It’s pretty cool to be a startup these days. We see headlines every day about massive success stories like Uber, Snapchat, Facebook and other big companies that started small, had explosive growth and changed the world.
We don’t hear about the other 95% of startups that stopped growing, the funded companies that never took off or the apps that didn’t go viral. Starting up can be fun and exhilarating. Getting seriously stuck on the growth journey is a very different story.
The brutal reality is most ambitious young companies get stuck on their way to growing up and never achieve their big dreams. When I say “stuck,” I’m not talking about overcoming the normal difficult obstacles that all growing companies face.
Getting stuck on the way from startup to growth company
Startup founders play whack-a-mole every day to handle new challenges that arise. They solve most of these by working harder, fixing product holes, finding funding, adjusting business models, improving their sales and marketing execution, reorganizing teams or adding staff. This never stops.
Most young startups plateau at about $500K to $2 million in revenue. This time, the old quick fixes don’t work: adding staff, changing systems, selling harder and marketing more aggressively don’t yield more revenue. Product fixes don’t stop customers from leaving.
Being stuck can feel very scary and confusing. It tests everyone’s optimism. Will our big dreams be realized?
I have had hundreds of deep conversations with capable entrepreneurs about their growth challenges. It’s not just the “weaker players” or first timer entrepreneurs who are getting stuck. I’m talking about the smartest people I know solving real problems with great teams, sufficient funding, solid products and 80-hour work weeks. Experienced second and third time entrepreneurs also are hitting the wall in this phase.
Nobody said it was going to be easy, but something else is going on here.
The marketing problem – not enough “signal strength” to grow
Once a company is under way and handling the normal challenges, the biggest reason their growth journey gets stuck invariably becomes, “We just need more customers so we can grow revenues faster.”
- “I’m adding more salespeople, but I don’t have enough leads.”
- “We just need more traffic but we can’t spend enough to keep up.”
- “We’re getting traffic, but our conversions have slowed.”
We’re now back to the top of the funnel to feed enough leads to our salespeople or enough traffic to our online stores. Where is the next group of interested buyers?
At some point, you can’t double revenues by doubling your staff or working twice as hard. At some point, you can’t just improve the quality of your product enough to make people buy faster or stay longer.
At some point, almost all growing companies run into the bigger marketing problem — creating enough “signal strength” to reach and attract enough ready buyers to feed the next level of growth.
Signal strength is the level that target customers respond with enough positive intensity to take action — to think about you, visit your site, take a call from a salesperson, click your buy button, use your software daily and tell other people about you. The signal has to create enough energy to break through with awareness, engagement, purchase, use and referral.
Signal strength is an outside in measure. What would happen if you stopped pushing people to buy and just let them come to you? Is it strong enough that they would line up and wait for you?
Signal strength always weakens as you expand beyond your first position of strength. A standard light bulb is bright enough to read by when you are next to it, but it’s not bright enough to light up a big, dark room so 100 people can read.
Here are some typical signs of low signal strength when you expand:
- The CEO can close sales at high rate. Your savvy salespeople now struggle to close deals at half that rate.
- You had a great response in your home town. When you went national, every deal takes twice as long to close.
- Your beta customers (friends of the company) raved about your product. After the launch, the customer enthusiasm went away. (Pied Piper experienced this on HBO’s Silicon Valley this month.)
- Your two-hour face-to-face demo closes sales. Your website and 2-minute video are creating just a few warm leads.
- Your founders can explain the product vision and get applause. Your employees, customers and partners have difficulty describing what you do and why it’s important.
What happened? Almost every growing company has underestimated the increase in signal strength required when they expand to the next level.
There’s an almost universal illusion here that what used to work in the early days is going to work when you start to grow and scale. When startups with talented people are pushing extremely hard and executing well but the company isn’t growing, it’s a signal strength issue, not an effort issue.
The good news is the solution to low signal strength is completely in the hands of founders. They have far more leverage than they know.
Multiply signal strength with focus
The lever to dramatically increase signal strength to drive growth is focus. You can always increase your signal strength by narrowing your focus.
If your signal strength is getting weaker no matter how how hard you try, the world is simply telling you “I’m looking for the best at X. You look like you do some X and Y and a little Z. I’m just looking for the best at X for me!”
You are trying to be “many things to many people,” and your signal isn’t going very far.
- Narrow your target market. Signal strength goes up.
- Stop trying to be two things. Focus on one big idea and not five so people can hear it.
- Dominate one region or channel before you add another.
Show me a big successful company that is now many things to many people and I’ll show you a company that had laser focus when they first grew up from startup. Almost all did just one thing for one narrow market delivered by one channel.
- Amazon knew they could sell just about any physical product when they started, but they decided to start with JUST BOOKs until they were a dominant, billion-dollar success story. Then they added DVDs and CDs. That wasn’t luck.
- Facebook was only for Harvard students at first. Once that caught on like wildfire, they expanded to Ivy League schools, then to all university students, then to high school students, then everyone. They didn’t start by serving “everyone,” but eventually their signal carried that far.
Big company success stories always had an early growth phase where they found their focus and put all their chips on it — to the exclusion of many other “opportunities.” It wasn’t luck, it’s just not obvious how they got there.
Focus is actually a simple idea. It’s a law of nature. It’s just very hard for founders to see it in the midst of the firefight called “startup survival” or “making payroll.”
The problem is that lack of focus — enough signal strength to expand in the market — will be the biggest the trap that will stall your growth.
Focus to grow.
