If you have children, you probably know the stage when you buy them a stadiometer for their room to measure their height, and their joy checking how much they have grown.
Startups also have such a stadiometer, and it measures their growth in a different way: by increasing sales alongside simultaneously keeping a company as lean as possible in terms of spending.
The most significant stage in the growth of companies is the Skylap stage, and it even includes growing pains.
Skylap is a type of company or stage in its growth and is one of the two options facing a startup that has proven Product-Market Fit: either move to Skylap or deal with the “Second Valley of Death” in other ways.
Growth is not an unequivocal numerical target and there is no rule of thumb regarding this, but according to the OECD, high growth is a growth of 20% or more than a company has achieved in its employment or turnover from year to year for at least two years, and has a minimum of 10 employees at the beginning of the follow-up period.
Is this target still far off?
There are some differences between Growth and Skylap, and I will address the main ones here:
Growth is when a company increases its revenue, i.e. adds new sources of income or increases existing revenues, but along with it also grows in terms of employees, technology, infrastructure and more.
In contrast, scaling (the process that a company performs on its way to being a skylap) is an increase in non-linear revenue relative to an increase in expenses.
Such a process could be achieved by maintaining a lean infrastructure. Of course, there is an increase in expenses but it is small and gradual. The rate of increase in expenditure is not in line with the rate of increase in revenue, which is completely positive.
So we saw that it is not possible to set a clear goal from which to move on to the Skylap phase, but is it possible to determine in advance when a company will reach this phase?
And if we expand the question: is it possible to plan the arrival of Skylap or is it just evolutionarily happening to society?
It is possible to strive for a schedule, but the critical thing to understand is that a necessary condition for Skylap is to prove that we have a Product-Market Fit. Without it, we would not be able to move the startup to Skylap.
We will expand on the all-important element of Product-Market Fit in one of the following articles, but it is important to note right now that it includes 3 things:
- Build awareness for your brand – that is top of funnel traffic.
- Customers who are insignificant and ongoing interaction with you – that is engagement.
- Repetition of customers and the ability to retain customers who want to abandon – that is retention.
By the way, once the company has proven that the market needs the product, it has significantly reduced the risk in the eyes of investors and its attractiveness in their eyes has increased (Skylap will usually raise in a B or C round of funding).
Just before starting…
Beyond this threshold, there are other elements that need to be taken into account, and while they may not be related to your ability to plan the transition to Skylap, they certainly signal the company’s readiness to move on to the next step.
Infrastructure, technology, operational processes, customer experience and quality of service – although they are not a threshold condition for scaling, without them the ability to succeed will decrease.
Let’s go into more detail:
Imagine you are a venture, and you have a great physical product that has a Product-Market Fit.
To date, you have sold the product online and you have done well. Now, with the transition to the Skylap phase, sales are expected to grow exponentially.
But what happens if the operating infrastructure (logistics, supply and shipping) is not prepared to provide the answer, and can still serve for example only 100 customers a month and not 300, 500, 1000 or more?
Moreover, a gap that developed in operations will affect your service and cause it to decline in quality, which in turn may also cause unrest on social networks and a burden on marketers.
Thus, to be sure that it is possible to move on to the Skylap phase, readiness is required in all the above-mentioned areas. But the truth is that another, no less important, readiness is required, and that is the mental readiness of the entrepreneur or company owner.
In fact, one of the ways entrepreneurs fail the company for which they have worked so hard is a lack of mental readiness.
How do entrepreneurs fail at what they have worked so hard to set up?
In every conversation I have with an entrepreneur, I witness common feelings: the dream, the passion, the faith, the endless investment in the company – with honest entrepreneurs confessing that sometimes it comes at the expense of home and family.
If you think about it, these feelings make a lot of sense.
All in all, these are people generally who have left stable jobs with financial security to take a giant leap into the unknown.
It is almost impossible to do this without an overriding dream, passion and faith.
But the other side of the coin is that the entrepreneurs are sure that all of this will also bring them to the next stage of the Skylap, because that was enough for the first stage, i.e., for the establishment of the startup.
The truth is that this is far from true.
It is enough to set up a company of two or three partners with a momentum that seems almost indestructible, but it is not enough to turn this company into a business with a system.
There are gaps that start to form which if not addressed in a timely and correct manner, can just sabotage the company’s growth and future.
There are various reasons for failure at the stage when the company is trying to develop into Skylap:
There is no Product-Market Fit (a bit like running a sprint into a wall…), a lack of infrastructure, process and organizational readiness, no growth strategy that allows a significant increase in turnover and sales, and a mental lack of mental readiness of the entrepreneurs.
The decision on scaling is not trivial and as a result, some businesses stay small and successful.
In addition to everything I detailed throughout the article, scaling requires being precise in defining the target audience and positioning of the product, deeply understanding the financial aspect of the company including short and long term funding sources, planning to enter the international market if relevant, digitizing processes, understanding who the team will need and formalizing Organizational culture, and what’s your schedule ahead.
When that happens, I assure you it’s one of the most exciting feelings entrepreneurs have.