Smart Scaling - Presentation to Lean Startup Circle Montreal Nov 14 2017

Scaling SmartA Strategy Framework for Modeling, Managing

and Monetizing the Scaling of Bootstrapped High-Performance Ventures

Davender GuptaThe Scaleup Projectdavender@davender.com514-448-1894

Who am I?

Involved in technology since 1979

BEng Engineering Physics and MS in Digital Imaging

Part of a fast growth startup 1997-2000

Professional business coach since 2000 in Calgary, Toronto, Quebec, Montreal

Launched FastTrac Québec pre-accelerator program

Coached and mentored 100s of startups at idea and early-stage

Currently completing Executive MBA McGill-HEC Montréal

Scaling is important…

A high-performance startuphas no value unless it gets out of development mode and engages with the market

But is hockeystickgrowth the only

strategy?

Failure To Launch?

Ideal VC-backed Scaleup(Hockeystick)

Failed Scaleup(Valley of Death)

Success Metric(Valuation,Revenues orTraffic)

The problem with hockeystick scaling

« Unicorn Dreams »

• Distracted by Traction

Premature Scaling

• Insufficient evidence of PSF and PMF

Unworkable Business Model

• No path to profitability

Ability to execute lags demand

• Quality and customer service fails

Strategy is a pattern of choices

Exit Strategy

• Build to Sell

• Build to Grow

Value Chain Strategy

• Collaboration vs Competition

• Created Shared Value (Sustainability)

Innovation Strategy

• Product vs Value

• Sustaining vs Disruptive

• STARTUP is “an organization formed to search for a repeatable and scalable business model”

• SCALEUP is “a transitionalorganization with the objective to develop the ability to execute and the credibility to attract customers who recognize the value of the offer and who are ready to buy”.

• Exploring a viable business model

STARTUP

• Developing credibility and the ability to execute

SCALEUP

• Executing and evolving the business model

BUSINESS

Scaling Smart is maximizing execution while managing uncertainty

Strategic Objectives

• How your choices align with vision, mission, values

Suitable

• How your choices fit success and risk criteria

Acceptable

• How your choices can be executed with available resources

Feasible

• How you co-create choices through interaction with stakeholders

Effectual

Causal vs Effectual Logic

• Causal = Assumes the future is knowable and known

• Effectual = Assumes the future is unknowable and unknown

Search for the meansto achieve a stated goal

Start with the meansat hand to design the

outcome

Principles of Effectuation

What can you do with what you have, what you know and who you are

Focus on how to minimize possible losses

Collaborate with partners who provide pre-commitment

Surprises are opportunities to explore new possibilities

The future cannot be predicted but can control some determining factors

Source: www.effectuation.org

Impact of Effectual Approach to Scaling

•Delay seeking investors to fund initial go-to-market because the need to generate ROI locks into a causal mindset

•First find customers who are willing to collaborate in pre-production prototype development through investment

•Establish rapid build-measure-learn loops

Momentum Scaling

Ideal VC-backed Startup (Hockeystick)

Momentum Scaling (Waves)

Failed VC-backed Startup (Valley of Death)

Success Metric(Valuation,Revenues orTraffic)

Momentum Scaling

•Establish market influence

•Establish market credibility

•Establish ability to execute

The Startup Lifecycle Model

The five components of a wave

• Preparation• Ensuring the startup is ready to scale, identifying the initial “beachhead” market;

• Beachhead• Entering the initial market, making first sales beyond “friends”, booking one or

several reference clients which give the startup legitimacy with early mainstream customers;

• Surge• Using the reference clients as leverage to increase market share quickly;

• Consolidation• Focusing on execution efficiencies to make the venture revenue positive, establish

the venture as a price or feature influencer in the market; and

• Maturity• Stabilizing the organization and the market share and preparing for the next scaleup

Key Questions

Scaling the ability to EXECUTE •Generating Growth•Managing Growth•Directing Growth

Execution Leads Traction• Take on only the customers you can serve

Strategic Dimensions

Phase > Preparation Beachhead Surge Consolidation Maturity

Strategic Dimension

Market

How do I build credibility?

Who are early adopters to test

feature MVPs?

Who are reference clients who can

generate use cases and build

credibility?

Who are pragmatists which can

be referred to us by reference

clients to help gain revenues and

credibility?

Is our credibility strong enough

that we are attracting new

customers on our own?

Which adjacent serviceable

markets should we target next?

Product

How do I create 10x value?

What are focused, disposable

MVPs to test PJF?

What is a pre-production prototype to

test in real-life use case to demonstrate

10x value?

What is the “mass customized”

feature set to optimize PMF?

What is the feature set to

optimize production efficiency

What features should I retain,

discard or add to efficiently serve

adjacent markets?

Business Model

How do I create a

sustainable and scalable

business model?

Validate potential Customer

Segments and Value Proposition

Validate Value Proposition and

Channels (PJF) and building

Partnerships

Validating Customer

Relationships (Crediblity)

Optimizing Revenue Streams vs

Cost Structure

Expanding Value Proposition to

new Customer Segments

Cashflow

How do I build revenue

streams and reserves to

fund growth

Self-funding (FFF). Avoid using

equity

Raise product and marketing capital

through partnerships with Reference

Clients

Watch that CAC < LTV (always)

Minimize burn rate

Quality (profitable) clients are

more important than quantity

Improve marginal marketing cost

and operating margins

Consider whether to self-fund

next scaleup wave or go for

equity or debt

Systems

How do I measure and

manage growth

Ad-hoc, disposable “Do Things That Don’t Scale” to

understand workflow

Systems emerge from workflow

as efficiency needs dictate

Formalize those systems which

add value

Capacity expansion to prepare

for next scaling wave

How do I evolve the ability

of the team to execute

Ad-hoc

Passion-driven

Focus on developing collaboration as

team starts transition from

Development to Deployment

Be aware of emergent shared

values and group story

Establish Mission-Vision-

Permission based on emergent

values and story

Formalize Mission-Vision-

Permission

Leadership

How do I develop the

ability to quickly make

decisions

Founder needs to step back

from product development to

build business

Founder is “Salesperson” #1

Start to build leadership team (3H)

Fill out leadership team (6H)

Delegate decision making but

share responsibility

Formalized leadership team,

If necessary, consider

transitioning to new business

management if founder is not at

the appropriate spot

Entrepreneurship

How do I continuously

learn and innovate

Establish Innovation Accounting

systems (build-measure-learn)

Structure test cases as

Positioning

How do I integrate into

existing value creation

ecosystem

Establish Value Creation and

Value Capture hypothesis

Identify and Validate Value Chain

Partners

Bring credibility for Value

Creation through execution

Take leadership role in Value

Reconsider position in Value

Chain and ecosystem, evaluate

switchback

•To build a sustainable, long term business with the ability to become a gazelle

•Founder Team stays in control

•Keep options open

•Choose the best customers

•Better adapted to the Canadian (outside SV) context

Benefits of Momentum Scaling

•Effectuation is the mindset foundation of Lean

• Importance of testing to find PJFProduct + "Jobs-To-Be-Done" Fit

•Managing Uncertainty through Build-Measure-Learn and Innovation Accounting

Tie-ins to Lean

“Move Fast and Break Things” or

Move Smart and Build Things

• Ability to execute must lead Customer Traction i.e. Only take on clients within your current capability

• Grow Revenues before valuation

• Managing uncertainty is more important than taking risk especially in initial go-to-market when you're under-resourced

It’s your choice

• B2B • XaaS, Platforms, Workflow improvements, Big Data/AI, Industry 4.0

• Manageable technical risk• Sustaining innovation

• Mature founder• Some domain experience, 35+

• Doesn’t fit the VC pattern• Outside the VC footprint

• Not into “unicorn dreams”

Who we’d like to meet

Be patient for growth and impatient for cash flow.

- Clayton Christensen author of “The Innovator’s Dilemma”

Contact me!

Davender GuptaVenture Strategist and Co-FounderThe Scaleup Project

davender.comfacebook.com/coachdavenderlinkedin.com/in/coachdavenderdavender@davender.com

Smart Scaling - Presentation to Lean Startup Circle Montreal Nov 14 2017

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