise.

Not just a compromise or a transition

The transition from startup to enterprise has merited little attention. I think the scale-up phase is more than a mere transition.

A scale-up solves specific challenges that neither a startup nor an established enterprise faces. Its sole mission is product-market dominance: capturing the market before the competition does.

Scaling is more than turning a startup into an enterprise. It is about focusing all resources on product-market dominance. Not on finding new product-market fit, as a startup would do. Nor on minimizing risk, as an established enterprise would do.

Companies that fail to recognize this scale-up phase are in for hard internal fights. Startup people and enterprise people will have opposed views on what is right. And neither ensures resources focus on your company’s real external market challenge.

Are you managing the venture like a scale-up?

First, in your own scale-up, how many of your habits remain from the startup phase? How many are inappropriate for successful scaling? Are you…

  • still pivoting or doubling down?
  • still serving Kool Aid or injecting truth serum?
  • still optimizing future projections or current cashflows?
  • still taking most decisions or relying on your team to do that?

Second, which enterprise habits have crept into your culture? Even if they are not appropriate yet for the scaling phase? Are you…

  • hedging between business lines or focusing on one?
  • adopting safe corporate speak or establishing clarity?
  • running corporate budgeting cycles or debating simple numbers?
  • sliding into mediocrity or weeding out C-players?

As these examples show, scaling up with success requires different behaviors. Habits that are both different from the startup phase and from the enterprise phase. Recognize when startup habits are no longer applicable. And adopt the true scale-up habits that will continue your success.

Roland

Will I launch faster with a broader target market?

I’m a new entrepreneur and we’re about to launch our product in a few months. We’re planning our marketing roll-out, but don’t seem to be getting anywhere. We’re stuck fighting about segmentation and who to target the product at. Our product will benefit so many people, we should sell it to a broad market. But my marketing guy thinks that we should pick a few main segments and focus our efforts there. Coca-Cola does it—why can’t we?

Merv–Santa Clara


Hi Merv,

I can tell this is your first product launch—and you want make a big impact in the market. Visiting this site, it seems you want to be a scale-up before you’ve even got a successful startup… Don’t confuse the two!

Gradually broadening your market.

Your conflict with your marketing guy may be related to this confusion. I sense your frustration… does he not share your great vision? I’ll come right out with it: I agree with your marketing guy. In fact, I think he’s not radical enough: at this startup stage you should focus your resources not on a few segments _but on _one segment only.

I bet that your marketing rescources are minuscule compared to Coca-Cola’s. But more important: your marketing strategy has a different goal. You’re not a giant corporation like Coca-Cola, defending your turf from every attacker. You’re a startup looking to make a dent in someone else’s marketplace. And how are you most likely to make a dent? By hammering the same place over and over again—or by spreading your blows around?

Even Facebook, dominant in mass markets today, started out with a very narrow target market: Harvard College students. Only once they dominated there, did they gradually expand to Columbia, Stanford and Yale, then other colleges and schools, then the mass market. How much momentum do you think they would have had if they had scattered all their viral marketing to nobody in particular?

Tim Ferriss nailed it when he offered startups this advice:

  1. Own your category—you need to be number one—even if in very small pond. If you can’t dominate an existing category, find a subcategory that you can dominate. Or create a new one.
  2. Don’t try to make a product for “everyone” – Ferriss talks right to you here, Merv. You don’t want to “please” your customers, you want to impress. And that means making choices.
  3. Forget branding. Deliver great value to your chosen customers. And the brand will build itself.

Good luck!
Roland

Why are so many things at my scale-up slipping through the cracks?

Dear Roland, the more my scale-up grows, the more things start to slip through the cracks. My team picks up all issues I forward to them, but then drops them again soon after. And just now, we failed to join a key partnership in our industry, because the email got lost in my mailbox. People ask for more process but I’d hate to turn my startup into a bureaucracy… What can I do?

Swamped—Redwood Shores

Dear Swamped, I can tell you are worrying. Your company is growing fast in size but it is still learning how to grow in robustness. I see this a lot. Founders raise a big series B. Investors put pressure to hire faster. Many people flow in. But the habits and informal processes remain unchanged from the startup days.

I'm really swamped with things I shouldn't be spending time on right now.

From what you ask me, it looks like you as CEO are still expected to take every decision? Is your team waiting for you to tell them what to focus on? Are they optimizing their ability to jump on whatever you ask of them?

A good scale-up grows its decision-making capacity in line with hiring. That means trying to take as many decisions as possible at the front line. That means assigning areas of responsibility. So that your team can set their own priorities and needs less day-to-day direction from you. In an ideal world, every issue in your company is the responsibility of somebody else (than you).

How can you kickstart this change? I recommend that you and your team create consensus on functional accountabilities. Confirm that everyone identifies with your core values and core purpose. Set a few joint priorities for the quarter. And ensure you have a key performance metric for the organization at large.

Afterwards,  train yourself to forward any issue coming to you to the person responsible. Then trust them to deliver on their job, and take action only if they fail to fulfill it well. That way you won’t miss partnership opportunities or sales leads. Fewer things will fall through the cracks. And your email volume will become more manageable before you know it.

All executives are leaving my scale-up. How can I stop the bleeding?

All executives are leaving my scale-up. How can I stop the bleeding?

Q: Dear Roland, all leaders are resigning from our scale-up, one after the other. I don’t understand why. Our scale-up has been in business for some five years. We are the leader in–even the Uber of–our market. We have recently turned profitable and we have runway of at least another year. So why leave exactly when we’ve turned a corner?

We have tens of great juniors working for us. But with regards to leaders, only us two founders are still holding on. All our other CXOs and VPs seem to be leaving us for sudden “better offers”.

Peeved–San Francisco

A: Dear Peeved, it sounds like your scale-up has fundamentals to be proud of, well done! Market leadership, profitability, lots of runway, … What is not to love?

What I did not find in your message, Peeved, is how your executives’ felt about their departure. Did you ask them why they wanted to leave, and were you open to hearing an honest answer? Did they express any doubts about the company fundamentals? Did they still share the same purpose for the company? Did you discover any disagreement on how you work together?

Without having spoken to you, I would venture to guess that your scale-up has a giant elephant in the room. An elephant nobody dares mention to you founders—or that you have continued to ignore. Your most urgent job now is to find that elephant before it kills your workers.

To stop the bleeding, might I suggest you do an uncomfortably open workshop? Get both founders and your top 15-30 remaining employees in a room for a day. Reassert your core values and realign around your core purpose. Ask if financial projects are realistic. And debate openly why so many executives are leaving.

With the right workshop and the right facilitator, I guarantee:

  1. You will build more trust in a day than the departures have lost you in a year.
  2. You will identify employees that can serve as (temporary) managers.
  3. You will align the entire workforce around 3-5 core priorities, recreating the momentum you need.