This is a question I get most often from mid-stage CEOs. People that have run their company for four or five years, maybe they've raised two or three rounds. The team has grown a lot bigger than it once was. But somehow the momentum seems to be failing. The team doesn't seem to be going the extra mile that much anymore. People start going home earlier. You have to keep pushing for KPIs, OKRs, whatever performance system you use and people are not taking the responsibility by themselves. And just in general, there's a preponderance of small issues that people worry about that don't seem to be really affecting the big picture that you were going for.
If you are reading this, surely you are all familiar with Product-Market-Fit from Lean Startup, right? Hopefully, you're already close or maybe you've even reached product-market-fit! But do you also know what comes after?
The problem after reaching product-market-fit is that people think everything moving forward is all about growth. Everyone starts defining growth in different directions. Obviously, startups strive for growth in revenues. But does that mean multiple markets, multiple products, or just growth in people? How do you define your journey once you’ve reached product-market fit? In my book _Scaling Silicon Valley Style,_ I set a new horizon for turning that product-market fit into product-market dominance. Once you have a toehold in that new market and are starting to gain traction, how do you turn that into a market that you can lead and dominate? There are four distinct stages on the journey from product-market fit to becoming the leader and top dog in that market. Just keep in mind that you shouldn’t try to do everything at once. There is a well-defined order to the four steps that come after product-market fit.
The first phase is called the Freshman Stage. As a Freshman scaleup, your top priority is to master distribution. That means answering the question of how do I find a model to reach enough customers and convince them at a cost that is not out of the ballpark. In other words, can I convince customers to join me and pay for my products?
Of course, the total revenue that I can expect from them is going to be more than the marketing and sales costs I've spent acquiring them in the first place. It could even be two times, three times, or up to five times more than what was spent acquiring those customers.
The second phase, the Sophomore Stage, is a little bit less intuitive. The goal of the sophomore startup is what I call the Mastering Deepening challenge. This means that as you’ve mastered distribution, you expect your sales to start increasing. However, you actually see them slowing down or reaching a plateau.
When you reach this plateau, it means you have reached the limits of the initial visionary market, the early adopter market. Now you need to target the mainstream market. This requires deepening your understanding of your target market, honing in on specific verticals where you have a clear advantage. Check out Crossing the Chasm by Geoffrey Moore to learn more about this phase.
In the third phase, you have become a Junior scaleup. You can now start to see graduation on the horizon, but you aren’t quite there yet. In fact, this might be the most important phase yet. This is when you have to fully master disruption. How do you apply everything you’ve learned from the mass market and use it to conquer that mass market piece by piece?
Try thinking about it like a chess game. By that, I mean to make one move at a time. It's important during this phase that you not try and boil the ocean all at once. Rather, pick the pieces that are most attractive and that will not invite full-blown competition when you cannot afford it yet.
Finally, the fourth phase and final phase is the Senior Phase. By now, you have become a dominant figure and so the assignment for a Senior scaleup is to master defense. Many other companies have set a great example of how to grow big and then become defensive about the market they conquered. This is the way it should be, as there are always other startups striving to disrupt your market.
If you want to know where you are at with your startup, there is an easy tool that you can fill-out. It has checkboxes that tell you: "Am I still in the startup stage or am I a freshman, a sophomore, a junior, or even a senior scaleup?” When you figure out your current stage, you can then adopt the appropriate strategy.