As growing companies move along the journey from starting up to scaling their growth, they go through a few key stages:
- Product-Market Fit: In this stage, the company is finding its fit with the market (e.g., determining the right price for the product they have built, for the market they are serving). The company has a high customer acquisition cost, as they learn more about their customers - what they are willing to pay, what impacts they are looking for - and adjust the product based on those learnings. Toward the end of this stage is typically when venture-backed companies raise a series A round of funding, in order to find Go to Market Fit as soon as possible.
- Go to Market Fit: In this stage, the company is now learning to sell its product in an efficient and effective way. Toward the end of this stage is typically when venture-backed companies raise a series B round of funding, in order to facilitate scaling going forward.
- Scale Up: In this stage, the company is learning how to grow and scale the business, applying what has been learned in the previous stage in order to accelerate growth.
Fundamental changes occur at all levels and facets of the company as it moves through these three growth stages. In particular, many founders make the mistake of thinking that the team and skillsets used in pre-revenue stages will be the same team and skillsets needed when the company reaches the point of scaling.
This does not imply that a different team is needed at each phase. Team members can evolve and grow with the company, but founders must think about how to plan and recruit for current and future phases in order to supplement that evolution from the existing team.
Generalized at a high level to illustrate this, the following skills and traits will be crucial and typical in each phase:
- Product-Market Fit: Self starters and proven superstars with reliable performance. May dislike process and structure. Will help to set the tone of the culture that the fonder is looking to establish.
- Go to Market Fit: Creators and builders who love to create a process and document what they are building. Able to listen and learn from what goes on around them, enjoying working with and learning from small teams.
- Scale Up: Dependable team performers who love to execute process. May need guidance and structure for creating new process, preferring structure that is already built.
The most common problem for Series B companies: 'Scaling failure' happens when not enough consistency in performance has been reached.