While ‘flatlining’ in a business sense doesn’t necessarily mean what it does in a medical setting, when it comes to start-ups, it could well be. Flatlining revenue during what should be your most extreme growth period could spell disaster.
As a co-founder of Capita Scaling Partner, I’ve helped deliver 5x YoY revenue growth for over a third of our investment portfolio, and at least 2x revenue growth for 90%. But each and every success we’ve had has been hard-won. It has required objectivity, focus and belligerent levels of tenacity. In short, we’ve learnt a few lessons on the way. In this article, I’ll share some of those lessons and hopefully give you a few ideas on how to keep your company off the operating table!
The very first step is to diagnose why your company isn’t growing, and critically, to do this objectively! Running a start-up is an emotional rollercoaster, and founders tend to be immersed in the detail. My role is often to help management teams breathe, step out of the detail, look at the big picture, and support them to impartially analyse whether we need to change something.
If sales are flatlining, then I find the best way to diagnose the root cause of the issue is to compare your business to your most successful competitors. I tend to use a framework like the ‘Four Ps’ to help me to focus (Product, Price, Place, Promotion). It will often quickly highlight key areas to explore in more detail.
But before you can begin, you need to ask a more fundamental question: do you actually have any successful competitors? I include substitute products here!
No successful competitors – is a pivot needed?
If you don’t have any successful competitors and you’re not growing either, then make no mistake – this is a bad thing! You need to be honest with yourself and assess whether or not there is actually a market for your product at all. If not, you’ll need to pivot your company in some way.
After two years of stagnant growth as a B2B SaaS business, we helped one of our portfolio companies to pivot the business to B2C. They had a great product, it was priced compellingly, consumers loved it, but B2B clients tended to want to build their own technology in-house and not buy the SaaS product. Recognising that the situation was broadly the same with all their competitors (they were flatlining too) we decided to pivot the business.
We successfully raised significant equity capital to enable the portfolio company to acquire legacy businesses and transform them using the technology they had built. They are now a highly profitable tech-enabled B2C business growing EBITDA at a rate of knots. A great result from a dire situation, but without stepping back and thinking objectively, we could have missed this opportunity.
Successful competitors – how do you beat them?
If you do have successful competitors that are tripling their revenue year on year, then this is excellent news! It means there is a market for your product, and you don’t need to execute a “do or die” pivot, which I can tell you from personal experience is quite a white knuckle ride.
So, let’s dig out the Four Ps and analyse how you compare against your best competitors. To keep it objective, I thoroughly recommend talking to clients and getting their feedback, especially clients who might have churned, or prospects that never converted. If, for example, the most successful competitors have identical products to yours and operate at around the same price point, then there’s got to be something wrong with the way you are selling it. That could be the ‘place’ you are targeting for customers (sectors, distribution channels, etc) and/or the way you ‘promote’ your product (PR, messaging, sales team etc).
If you are materially more expensive than your competitors but have a similar product, then there’s probably a simple fix here in terms of pricing. If your competitors have invested heavily in their brand and are the ones getting all the publicity, then fix your promotion approach, and so on.
It’s worth considering real-world examples to see how this works in action.
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One of our portfolio companies were targeting large enterprise clients who were generally B2C. They just weren’t getting the traction with these prospects; there was interest, but sales weren’t converting very quickly. By assessing their most similar competitors, talking to their most sticky customers, and identifying the quickest to convert prospects, we quickly realised that we needed to focus on targeting the B2B business services sector.
We implemented a minor course correction to target this sector, and this successfully delivered 12x revenue growth for this portfolio company in under 18 months. This highlights how just adjusting the ‘place’ you are looking for business can have a massive impact on your fortunes!
One of our FinTechs operate in a very exciting new market, where we were seeing large swathes of VC capital being channelled. All their newly funded competitors had an SME/ME client base and were desperate to win valuable enterprise clients. Before we partnered with this particular portfolio company, we asked them to pitch to our internal buyer and then asked them for their feedback. In summary, there was zero product differentiation in the market, price points were almost identical, the pitch was the same, and they all were targeting the same buyers in the same companies.
To stand out, they needed to invest in their product and differentiate themselves. We created a roadmap to build out the core features and improve the product/market fit for enterprise clients. Since we did this, they have signed three material enterprise clients, including the largest enterprise roll-out of this category of SaaS in Europe. This approach launched this particular FinTech as a market leader overnight, with a far more compelling product for enterprise clients.
Sometimes, portfolio companies’ products can have multiple use cases. While this means great value can be delivered for clients, it can be confusing for prospects. This was particularly true for one of the smartest AI-driven HRTechs. By studying a very crowded competitive market, we helped them to narrow down the use case that was most relevant for each sector, and really focus on that in their promotions. The other use cases came into play later, but they only “promoted” this actively when clients were signed up to the most valuable application for their business. As a result, this portfolio company have delivered 5x revenue growth in just over six months.
One of the very early-stage businesses in our portfolio had, by far, the highest quality product in the market. It integrated seamlessly and the UX was miles ahead, but they lacked evidence on what this superior quality actually meant for client value. Ultimately, they had to bring their price down, but by targeting premium customers who weren’t buying (or had churned from) competitor products because of poor quality they were able to charge a premium price, one derived more by the client value case as opposed to driven by competitive pricing.
You can see in this example price wasn’t the only factor; place and promotion were also variables that needed to be adjusted before we had a winning formula. Since taking this approach this business has won its first 5 enterprise customers and achieved product-market-fit ahead of their Series A capital raise.
We are giving our portfolio companies an unfair advantage in terms of market access, but that doesn’t mean we can ignore the fundamentals of how to scale a business. We’ve learnt a lot with our “sleeves rolled up” venturing model, and one thing is for sure, winning and keeping customers is not easy. But by driving a culture of objective self-reflection, never dismissing a competitor, or believing too much in your own hype, you’ll be able to continuously hone growth until it is sustainable and repeatable.
Follow the competition fastidiously and make sure you are always one step ahead. In a true growth market, it pays to remember you that only need to be marginally better than your nearest competitor to achieve extreme growth and deliver eye-watering valuation multiples.