Every successful company starts with a single idea.
It’s the way these ideas are approached, shaped, and challenged that dictate whether or not they grow into a startup.
However, reaching the startup dome does not complete the life cycle of these ideas. Instead, creating a startup is the moment when ideas become actionable, driven by a set of deliberate goals.
And as we all who have lived the startup life know, your goal as a startup is mostly simple: to survive.
I imagine being a startup rather than stepping on the water. To be successful as a startup, it takes constant movement to ensure that you can find products that are in line with the market, encourage early customer growth, and at the same time build a base product. The moment you stop moving is the moment you lose traction.
And all of this before you even start scaling.
Fortunately, there comes a point where you’ve stepped on the water long enough to reach your first lifeboat: investments.
That’s where it’s going to be exciting.
When startups switch from idea mode to scaleup mode, I look for a number of signs to determine if I’ll be investing. Of course, not every scale-up needs to get each of these signs right to be worth investing in, but the more positive signals a scale-up has to offer, the higher the chances of long-term success for that organization.
so what is the secret sauce these particular startups have?
7 signs that scale business is worth investing in
While scaling is a universal concept, scaling efficiently is seldom exactly the same for all companies.
Instead, each scale-up encounters its own unique attempts, speed bumps, and obstacles on the way to sustainable growth. When looking for scalable companies to invest in, I always consider the individual realities of each company in the context of its growth to see whether or not it is geared towards long-term success.
As an investor, these are the core values I’ve seen in companies with growth potential.
1. There is evidence of customer satisfaction.
The customer experience doesn’t lie. In fact, it has become an important part of the GTM strategies of companies like HubSpot investing in chief customer officers and finding more ways to serve customers across the company. This means that the customer should be the focus of every decision.
As proof of customer satisfaction, take a look at the NPS (Net Promoter Score) and other customer satisfaction values of the respective company. If the results are in the green, it is a scale-up that is already having a positive effect on its customers. If instead results are in the red, investors are warned.
Another way to determine customer satisfaction is to look for low or decreasing churn. A company’s retention rates are the first sign that it’s either a fan favorite or a stepping stone for customers on their way to a better prepared company.
2. The leading roles in the organization have great people.
In the early years of a startup – when the main focus is on the product – other roles such as sales, marketing and operations are usually not fully occupied. However, this practice is not enough when it comes to scaling.
If you are a scale up these roles should be filled with amazing people. If not, there should at least be a plan to hire her.
After all, the potential of a scale-up lies in the potential of the people who are committed to its growth.
Without staffing all the required teams with top talent, you could be unwittingly stifling the growth of your business. In the early days at HubSpot, Brian and I surrounded ourselves with people who were smarter than us and invested in people we believed in. (Somehow they weren’t all developers as I wanted them to be … but I digress …). Those investments paid off, big time, and we are still surrounded by these people today.
3. The single economy is stable and sustainable.
Of course, nobody expects scale-ups to come with an impressive ROI. A vanity metric or a single data point is not exactly enough to convince an investor that your scale-up is worth their time and money. Instead, I’m looking for stability and sustainability.
To be prepared for sustainable growth, your Customer Lifetime Value should be a multiple (usually 3+) of your customer acquisition costs. This number tells me that not only is your business desirable by your customers, but that you already have what it takes to retain them and keep adding in value as they grow with you over time.
Scalability and sustainability are two sides of the same coin. With the ability to establish a sustainable unit economy early on in your startup lifespan, you will be ready to scale in due course.
4. The culture of the organization is well articulated.
Corporate culture doesn’t come about overnight. Instead, it’s embedded in every decision your company makes and your company’s employees. Each organization has its own specific corporate culture, but some are better at articulating theirs than others.
Corporate culture encompasses your mission, vision and values and is the hallmark of a company with what spokeswoman and author Angela Duckworth called “grit”. Grit is “the power of passion and persistence,” which translates well into what makes startups successful – a clearly defined passion and persistence to achieve the long-term vision.
Of course, to be effective, your corporate culture doesn’t have to be put together in a stack of 128 slides, but it does should to be written down. That way, when potential investors like me are looking at your scale-up, we don’t have to spend time guessing the motivations and shared vision that drives your business. Instead, we can see how your corporate culture guides decision-making in your company.
It’s a good idea to start defining your culture sooner rather than later. The corporate culture provides a stable starting point for most of your initiatives, including recruiting, retention, and alignment. The better you understand your culture, the more efficiently you can develop a common vision for your company.
If your company culture could use an improvement, take a look at the ultimate culture guide from HubSpot.
5. There is a strong focus on creating customer value.
It is not for nothing that I invest so intensively in companies that keep a close eye on their customer benefits. By continuously integrating customer feedback and preferences into your scale-up, you are better prepared for it proactive Creating customer benefit instead of acting in a purely reactive state.
The companies that are successful today are no longer the ones that sometimes just excite their customers, but the ones that keep finding ways to exceed expectations and create a personalized experience.
Ultimately, the best way to maintain a strong focus on creating customer value is to open a dialogue between you and your customers. If you haven’t already, take this as a sign to determine your options for collecting customer input.
First, ask yourself questions like:
- How does your team get customer feedback and how does it react to it?
- Who else focuses on the customer besides customer support?
- Is there a customer success team?
- Have you defined the voice of your customers?
- How is your customer involved or represented in the decision-making process of your company?
6. The company has a strong strategic planning process and knows how to prioritize products.
Do you remember what I said earlier about the importance of creating sustainable systems? It is not important that the planning process works smoothly and is already prepared to scale.
The emphasis is on it is there is a process and mechanism in place to make these decisions in the first place.
Trust me: an unorganized planning and prioritization process makes scaling impossible.
The scaling process is about proactively positioning your company for future success. When you have a well-defined planning process, let all potential investors know that you are looking to the future and preparing to scale.
Besides, while you are evaluating your processes, take a look at your systems. Are they designed to scale organizations? Is it easy to update when you’re ready?
7. The organization has a dedicated workforce.
The last sign that a company is scaling sustainably and in which it is worth investing is not least the satisfaction of its employees.
A dissatisfied workforce is a red flag (for new hires and investors alike). A company should not only have a process for collecting employee feedback on a regular basis, but also demonstrably react to the results of the collected feedback and act accordingly.
A handful of unmotivated or dissatisfied employees is typical, but a cluster of them becomes a trend that must be avoided at all costs. If you have high turnover rates, this should be resolved quickly – it is impossible to scale without investing in the long-term growth and development of your people.
At HubSpot, we conduct a quarterly eNPS (Employee NPS) survey for all employees. In this way, we consistently respond to their needs and preferences and can offer our employees the supportive work environment they deserve. We read and rate every comment and are constantly looking for ways to improve our staff’s experience.
To start conducting your own comprehensive employee surveys, here is everything you need to know about eNPS.
And there you have it! The Secret Sauce I Found In Startups With Real Scaling Potential And What They Did To Stand Out.
Regardless of whether I am actively looking for new companies to invest in or not, I always have my antenna in view to see exciting new scale-ups. To invest in sustainable models that will help your business grow while prioritizing your customer experience, download our guide on scaling your sales operations for customer-centric growth.