Existence Proof to Scale–From Point to Line to Curve

How do you grow a software business? What does growth look like?

This is what growth looks like. It starts slow, almost linear, from zero, and then (we hope) accelerates. The horizontal axis is time. The vertical axis is, well, whatever you want, to start with (users, sign-ups, click-through rate, leads…), but always has to end up being revenue, profit, cash generated.

The Lean Startup world generally begins with considering a minimum viable product. I’d like to suggest that this starts even sooner (like our chart), with a point, a data point: some single case where a customer says yes and pays for something. At that moment you have a single data point of one customer who has paid some amount for one product. You started with a hypothesis that someone would buy your product, and someone did. That is an existence proof … a customer exists. Now you have to see whether you can repeat, perhaps with some adjustments along the way. Can you find another customer, and then another who buy from you and seem to be buying the same product for more or less the same reason. If so, you have shown some amount of repeatability. It might be an ugly process, where you have to spend huge amounts of time and effort finding the customers, improving the product, but you know you’ve arrived when each subsequent customer takes less time and effort than the one before. You are even more sure when someone you hired is able to follow your play-book and make a sale themselves. You have reached repeatability… you have drawn a line from your original starting point. Somewhere in the journey so far you have found your minimum viable product.

The next quest is for scalability. Scaling can be (often is) dangerous. You have to repeat at accelerating speeds. When you do this, if the expense of adding a new customer is higher than the revenue (or near term revenue) you earn (or cash you collect), then you lose money at a faster and faster pace. The journey from point (existence proof) to line (repeatability) is hard. The journey on to the knee in the curve (scalability) is hard and dangerous. If you succeed, you are able to add profitable growth by some predictable amount with every dollar of new investment in sales and marketing (see SaaS Magic Number, for example).

Finally you ride scalability to scale, become a large and successful company and file for a $5b IPO.

I framed this journey from Existence Proof to Scale as one about sales, but it is mirrored again in your operations and customer service. Once you sell your product you have to actually provide it, support it, maintain it, renew it, upgrade it. You have to go through the same process of finding an existence proof (phew, the first customer is up and running) to repeatability (we have to hold their hands each time, but the play-book seems to cover most cases) to scalability (hey, it’s all automated) to scale (we are supporting four gazillion customers around the globe, each costing pennies to deploy and support). Of course you have to embark on both these journeys in parallel, and profitability is about revenue covering the cost of both of these (and a few other things besides).

That’s not all. To even start on sales you had to get going on the same journey in software development (existence proof = proof of concept), minimum viable product (self-explanatory), repeatability (a process that allows for rapid implementation of new features and bug fixes), scalability (reliable product management, continuous deployment, scalable reliable operation) and then to scale (five 9’s reliability). The same goes for hiring: can you hire one good person and keep them? how about a few? how about keeping up with a scaling sales effort? how about maintaining a large global workforce and a healthy, vibrant corporate culture?

Each step on each path is worth its own blog post or its own book. Each journey is a book or a shelf of books. Each company growth curve chart is a complex history of hard, hard work, all to go from point, to line, to curve.

YouTube meme: S**t People Say

Satire isn’t always cruel, and mostly these videos are not. Satire does throw life into sharp relief, and these videos, a cross-section for my VC:VC theme certainly do. Some (most) are R-rated for language.

Sh*t Startup People Say from Venturebeat on Vimeo.

Yes, we do!

Very well worth the 61 seconds to watch to the end even if you are not a programmer.

Venn Diagrams of the World, Union!

After my posting What about Dweebs, which neatly shows a Venn Diagram taxonomy of Dweebs, Geeks, Dorks and Nerds, I let my obsessive side loose looking for other Venn Diagrams relevant to the various parts of my VC:VC world. In case you want to refer to it as I make wry comments later, I reproduce the picture here. It turns out there are a bunch of us obsessing about Venn Diagrams right now (some googling will confirm that).

 

As a Brit, I liked this one, explaining the whole “United Kingdom of Great Britain and Northern Ireland” thing. 

 

 

And now, to prove I am a nerd, and a British one at that, a Venn Diagram Pun:

The VC:VC construct itself is a Venn Diagram of some of my life interests … where my venture capital world, my cycling, and my community interests coincide (or overlap).

 

 

 

Here’s another Venn Diagram I first saw on the walls of Techstars Boston, originally posted by Bud Cadell on his blog under the title How to be Happy in Business. This is a non-trivial commentary on building and running a business (geeks and nerds in particular need no further prompting to study this closely). I found another variation on this theme on Flowing Data (which also links back to Bud’s graphic as well). Both make important points… but, if only business was so easy.  

  

 

 

Stan Nowak, Founder & CEO of Silverlink Communications, a Sigma portfolio company on whose board I sit, talks about the importance of seeking out markets with scale, urgency and willingness to pay. With a tip of the hat to Stan, here is it is as a Venn Diagram.

 

 

 

 

How about a diagram describing something technical… well, I previously shared my sketch of Dennis Devlin suggestion about information systems security, noting that a system is secure when it does exactly what it is supposed to do, and nothing more! (It strikes me this is a good definition of quality as well as security.) 

 

 

For fun, check out this interactive TwitterVenn website that uses a Venn Diagram to show overlap between terms you can find in the tweets over a the last day. You can use your own search terms … these are “chocolate, milk, hot”.

 

 

Over in the non-profit world, check out the questions Sasha Dichter asks with “The Simplest non-profit Venn Diagram ever”.

How much overlap do think there is between the circles?

 

 

And finally, my own comment on how too few charities and too many startups are in the wrong place…

Entrepreneurship–predefined

I quoted my friend Paul Gompers here and here in the past as saying that management is the optimization of resources and entrepreneurship is the optimization of opportunity.

Now I find what I assume is the original source of the quote from HBS professor Howard Stevenson:

Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.

This is a slightly purer form of the concept … not optimizing, but pursuing opportunity. I like it. Gompers’ juxtaposition of management and entrepreneurship is itself elegant and powerful, but more as a comparison than the Stevenson wording where entrepreneurship stands alone.

Hat tip to whoever pointed me at the Inc article where this was uncovered, apparently in a preview copy of the book Breakthrough Entrepreneurship by Jon Burgstone and Bill Murphy, Jr.