Monday, February 5, 2018

5 Ways Today’s Market Allows Startups To Scale Faster

airbnb-brand-scalingAs an active angel investor, I’m accustomed to hearing entrepreneurs pitch their expectation to quickly create a new dominant brand, based on their disruptive technology. In the past, such statements have been credibility red flags, since “everyone” knows that a dominant brand takes decades to establish and scale. Only recently, I realized that times are rapidly changing.

Most of you probably recognize the brand names AirBnB, Instagram, and Slack, all of which are less than ten years old. These are companies that not only have a familiar brand, but carry from five to 35 billion dollar valuations. Of course, in a world which spawns over a half million startups every month, these accomplishments are very rare, but they are happening like never before.

The question that I and every investor have been asking is “What are the critical factors that are fueling the recent rapid scaling of consumer brands in today’s marketplace?” I just finished a new book, “Shortcut Your Startup,” by the entrepreneur brothers Courtney and Carter Reum, and I like their summary of five critical changes in the market that every entrepreneur should capitalize on:

  1. Pervasive computer usage is now the great equalizer. We are all more reachable through powerful and mobile personal computer devices, and the world is more and more connected with the Internet of Things (IoT). Whether our business is a startup or a multi-national brand, through platforms like Amazon, giant players have no special advantage.

  2. Brands are speaking through rather than to consumers. As a result of social media and mobile platforms, consumers have created a sharing economy – sharing their opinions, and speaking out to companies as well as their peers, rather than listening to brand advertising. Brand scaling is driven by customers, not by business, large or small.

  3. Tools allow marketing in a much more targeted way. In the past, marketing budgets were focused on high-traffic channels, with minimum focus on demographics. Today as companies use tools to collect massive amounts of data on desired consumers, brands are able to increasingly market to very specific groups of people, at less cost.

  4. Getting online traffic is less expensive and more real time. While brand building used to be dominated by larger well-capitalized companies, today startups can afford to get their products in front of qualified leads around the globe at a fraction of the cost and in much less time. Building a big retail presence, or buying Super Bowl ads, is not required.

  5. More capital is available for scaling and brand building. With the growth of angel investing in the last decade to venture capital levels, and the more recent crowdfunding to match both combined, there is more capital available for growth than ever before. Brands can fund operating losses in order to scale faster and acquire market share.

Today, time is your scarcest resource in a new venture. I can almost guarantee that if you’ve observed a market need, others have noticed it as well. Thus it is imperative that you get to market quickly, adapt to your customer demands, and scale before the market changes, or new competitors appear. The cost of time is increasing, and less time increases your odds of success.

As an investor, I also know that the longer you take to scale and reach a dominant brand position, the more capital your business will need, and the bigger your exit will have to be for anyone to make real money. Investors measure their success by looking at the internal rate of return (IRR). VCs know that a one-year difference in timeframes can be the determinant of success or failure.

The realities outlined here are as relevant to veteran entrepreneurs looking for new ways to boost performance as they are to aspiring entrepreneurs ready to take their first leap of faith. It’s obvious to me that the pace of business change is accelerating, with no respite in sight.

Although the cost of entry is low and anyone can play, not everyone should do it. First you need to take a hard look at yourself, to see if you find the challenge exhilarating or crushing. Time is of the essence.

Marty Zwilling

*** First published on on 01/18/2018 ***



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