Be Prepared for the Startup J-Curve
When you’re starting out as a small-business owner, you don’t always know what to expect.Especially when it comes to your own growth.
There’s a common myth regarding the progress of start-ups, says , author of Love speaks and writes from experience: He's also a founder of both and .
The myth is fairly simple, as all the best stories are.It states that if you track your startup's progress on a graph, you'll end up with a diagonal line from the bottom-left corner to the uppermost right corner.
If you're lucky, you'll see a nice little hockey-stick shape. The myth doesn't stop there, though: Just build your your business around one really great idea, and you'll enjoy continued, linear growth until you decide to sell.
Unfortunately, that's rarely the case.
“In my experience, that hardly ever happens,” Love explains. As founder and cofounder of more than a dozen companies, he's spent a lot of time watching small businesses grow. Love has put his money where his mouth is, too, becoming an angel investor for more than 50 other businesses.
Love's book divides the typical startup's path into six phases, each with its own growth pattern. Here's a quick look.
You've come up with that great idea to disrupt your industry and make you millions of dollars. It’s a heady, exciting time — you’re giddy and optimistic, putting together the team and the money. You're starting to build your initial product. But chances are, you've already run into some issues. Maybe it was hard to recruit some of the people you needed. Maybe you hit a snag as you worked to secure permits or the whole thing is costing more money than you'd anticipated.
“It's taking more money, it's taking more time, and so forth," Love says. "So, emotionally and from a value perspective, you're dropping down.”
More bad news: You're not likely to make much headway in this stage. You've finally brought your product to market, but it took longer than you'd budgeted. The practical and psychological hurdles take their toll as you launch your product. And that sound you hear? A resounding thud as it lands.
“Almost always, the first iteration of the product does not work," Love says. "It just doesn’t resonate. And that’s just devastating and disappointing.” Which leads you directly to the next phase.
It's time to figure out what works and what doesn't. "There's always a glimmer of hope — something that somebody likes," Love says. "You move the product toward that, and you fade the things that are not working. You iterate so that by the end of it, you end up with a product that people love.” Once you find the right mix and begin attracting customers, you'll see the curve start to materialize and move upward.
You've worked out the kinks with the product itself. But how will you make money?
"The goal of this phase is to nail the business model,” Love advises. You must ensure eventual cash flow, drive down your costs and maximize revenue. Done correctly, this is the phase that truly propels your progress into that coveted upward trajectory.
“First you nail it, then you scale it,” Love says. “The Scale phase is when you really blow your product out. Focus on the three things you need here, which are people, process and money.”
This can be a tricky stage, psychologically speaking. You must step outside the small-business mindset if you want to take your company to the next level. Scaling demands major changes, but it also can be the most financially rewarding stage in the process.
This phase marks the crossover from startup to established business. The decision-making is far from over, but it's of a distinctly different variety.
“This is the phase where you have what I call 'puffball decisions' involving new acquisitions, stock buybacks, IPO, liquidity, events and all of these other wonderful things,” Love says. The value creation that began in the Scale phase happens in a big way during the Harvest stage.
As you can see, a startup's path isn’t as straightforward as the J-curve myth would have you believe. But if you can anticipate the typical dips and growth periods, you’ll be more prepared to meet the inevitable challenges.