In 2011, Brian Chesky, Joe Gebbia, and Nathan Blecharcyzk faced a difficult decision. The founders of AirBnB had spent the last four years building their business. After bootstrapping by selling election-themed breakfast cereal, they had won a place in Silicon Valley’s prestigious Y Combinator and had gradually settled on the company’s product, its service, and its standard. AirBnB had recently made its millionth booking, had raised $7 million in funding, and employed 40 people. The future looked rosy.
But Chesky had noticed the AirBnB’s customers were beginning to receive spam from a rival firm called Wimdu. The European company was owned by the Samwer brothers, three German entrepreneurs who had made their money creating local clones of American start-ups, often selling them back to the companies they had copied. Ebay had paid them $43 million for Alando, a copycat auction site; Groupon had paid about 10 percent of its valuation—a nine-figure sum—for CityDeal, an identical rival. Powered by $90 million of investment funds, Wimdu’s clone was already much bigger in Europe than AirBnB. The company employed ten times the number of AirBnB’s payroll and had offices in twenty countries. Wimdu’s presence and its size would make AirBnB’s expansion into Europe difficult. Wimdu had a price to get out of the way: a 25 percent stake in AirBnB.
Chesky knew that without Europe, his company couldn’t grow. But he also didn’t want to hand over a quarter of his business to a bunch of guys who had only copied his idea. The solution, told by Reid Hoffman and Chris Yeh in Blitzscaling: The Lightning Path to Building Massively Valuable Companies, was to ramp up growth. Chesky raise $112 million in venture capital. He bought Accoleo, a smaller German AirBnB clone, and took on Wimdu in its own market. By spring 2012, the company had seven new offices in Europe as well as additional offices in Moscow and Sao Paulo. Within eighteen months of its first encounter with Wimdu, AirBnB had grown by a factor of ten and had the size to knock out its upstart rival.
Most business owners aren’t faced with that kind of scaling dilemma. They don’t start thinking about rapid scaling with 40 employees already in place, and $7 million in the bank. They’re more likely to be a small group of friends with a shared vision or even solopreneurs with nothing more than a home office and a website. About 41 million Americans work for themselves. They generate about $1.28 trillion worth of revenue by providing consultancy services, freelance design, virtual assistance, and so on. And many are happy doing that. They don’t want the responsibility that comes with hiring more people, renting an office, taking loans, seeking investors, or serving additional clients. They’re happy staying small.
But that isn’t the route for every entrepreneur. For some business owners, the first days or years of their business represent only the first steps on a long path. They see their business growing and developing, taking on new employees, and maybe even going public or, like Wimdu, selling up to a larger business and taking the financial freedom that comes with an exit. But the move from a solopreneurship—from a one-person shop—or from a small then a medium-sized business isn’t easy. It means making the right decisions at the right time, and with repercussions that can affect more than the founder alone.
The first decision is whether to scale at all. Verne Harnish, an expert on business growth and the author of Scaling Up: How a Few Companies Make it… and Why the Rest Don’t argues that readiness to scale is partly a function of market timing. Businesses have to learn to offer services and products that enough people want to buy at that moment.
“The market can make you look brilliant or stupid,” he says. “Often you need to just hang in long enough until the market is ready and the wind is to your back.” The learning curve, he warns—the time it takes to understand an industry, build expertise, and develop a reputation—can take as long as ten to 25 years before a company reaches an inflection point.
Mindset is important too. Scaling a business doesn’t just mean increasing the quantities of sales, staff, and office space. It also means raising the quality of the deals. A larger business can afford more expensive but more experienced and more talented staff, and it can pitch for higher value sales. Small marketing businesses help individual photographers with their search engine optimization for a few hundred dollars a month. Large marketing firms create campaigns for Nikon for millions of dollars a year. With those extra zeroes come agreements and meetings that are more complex, more sophisticated, and demand more professionalism to arrange and implement. That additional expertise might mean fewer mistakes and more clarity but it also means higher demands, higher expectations, and more pressure. With scaling comes a new kind of business world.
Delegating Is the First Step Towards Scaling
So how does a company that finds itself with the market winds at its back and a willingness to compete with its industry’s big firms start scaling? The first move is the hardest: to trust others to do work that the founder of the company is accustomed to doing themselves. That’s why 76 percent of US firms are led by solopreneurs, says Verne Harnish, and adds that many of those firms are overstaffed. Entrepreneurs have to be willing to hand over responsibility for parts of their business to other people and recognize that those people will do that job at least as well as they can.
“It’s almost impossible to scale if you don’t delegate,” says Harnish. “Entrepreneurs are generally talented individuals and it’s difficult for them to trust that others can handle parts of the business better than they can.”
But those first hires aren’t only a challenge because solopreneurs are so used to doing everything themselves. Small businesses, even those with a number of employees, have small margins. There’s often little financial room to hire talent who can take on some tasks, leaving the founder to focus on their strengths.
One way out of that Catch 22 is to start in a different place. For solopreneurs, a jump from a one-person business to a team-based company is a big leap. But if you’re launching with a team—and ideally a team whose members already have experience of scaling—then that team will scale faster than an individual who has to build and bond the team first. An entrepreneur who’s thinking of creating a big business then should aim to start the company with friends and with the idea of expanding that initial team already in place. Instead of looking for their first employees, a solopreneur who wants to build a company might try looking first for friends to bring in as partners.
Bringing on that team though will bring additional expenses, which means that you need the sales and the cashflow to support that new size. Verne Harnish argues that the biggest mistake that entrepreneurs make as they scale is to focus on everything but selling between starting up and the first million dollars in revenue. Small new businesses obsess over the design of the product, over the website, and over marketing material instead of focusing on landing clients and generating sales. Proof, a company that creates personalized experiences for websites, had paying customers even before they had finished building the product, Harnish notes.
That early marketing ensures that the company can cope with its biggest risk as it scales: its cashflow. It can show investors that it has orders waiting and market interest building, and it knows that as long as it can develop the product, it will see returns on its investment. But the marketing solves another important scaling problem: finding the staff the company needs.
“A firm needs marketing not just to attract new customers, investments, advisors, [and] attention,” says Verne Harnish, “but also talent.” Companies have been known to engage in some guerrilla marketing to find those new employees. Harnish describes one company that landed a large contract that required the immediate employment of fifteen new engineers. The entrepreneur identified five local firms that were likely to have the talent she needed. She put a billboard on the side of a trailer and parked the trailer outside the entrance of each of those companies for a day. At the end of the week she arranged a job fair which attracted over 300 engineers.
Other companies have had to look for different solutions. One firm found that they couldn’t afford to outbid rivals for experienced sales staff, and when they did manage to recruit people, they needed to untrain them first. The company’s solution was to identify sales people in a different industry where sales staff were paid much less, then re-train them.
How to Start Marketing to Scale
Creativity in recruitment will help to solve one impediment to scaling but it won’t solve the first problem: landing the sales that provide the cashflow that shows you have the market’s “wind at your back.” The decision to scale might be a function of mindset and market timing but those things are adjustable. Entrepreneurs can change their mindsets and see themselves as business owners ready to land large contracts and lead teams rather than as small business owners with a couple of designers and a full-time marketing person. They also don’t have to wait for the market timing to change. They can start early to build the relationships they need to bring in bigger clients and spread word of mouth marketing.
When Dave Rogenmoser and his partners launched Proof in 2017 they started by making a list of the 50 top influencers in their niche. They didn’t know any of them so they recruited advisors and offered them equity in return for bringing those people onboard and persuading them to talk favorably about their product. It wasn’t long before the company’s name was spreading through the market and even though the product wasn’t even complete it was already landing orders.
Verne Harnish, who worked with Dave Rogenmoser, recommends following a similar strategy. “Take out a piece of paper and make a list of the top 25 influencers/relationships you need to sing your praises and support the business,” he says. “I did the same in launching the predecessor organization to the Entrepreneurs’ Organization (EO) which I founded back in 1987…. By working the list an hour or two each week, as a student at Wichita State University, we were global in 36 months—and almost everyone on the list had contributed to our success, including the President!”
Scaling a business isn’t a choice that everyone has to make. Many entrepreneurs are happy to remain small. They’re content to control their own lives without being responsible for payroll or for supporting anyone else’s families. Other business builders want to limit themselves to a small team of people they know, clients they’re familiar with, and products and services they already know how to deliver.
But once you’ve made the decision—once you’ve adopted a growth mindset—the next step is to focus on sales. Identify the people who can spread the word about your business. Show them what you’re trying to do. Build interest. Land the orders that will give you the security you need to hire new staff and take financial risk. You might not end up bringing in $112 million in venture capital or begin buying up European companies on your way towards a market value of $31 billion like AirBnB, but you might just find that you’re scaling your business and outgrowing your competitors.
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