Scale up business

Walking the tightrope of scaling up (your business)

Across the Pond- Marketing Transformed

26. Walking the Tightrope of Scaling Up (Your Business)

 

CHRIS LAWSON: 

So, last week we were talking about start-ups; when you do start-up your first customers are usually the ones who like to try new things, test out your products, they give you a warm feeling around it, you try and work out your market fit, it’s not too much exposure and then you get some cash and suddenly you find yourself in a completely different ball game. 

There was this quote I read from the CEO founder of Fracture, a gentleman called Abhi Lokesh and he said, “along with rapid growth comes more overhead costs, more employees, more infrastructure, more everything. Are you truly prepared to handle it? We weren’t, and it cost us dearly.” I love that humility actually. “In any growth phase, dig deep and ensure that the growth is sustainable, and you can actually keep it up, otherwise you’re not scaling at all, you’re just getting bigger and less efficient.” I mean, how true is that, Sam? I think that just nails it all, really.

 

SAMUEL MONNIE: 

Yeah, I love the humility the Fracture CEO shared there and that seems to be a case of slow and steady growth. I love the humility of sharing the missteps. There was some reporting out there, another one that they call out is not diversifying the marketing efforts. The fact that every tactic eventually has diminishing returns, so don’t expect what you’re doing to continue to scale exponentially, I think that’s good news to recognise the value of marketing, to be able to test to learn to flex and to be agile and be able to pivot from the patterns, the channels, the media and the approaches that you’ve been doing in the past but, we’ll always have and see the haves and have-nots in this space, the moneys still there if you’ve got the name recognition. I just saw that Quibi, the short video content streaming service, has been led by chief executive Meg Whitman and founder Jeffrey Katzenberg, and they’re both heavy hitters in terms of corporate names that they’ve been in the film and entertainment businesses and tech businesses. They just closed on seven hundred and fifty million in second ground funding. The company overall has raised one point seven five billion so far, and they’re launching in April 2020, so it’ll be interesting to see how they fair. But clearly there definitely are haves and have-nots in this space, but equally we need to be a bit more balanced in this view.

 

CHRIS LAWSON: 

It’s an enormous check to spend in such a short period of time, isn’t it, really? 

 

SAMUEL MONNIE: 

It’s a huge amount of money, but they’re clearly creating a lot of content in their business so I can envision that is going towards creative and content and production, as much as anything in terms of the marketing and advertising side, so that’s my perspective. And as we see them and we look at other companies, we want to take a bit more of a balanced view and the growth mindset that we can learn from successes and failures. My heart goes out to some of the employees who lose their jobs, and there’s been a few director-to-consumer brands who haven’t ended up with a huge pay day, becoming billionaires like I just talked about.

In the USA, we’ve just seen Brandless close, and they were a direct to consumer brand that launched a great fanfare and they’re selling food and household products for three dollars, and it was just a bit weird that their pricing model stuck to the three dollar price point when it wasn’t necessarily working or sustainable across the mid to longer term. Hint, not everything is a dollar. We have retailers out here called Dollar General, Dollar Tree, they sell things for more than a dollar. Dollar Shave Club, which is the direct to consumer shaving brand, they don’t sell everything for a dollar. So, I know they wanted to price things competitively, but it was a bit weird. But again, I don’t want to call them out on their own because there was some corporate enlightenment that actually saw, due to the sudden closure actually happened because the board wanted to shutter the company, when there was actually enough money to provide severance and some sort of compensation to the staff. So, at least they did the right thing there and looked after the people, which is good to know, because that’s not always the case in that space.      

 

CHRIS LAWSON: 

Yeah, definitely good to know. Like you say, some things some other people could learn from, I think. 

 

SAMUEL MONNIE: 

Yeah, absolutely. Another company that has been in the news a lot for good reasons but now, is under a bit more scrutiny is Birchbox. They’ve taken some action to course correct, they’ve raised their minimum monthly fee from ten dollars to fifteen dollars, which is a significant price rise, but is that still enough? The real challenge I see in some of these business models is that they’re getting really tested in the US. You’ve got Aldi, Lidl and Trader Joe, these retailers who deliver exceptional product experience at a remarkable value with great customer experience. And that formula combined is going to put a lot of pressure on these start-ups and their ability to scale up because consumers are going to go to retailers and pick brands that they know from that channel. The lesson here is that D2C is not the panacea of success especially because they have huge acquisition costs, and that’s one of the challenges of scaling up. These companies make on average twenty-two dollars for each person they acquire and that’s a lot to make up to in ongoing sales and revenue to compensate for that repeat business to cover that twenty-two to twenty-five dollars cost of getting people in. 

 

CHRIS LAWSON: 

Well, it is if you don’t get the products and the customer experience right.

 

SAMUEL MONNIE: 

Yep, and also getting them to come back, and that is a challenge that’s been proven in terms of some of these failures. But equally, it’s not only the challengers suffering the incumbents have also gone through a bit of pain. According to Forest Research, Gillette’s share of the men’s razor market dropped from about seventy percent in 2010 to fifty-four/fifty five percent in 2015. And full disclosure, I’m an ex P&Ger, an ex-Gillette employee, so, a brand like Dollar Shave Club is always an interesting case from a personal and professional sense, their Dollar Shave Club is still in scaleup mode and they’ve been acquired by Unilever but as I mentioned, the incumbent struggling. P&G wrote down last year the value of Gillette from eight billion dollars. So, there are some winners and losers but everyone’s feeling the pain as the market moves in the favour of some of these start-ups that are scaling up. 

 

How Marketeers Scaleup

CHRIS LAWSON: 

Yeah, and I think one of the things we always want to do is bring this back to the marketers, we don’t want this to be a city podcast talking about winners and losers on the naz tech or whatever, but it is hard. There’s plenty of lists out there as to why things go wrong and to dare out a couple, one area that looks at this all the time is the private equity houses, or the VCs and the analyst and venture groups. Therese a guy called Jason Goldberg, founder of 10X, and I thought this was really key, he said, “when you start-up you hire a swiss army knife of a person, but when you’re a hundred-person business you need specialists.” And I think that is so true. When you’re there and there’s six or seven of you in the office, you’re looking for people that can do everything, that can range really broadly in skills.

I’ve seen really interesting people being given marketing as a responsibility for instance, and you think, wow, I wouldn’t necessarily have put it with you in terms of your background, and often, the most valuable contributions to your start-up will no longer do when you’re growing to the scale up phase. And that’s really tough. If you’ve been in a business, from the ground up and you’re there and you’ve helped get it to that stage and then actually, there’s a pivotal moment where you’re looking at yourself or you’re the CEO looking at your team, it’s a real tough but to get there one of the challenges that he raises is that, that happens at a senior level of management, it’s not just about whether you’re a swiss army knife or a specialist, it’s about can you manage. The most important hiring is about making sure that you’re getting the right middle management team because there’s a difference between the entrepreneurs and the leaders that can go out and get the funding and get it to that stage and then the group of people that need to actually manage the business.

So, mistaking leadership for management. I think that’s an absolutely fascinating point as in when you’re in that start-up phase it is all about leadership, quite often it’s about an idealism as well, and you’re trying to get people to believe in a vision that isn’t there and then you need to move it to a point where you need good, hard, management skills so you can actually hire someone from the outside who can take that forward. So, it’s a difficult point to get to I think. 

SAMUEL MONNIE:    

Yeah, some good points there, Chris. And as I’m listening there, part of it is being transparent to what the challenges are. And if you come back to Fracture, what I liked from that example was again, the CEO founder Abhi Lokesh calls out the fundamental of not taking good communication all the way through as you scale up for granted. Investing in the infrastructure and ensuring everyone’s on the same page, getting the same message, sounds like obvious low-hanging fruit but it’s so critical and it could be a huge deal breaker for a lot of these organisations. Chris, coming back to you to finish the point, the prompts we’ve mentioned aren’t a huge surprise but let’s give the audience some more ammunition on how to scale and some of the drivers of that.

 

Scaleup Stories

CHRIS LAWSON: 

Yeah, well, I’ve worked with about four start-ups/scaleups in 2019 and this year, and thankfully they’re all still around, they’re all doing good. I won’t go through all of them but a couple just to sort of pull out. I was working with the founder of a company called Ticket Tailor, which is a self-service ticketing platform by a guy called Jonny White. We were looking at the summer with a creative guru Charles Renard about how we can scale that organisation, what are the options? And what is it? And a lot of it actually came back to positioning. So, how should the ticket tailor be positioned?

I did a piece of work and the team have been working on it ever since, and they’ve just relaunched with a really clear differentiation in the marketplace, really sort of smart around, you dream it we ticket it, a nice welcome, to basically say a self-service platform wherever you are, whatever you do, in any type of event. And as a result they’ve now gone through a transition where they’ve recruited a head of growth, a  smart guy called George Follett who is looking at a really interesting phase, both for himself and the organisation in terms of, how do you move from instigator and inspiration to delegation  so, I think that’s fascinating in itself because not also do you need to look at what skills you’re recruiting you need to sort of loosen your control into how can I bring in some resources from the outside? 

So, that I think, if you can get that right you're on to a winner. Another one that I think is really interesting is a fintech called Unbiased, really successful, they set themselves out to say we’ll ensure you get perfectly matched with twenty-seven thousand qualified financial advisors, mortgage brokers and accountants and they provide a matching service via an algorithm. They’ve just secured close on five million pounds worth of funding to take them onto the next stage, and again, working with Karen Barrett the CEO there, the challenge now is how do we grow fast whilst also achieving the targets that we’ve got?  

So, you really are trying to get your cake and eat it at the same time. And it’s important to do that- but I do wonder in terms of whether the organisations when they reach this stage, recognise that prioritisation does need to be at a point where you can suddenly do two, three, four, five tasks at once, rather than necessarily focus on just one task, so, some key learning there. A couple of others I won’t go into, but one was a SAAS business that’s pivoted and another one is now looking for a buyer so, maybe come back to them at a different time. But the learnings are that the challenges are varied but it’s how you adapt to them that matters and extra cash is not the answer to your problems, it’s a start of new problems in a way, so I think that’s an interesting point, you might need to adapt out of your comfort zone. Have you got any examples of that, Sam? 

 

SAMUEL MONNIE: 

Yeah, as you were talking there, there was an example that comes to mind, which may be a bit of a curveball, it moves us in a slightly different direction but I think we often tend to have this perception of the founder, often a ‘he’, coming from San Francisco and a white guy, it’s just a perception of who these leaders are and how they think and how they operate. But there’s a story which I love of Gravity Payments by the CEO and founder there called Dan Price, and he’s basically known as the boss that put everyone on seventy thousand dollars, what I love about this is it’s a story of scaling and sustaining a business, but it’s actually a very disruptive way, and a story we don’t tell enough. It’s not always about making as much money as possible. 

Now, Dan Price freely admits that he's the same age as Mark Zuckerberg and what he calls his dark moments where he wants to be as rich as Mark Zuckerberg and be on the Forbes list and that Time cover, but what I love about his example is it radically brings to life truly being people centric, truly being mission based and actually having a different scorecard of what you value. So, this company used to have traditional measures, they used to say, yes our head count has doubled, and they grew as a company that processed payments, it grew from three point eight billion dollars to ten point two billion dollars, so those are the traditional hard metrics. But when the company started to evolve and Dan looked at things in a different way, different measures have come to the forefront, putting everyone on seventy thousand dollars, he’s more proud of metrics such as the number of babies the organisation has had, so, before the seventy thousand minimum wage there was zero to two babies born a year since the announcement four and a half years in, they’ve had more than forty babies.

So, it’s allowing people to have families. Homeownership more than ten percent of the company have been able to buy their own home in one of the US’ most expensive cities for renters, before that it was one percent. There’s a perception shift of this equity and purpose for moves, some people think, yeah you’re going to go under the business is going to flounder, but actually, there’s a lot of what he calls pontificators who would say, I hope you’re going to squander this money that you have, but actually he’s seen the opposite and seen more commitment and determination and people have actually contributed more to their pension, so, the amount that employees are actually putting into their own pension has more than doubled and seventy percent are paying off debt. 

So, he sees it as the power of giving someone freedom, this increase in salary across the board, and him taking less didn’t change people’s motivations. It actually increased their capability to do good work and not worry about making money, and ultimately has driven the top and bottom-line performance for this company. So, I just think that’s an awesome story on how to scale up, and do it in a different way, in a heart-warming way but also a capital way where everyone can win. 

Marketing Skills for Scaleup

CHRIS LAWSON: 

Yeah, I think the first one is resilience, this is still an incredibly difficult phase and, like I say, just because you’re presented with a big check it doesn’t mean that it’s any easier, in fact, it’s a lot harder. 

Resourcefulness, no doubt you’ve committed to a lot of targets and you need to be resourceful in terms of how you achieve it.

The ability to work in a chaotic working environment, I think, you get through growing pains, and that’s the simple way of putting it. Suddenly, you go from being clear as to what you’re going to do to thinking, wow, can I manage this great beast that I’ve created and that takes a lot of effort.

Multi-tasking, we’ve covered that before, the swiss army knife, but I think the key thing is, when all of that is going on, you must never lose sight of the data, and you must also know when you don’t have all the answers and when you need to bring people in. 

One practical one that sort of comes to mind is that what quite often happens is, you’re in that start-up phase and you’ve been used to doing all your marketing and influencing, your budget of seven thousand pounds and then suddenly, you’re presented this big check and say, right, we want to  be in three countries this time next year, so, here’s your marketing balance on one million pounds or whatever the figure may well be; and the bottom line is, if you work out a process, then you really just have to stay calm about that and realise that what your working with is just another bunch of zeros on an excel spreadsheet. If you get the basics right then you should be able to create a scalable marketing plan and it’s important to create a scaleup in your marketing plan as it is creating a scaleup in your business. 

 

SAMUEL MONNIE: 

Yeah, absolutely. I love the idea of staying calm and thinking about it in a constructive, proactive way, and as we think about skills, behaviours, mindsets that we should have in this space, I see a blind spot that some of these challenger brands actually have to consider: scaling up inevitably and variably means going into physical retail and physical distribution which are sometimes the very channels and stores that a lot of these challenger brands are trying to disrupt and unsettle, so they may have to get their mind around that they might be sneering around some of these distribution vehicles, these retailers and these channels, but stores aren’t going anywhere yet. Having been in CPG and retail on multiple cases, there’s just an inevitability and pragmatism of fitting into the launch windows, the store reset timings, the foibles of the buyers who actually decide what does or doesn’t get listed, hitting the weekly store flyers, doing in store demos, being on end cap displays. 

You basically have to play a game of retail which may be boring, may be slow and steady but it’s fundamental to growing beyond that five/ten percent market that a lot of these online and digital direct to consumer companies can actually meet. I do know a lot of these companies are recruiting legacy CPG or FMCG in the UK, packaged goods people to help them do it well. It’s a bit weird when you see conventional marketers who are perhaps better at the blocking and tackling ending up at some of these start-up, challenger brands and companies bringing in a bit more discipline and are a bit more structured and perhaps slightly a bit more bureaucratic in some ways so, I’m not sure how that’s going to work over the long-term. 

Other skills and behaviours and mindsets I’d say are important are, that relentless customer empathy; people as people and not data points, true customer journey application, what are the pain points and solving the pain points of your customers and your consumers and your shoppers. And then, focusing on KPIs that matter, thinking about the total picture and not just the digital numbers you can measure but in the holistic conclusion and thinking of the whole person and the whole explanation of what the data means and not just some of them early indicators.

 

CHRIS LAWSON: 

Yeah, good shout there, I think, Sam. 

 

SAMUEL MONNIE: 

As we think in this space more broadly, Chris, on a personal note, I’m looking out for opportunities or brands or companies who aren’t the status quo. So, much more about what isn’t in the market than what already is, I think from my personal cultural ends, there’s a huge opportunity to meet needs of more diverse consumers and stakeholders and take that to the mainstream. My background is from Ghana, of Ghanaian heritage and there is so many foods that could become, well, the new Indian cuisine, if you’re in the UK, perhaps Mexican is just as well known in the US, so, different cultures and different markets can bring things out there and I’m excited to see what the future brings.

 

WWYD?

CHRIS LAWSON: 

Yeah, I like the sound of that, it’s making me hungry, I’ve tried some of that cuisine you just talked about and absolutely, it gets my vote. But, Sam, you’ve got to watch out for those bear traps as well. I mean, imagine if I say, yeah you know what, I’ve got twenty million in my pocket, I’m going to give you ten million to go and launch it tomorrow, what do you think you’re going to do with it? Apart from disappearing into the sunset.

 

SAMUEL MONNIE: 

That’s a great question, you know, what would you do if you got that amount of resources?

 

CHRIS LAWSON:

Yeah, and it is a massive challenge, it’s a real challenge. Jawbone was a consumer electronics company, produced products like headsets and Bluetooth speakers and the like, and it was given a massive three hundred and ninety million pounds it raised, from some really credible VCs and funds, so, not anything there but, it didn’t manage to live up to the hype and ended up liquidating in about 2017 and it was because it was over funded. Artificially increasing its valuation almost force fed that funding, when really, the product set wasn’t up to scratch and couldn’t keep up with the likes of the FitBits and the Samsung’s of the world and became a significant failure. So, too much money is not necessarily a good thing, I don’t think, Sam. 

 

SAMUEL MONNIE: 

Absolutely. There’s so much evidence, a lot of data in the power of constraints and working with limited resources and how that actually drives the breakthrough solution, and it’s definitely a topic we should come back to in the future, as the other way of looking at that, having too much money, what if you don’t have enough resources, what do you do with it and how do you solve it? 

 

CHRIS LAWSON: 

Yeah, completely. And I think another thing we should perhaps look at in the future as well is that the biggest killer is cash flow. It’s the opposite end of it and great if you can be there in the long term, but no one will thank you for a moral compass if you go out of business in six months and you are out of a job so, something else to be aware of, I think. 

 

SAMUEL MONNIE:

Yeah and the critical thing there is to think about the impact on not only yourself, but the employees that you have in an organisation if you bring people on board and then close really quickly, that’s just a huge issue. And look, as we think about this more broadly, think about it from the traditional environmental analysis or regulatory analysis and legislation that’s going on out there. There’s some key considerations that a business has to have, whatever business you’re in. For example, right now the complaints from Just eat and Deliveroo which are a couple of the food meal delivery companies in the UK, and their ability to secure investment from bigger players and some of the legislations and concerns that are coming in. 

I think Amazon are trying to invest, I think, five hundred million pounds into those organisations but there’s some concerns from the competition at the markets authority, the CMA in the UK and they’re saying well, hey, that’s actually going to interfere with the grocery delivery market and they’re saying no, no, this is meal delivery and the start-up industry is getting frustrated with these probes and these regulators are interfering in basically the marketplace that doesn’t happen in other markets and other geographies. So, you’ve also got to have in mind the political and economic landscape and some of the principles and what’s going on there that can impact your business and your start-up and your ability to scale up as well as anything else. 

 

CHRIS LAWSON:  

Yeah, I must admit, after hearing this episode you do wonder why anyone bothers in a way? I know that, that sort of ninety percent of start-ups fail and I do wonder if it’s like betting on zero on roulette, now, you know that you only have one in thirty five chance, two point one percent, but it still appeals to people more than betting on black which gives you a fifty-fifty chance. And it’s interesting how we actually relate that back to us as everyday Marketeers as well Sam. So, I think I’ll let you do that as you sum up this episode. 

 

Today’s Three Key Takeaways

SAMUEL MONNIE: 

Yeah, absolutely. So, I’d say there are three things to take away from this episode. 

  1. Firstly, transformation is inevitable, there’s a phase of growth and growing and the different mindset that’s needed as you go through a more entrepreneurial phase and as you mature and lead the organisation going forward. 

  2. Secondly, keep calm and actually plan for the future. Think about where and how you’re going to invest. If you won that lottery, how would you spend that money? Equally if you got an infusion of cash, how are you going to spend that? And how are you going to do that wisely? 

  3. Then thirdly, try to be brave and humble at the same time. It’s probably a skill that people who walk on that tightrope have. Being brave enough to actually walk on that tightrope but also, being humble and facing the risk that they could fall and really leaning into their discipline and their skills and their mindset to succeed.

 

CHRIS LAWSON: 

Yeah, good summary there. so, episode twenty-seven. We’re going to look at marketing that works. It's going to be the brand turnaround episode, taking you from the brink of extinction and the brands and the businesses that have managed to come back even stronger. And also, why the power of nostalgia works for a while if you get it right, so, lots of good lessons there, learnings from Richard Shotton, author of Choice Factory, and Katy Perry. So, one to wait for, I think. 

 

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