To Robin.
Amblers (who start and run businesses that employ friends and family),
Sprinters (who can turn a business idea into a company that grows fast and is bought by a larger firm), and
Marathoners (who turn an idea into a huge, fast-growing, publicly-traded company that supports the creation of local startups).
While there are a few marathoners with no prior startup experience, such as Amazon’s Jeff Bezos or Facebook’s Mark Zuckerberg, who reach this pinnacle, most sprinters and marathoners learn their leadership skills through a series of corporate and startup jobs that help them gain the skills they need to turn an idea into a large company. What’s more, within those categories there are finer gradations of leadership skills. More specifically, startups go through distinct stages in their growth from an idea into a large company, whether they are acquired or go public. The three kinds of business leaders relate differently to the four scaling stages. Amblers are not interested in scaling and are happy to sustain themselves at stage 1. The sprinter wants to get to stage 3 and then do other things, and the marathoner wants to participate in stages 1 to 4.
But regardless of how leaders define these stages, quite frequently, the founders of these startups cannot lead the company through each stage. In most cases, founders swallow their pride, realizing that they can either remain CEO and not raise the capital their company needs to survive, or they can give up the top job. Sometimes those founders leave the company when a new CEO joins and sometimes they stick around as chief technology officer and report to that new CEO. Often such deposed founders learn from the experience, either by role modeling from the new CEO or by consulting mentors about what they could have done more effectively, so they become better leaders. If that happens, they might become a CEO of another company where their newfound know-how can help them achieve a successful exit.
Simply put, scaling skills are important and they are in big demand among entrepreneurs, investors, and cities. As a teacher of entrepreneurship, I need good material on how to scale effectively to prepare students for the real world. As we’ll see later in this book, there is good material on parts of the scaling process, such as how a startup can win its first customers. However, there is no comprehensive framework that explains all the stages and tools available to leaders seeking to turn an idea into a large company. Creating such a framework is the goal of this book.
Who Will Benefit From This Book
Entrepreneurs . Founders want to turn their ideas into companies that change the world. They also want the economic benefits that come with owning a substantial piece of a very valuable company. Both goals can only be realized if the company’s CEO is capable of scaling it.
Employees . A startup’s employees are generally enthusiastic about its vision, want to learn from outstanding leaders and peers, and according to my interviews with Silicon Valley executives and investors, are increasingly impatient about cashing in on their stock options. These outcomes can only be achieved if the company scales.
Customers . A startup’s customers may have a mixed attitude towards scaling. If the startup can lower its costs and boost the value of its products for customers, then customers are likely to benefit from the startup’s effective scaling. Moreover, if the company grows to the point where it can go public, then the customer may benefit since the capital provided will increase the odds that the startup will survive. Scaling could have a downside for customers if it keeps the startup from developing new products and delivering excellent service.
Partners , particularly suppliers, may benefit as a startup scales. In general, the bigger the startup, the more supplies it will purchase. If the supplier can satisfy the growing demand and become more efficient in the process of scaling, then it may pass along some of the cost savings to the startup in the form of lower prices. On the other hand, if the supplier becomes too dependent on the startup for its revenues, the startup may use its bargaining power to force the supplier to slash prices.
Capital providers can only realize a return on their investment if a startup scales to the point where it is acquired or goes public. If the acquirer has a record of boosting the sales of acquired startups’ products, the investor may be better off accepting the acquirer’s stock. However, if the startup’s CEO has the potential to be a marathoner, capital providers will be better off if the startup can keep scaling after its IPO.
Universities can benefit from developing courses about startup scaling, particularly if they already sponsor incubators and startup competitions or teach entrepreneurship. If universities can provide scaling skills to more graduates, their alumni may achieve greater career success. This would burnish the university’s reputation and potentially enrich its endowment (if the successful entrepreneurs donate to the university).
Government policymakers may benefit if more of their local entrepreneurs became sprinters or marathoners, an outcome that would be more likely if local founder were better at scaling.
Scaling Research
Are there specific traits typical of CEOs who will become sprinters or marathoners?
How do such CEOs define the revenue tiers that their startup will reach as it scales? (My interviews with CEOs revealed that each CEO has different revenue tiers. Therefore, I reframed the question to focus on the principal business goals of each scaling stage.)
How should CEOs create and sustain a culture that helps their startup to scale?
What growth trajectories are most likely to turn an idea into a large company?
What are the best sources of capital for each of a scaling startup’s revenue tiers and how do the most effective CEOs persuade these capital providers to invest?
How do effective CEOs redefine jobs as their startups scale?
How do they decide whom to hire, promote, and let go at each revenue tier?
How do effective CEOs set goals as a startup scales and hold everyone accountable for achieving those goals?
How do CEOs change the way they coordinate processes as their startup scales?
How do CEOs decide whether they should continue to lead their company as it scales?
To investigate these questions and refine my scaling model, I interviewed 88 CEOs and 6 venture capital investors in Boston/Cambridge, Silicon Valley, Tel Aviv, and Munich. I sought founders and investors who could describe their experience with the seven startup scaling levers. For each lever, I looked for successful and unsuccessful case studies at each of the four scaling stages.
The Scaling Roadmap
This book presents the findings of this research in two sections.
Part I. Exploring the Scaling Model
Chapters 2 through 8 examine more deeply each of the seven startup scaling levers: creating growth trajectories (Chapter 2 ), raising capital (Chapter 3 ), sustaining culture (Chapter 4 ), redefining job functions (Chapter 5 ), hiring, promoting, and letting people go (Chapter 6 ), holding people accountable (Chapter 7 ), and coordinating processes (Chapter 8 ).
Definition of the startup scaling lever
Summary of the chapter’s key takeaways
Case studies of successful and less successful efforts to use the startup scaling lever at each of the four scaling stages
Lessons learned from the cases about what to do and what to avoid
Questions to spur action
Conclusion
Part II. Implications for Leaders
Presents the seven principles of scaling
Describes how founders can assess their company’s readiness to scale by calculating its scaling quotient
If you want to turn your idea into a $10 billion company, read on.
This book has benefited greatly from the help of many people.
I could not have embarked on this project without the enthusiastic support of Nan Langowitz, who chairs the Management Division at Babson. My Babson colleagues Alana Anderson, Renee Graham, Alexandra Nesbeda, and Sam Hariharhan provided helpful suggestions.
Without Apress this book would not exist. I am most grateful to Shivangi Ramachandran for her enthusiastic support of the idea for this book and for the outstanding editing and project management help from Laura Berendson and Rita Fernando Kim.
Finally, I could not have completed this book without the help of my wife, Robin, who patiently read and commented on many of the chapters and my children, Sarah and Adam, who always make me proud.
Contents
About the Author
is Lecturer of Strategy at Babson College. He teaches strategy and entrepreneurship to undergraduate and MBA students at Babson College. He is the founding principal of Peter S. Cohan & Associates, a management consulting and venture capital firm. He has completed over 150 growth strategy consulting projects for global technology companies and invested in seven startups—three of which were sold for over $2 billion. Peter has written 13 books and writes columns on entrepreneurship for Forbes, Inc, and The Worcester Telegram & Gazette . Prior to starting his firm, he worked as a case team leader for Harvard Business School professor Michael Porter’s consulting firm and taught at MIT, Stanford, and the University of Hong Kong. Peter earned an MBA from Wharton, did graduate work in computer science at MIT, and holds a BS in Electrical Engineering from Swarthmore College.