By John Downes, Co-Founder of Capita Scaling Partner
The term ‘flatlining’ brings worry to those in a medical setting, but it should have just the same effect in the start-up world too. It’s disastrous to flatline at a time when you should be experiencing a crazy amount of growth.
In my experience as co-founder of Capita Scaling Partner, it has been my mission to save tech start-ups from flatlining and put them on a path of extreme growth – adding business sense to tech innovations.
It has required objectivity, focus, and belligerent levels of tenacity. In short, I’ve learned a few lessons on the way. In this article, I’ll share those lessons and hopefully give helpful insight on how to keep your company off the operating table.
Objective diagnosis
The very first step is to diagnose why your company isn’t growing, and critically, to do this objectively! My role is often to help management teams breathe, step out of the detail, look at the big picture, and support them to impartially analyze whether we need to change something.
If sales are flatlining, then I find the best way to diagnose the root cause of the issue is to compare your business to your most successful competitors. I use the ‘Four Ps’ to help me to focus (Product, Price, Place, Promotion). It will often quickly highlight key areas to explore in more detail.
It’s worth considering real-world examples to see how this works in action.
Place example
One of our portfolio companies was targeting large enterprise clients who were generally B2C. They just weren’t getting the traction with these prospects; there was interest, but sales weren’t converting very quickly. By assessing their most similar competitors, talking to their most sticky customers, and identifying the quickest to convert prospects, we quickly realized that we needed to focus on targeting the B2B business services sector. We implemented a minor course correction to target this sector, and this successfully delivered 12x revenue growth for this portfolio company in under 18 months. This highlights how just adjusting the ‘place’ you are looking for business can have a massive impact on your fortunes!
Product example
One of our FinTechs operates in a very exciting new market, where we were seeing large swathes of VC capital being channeled. All their newly funded competitors had an SME/ME client base and were desperate to win valuable enterprise clients. Before we partnered with this particular portfolio company, we asked them to pitch to our internal buyers and then asked them for their feedback. In summary, there was zero product differentiation in the market, price points were almost identical, the pitch was the same, and they all were targeting the same buyers in the same companies. To stand out, they needed to invest in their product and differentiate themselves. We created a roadmap to build out the core features and improve the product/market fit for enterprise clients. This approach launched this particular FinTech as a market leader overnight, with a far more compelling product for enterprise clients.
Promotion example
Sometimes, portfolio companies’ products can have multiple use cases. While this means great value can be delivered for clients, it can be confusing for prospects. This was particularly true for one of the smartest AI-driven HRTechs. By studying a very crowded competitive market, we helped them to narrow down the use case that was most relevant for each sector, and really focus on that in their promotions. The other use cases came into play later, but they only “promoted” this actively when clients were signed up for the most valuable application for their business. As a result, this portfolio company has delivered 5x revenue growth in just over six months.
Pricing example
One of our very early-stage businesses in our portfolio had, by far, the highest quality product in the market. It integrated seamlessly and the UX was miles ahead, but they lacked evidence on what this superior quality actually meant for client value. Ultimately, they had to bring their price down, but targeted premium customers who weren’t buying (or had churned from) competitor products because the quality wasn’t there. This meant they were more easily able to charge a premium price derived more by the client business case as opposed to competitive price matching. You can see in this example price wasn’t the only factor; place and promotion were also variables that needed to be adjusted before we had a winning formula.
Summary
It’s clear you need to focus on the fundamentals of how to scale a business. Winning and keeping customers is not easy, but you need to drive a culture of objective self-reflection. Too often start-ups are whisked away in the belief that they’re better than the rest without irrefutable evidence.
Once you have this evidence, you still need a clear picture as to why so you can keep it up! My key takeaway from managing the start-ups in our portfolio is that flatlining can be avoided by always keeping one step ahead of competitors, no matter how marginal.
