The Biggest Challenge Your Growth Strategy Can Face: Your Product Does Not Scale, Part I

November 27, 2012

Good growth strategy requires constant renewal and re-architecting of the product.

An important skill in venture capital is pattern recognition. A good VC is expected to learn from her past experiences — both successes and failures — with startups, and to bring that experience to the table with new ventures.

Failures are especially important to take note of and learn from. Perhaps even more so than successes. For one thing, you typically have a larger dataset (failures often outnumber success — such is the expected risk of venture capital investments), but there is also the consideration that failures are caused by wrong decisions that can be avoided in future similar circumstances. By comparison, studying best practices from successes can be misleading and much more difficult to repeat.

In my short five years at OpenView so far, one of the most common patterns of failure I see is a very simple one:

The Company’s Product Does Not Scale

Before we read too much into this, I need to qualify this observation:

  • Product here means the Whole Product: in other words, the entire experience that the company offers its customer across all stages of customer lifecycle, inclusive of touch points with the application software, the hardware, implementation, configuration, customer training, customer service, and upgrading experience.
  • Scale here means to grow and evolve with the company’s lifecycle in a way that is both sustainable (from an economic model perspective) and defensible (from a technological or competitive advantage perspective).

I think this is an obvious idea that is on every CEO’s mind, but unfortunately, more often than not it has to take a backseat to more pressing operational issues such as pricing or sales and marketing budget. Scalability issues generally aren’t something you can easily recognize in the everyday routine of the company. To do so requires a comprehensive, holistic view of the company’s whole product that really connects the dots between these disparate functions and their growing pains.

But the scaling of the whole product is essential to the company’s success because it really determines whether the company has a long term, sustainable competitive “scale” advantage that helps it compete with both larger incumbents and with smaller, younger startups at the same time.

Unless companies are actively establishing the following scalable processes around their whole product experience, they risk growing too quickly:

  • Continually building new feature and product extension to maintain product leadership
  • Scaling out customer on-boarding, customer training, and customer support to support a broader, more demanding customer base without sacrificing on the quality of service
  • Scaling out the product offering to satisfy more extensive customer requirements, customizations, and complex implementation without draining the company’s resources and margins

Each of these are issues that only rear their ugly head when the company has to weather market shocks or competitive pressure that puts strains on the overall system. They are only detectable when the system that supports them is already close to the breaking point, and when the product is already failing to scale. In other words, by the time they become noticeable it is often already too late. Many companies have to go back to the drawing board and execute a painful pivot in order to get back to a more stripped down, scalable model that they know better and are more comfortable with.

In contrast, with sufficient scale (in revenue, in resources, and in market presence), a company is more able to weather economic shocks, competitive pressure, and major change in executive management, all the while staying on its growth course despite these challenges. Therefore, it’s essential for any successful growth strategy to actively address failure of the company’s product scale.

In my next post, I will discuss how to anticipate the points of scaling failures by observing tell tale signs within different parts of the organization, and how to utilize that information to address the issue in a timely manner.

 

Chief Business Officer at UserTesting

Tien Anh joined UserTesting in 2015 after extensive financial and strategic experiences at OpenView, where he was an investor and advisor to a global portfolio of fast-growing enterprise SaaS companies. Until 2021, he led the Finance, IT, and Business Intelligence team as CFO of UserTesting. He currently leads initiatives for long term growth investments as Chief Business Officer at UserTesting.