Anatomy of a scalable startup
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I’ve been thinking hard over the last few weeks about what makes a scalable company. This was spurred by several things: revisiting our business plan, meetings with entrepreneurs (#LDN2BRS), and a visit to our nearly-neighbours; Brightpearl.
In fact, the easiest way to look at this is from the perspective of an investor. This is what I came up with:
It’s aspirin, not chocolate cake
The purpose of the company must be to solve a genuine pain, rather than deliver something that is just nice-to-have.
The addressable market has sufficient scale
The product must solve a problem that a significant number of people have. Fiscally, what is the size of the market? What share of that market can a new entrant acquire?
It gets in the way of money
Just as a wind turbine extracts a small amount of movement from the huge movement of wind, a company can extract small amounts of money from a huge number of transactions. The ultimate situation is enabling something that wasn’t possible before i.e. you control a bottle neck.
ARPU vs. COA
In order to scale, the Average Revenue Per User (or customer) is lower than the Cost of Acquisition. This principle is obvious, and it’s possible to estimate these numbers early on. Not doing so is foolish.
The team has the ability to execute
There is a myth that a great idea makes a great startup. In reality though, the success of a company is entirely to do with its ability to execute on its plan.
Competition
Is there any competition? If not, why not? If so, what from the customer’s point of view makes your company superior to the alternatives? What is it about your company that allows you to operate in a different or better way to your competitors?
