There is a growth inefficiency pattern at companies that are about to raise or have just raised growth capital. The founders understandably want to demonstrate they can significantly grow their businesses. But some founders lose focus. Instead of scaling the existing business and adding a growth channel, a key target customer segment, or a new target market, they want to achieve everything at the same time. They want to establish new growth channels and generate product/market fit with regard to new customer segments and in new markets, often expansion markets.
The problem is that the founders underestimate the complexity that comes with adding new channels, targeting new customer segments, and expanding into new markets all at the same time.
For instance, different customer segments usually have different expectations as to the product offering. What is satisfactory to the small customer segment may not be sufficient to the mid-size and enterprise customer segments. The same applies to customers active in different industries. Their needs differ. You cannot just throw the existing product at customers with different needs. You need to adjust the product offering.
Product/channel fit is difficult to find. Many startups do not get only one channel to work. There are only a few that manage to successfully establish more than one channel. You cannot simply ‘add’ another growth channel. Adding a growth channel through which you can acquire your key target customers on attractive economics terms takes time and effort and may also require you adjust your products.
Customers in new markets, especially international expansion markets, live in different cultures, may have slightly different needs, and may expect a different acquisition approach. Not to forget about the language obstacles that have to be overcome, especially in Europe. Product, tech, and go-to-market need to be adjusted to the new market characteristics. Usually, a great deal of work for your teams.
In a high growth environment, you will be confronted with many problems and complexities. Even if you want to scale your existing business 'only', you will have to overcome many high growth obstacles. You, therefore, need to focus and prioritize. If you want to accelerate growth by targeting new customers, customer segments, or markets, and adding growth channels, make deliberate decisions in this regard. Often, it is advisable to pursue a step-by-step rather than an all-at-once approach.
Complexity is a growth killer. Try to keep complexity at a minimum as long as possible.
I discuss how to achieve great growth efficiency and how to measure growth efficiency in my book 'FastScaling'.
What is your view, high topline growth at any cost or carefully balancing growth and cash burn with an eye on complexity entailed?