Transitioning Beyond MVP Success

Sometimes, success can be harder to swallow than failure. For the founder of a start-up that has achieved product-market fitness with a minimum viable product (MVP), success can be a choking hazard. But let’s not dwell on the risks of success! You’re the pilot of an early-stage start-up; you’ve thrived on embracing risk and now you’ve found market traction to show for all that risk you took on. You’re ready for the coming challenges. Right?

Just to be sure, let’s talk through what’s going to happen as you turn your attention towards venture capital funding now that you’ve demonstrated you’re developing something the marketplace will pay for.

The first and most important take-away for this critical phase of shopping your business to VCs is that you’re now transitioning your daily activities from a project-based approach to a product-based approach. This means operationalizing your business and investing in the key people who will be with you for three, four, five, or even ten years. You need a partner whose skills complement yours, and you need a core team around you who will assume leadership of the functional areas in your company, so that your product can thrive and your business can grow.

Finding a right-hand man (or woman) is the first order of business. A few years ago, a joint research effort between faculty at UC Berkeley and Stanford University produced the Startup Genome Report in an effort to understand the development stages that start-ups move through, with an aim of increasing their success rate by turning entrepreneurship into a science. In it, the authors studied more than 650 start-ups and found that while there are distinct types, all move through similar thresholds and milestones of development as they strive to become mature companies. Two findings in particular are very informative for founders who find themselves at the pre-Series-A stage:

• Solo founders take 3.6 times longer to reach scale stage compared to a founding team of two.
• Balanced teams with one technical founder and one business founder raise 30 percent more money and have 2.9 times more user growth than technical- or business-heavy founding teams.

While creating balance between you and your deputy is key, so, too is finding competent leaders for the other crucial roles that neither you nor your partner can adequately oversee, which may include technical, sales, marketing, operations and support. These people will comprise your core team, and you should be investing in them with the expectation that they will be with you through the tumultuous scaling phase of the business to help steer your company to maturity.

Of course, lining up your core team can be something of a Catch-22: You need to be able to demonstrate to prospective investors that you’re able to make the transition from project manager to CEO – that you can go from being a micro-manager to macro-manager – in order to convince the guys with the fat checkbooks that you have the right mindset and the expertise to successfully grow the business. This, in part, means you need to have your core team lined up. Trouble is, you may not be able to pay your core team what they demand before you’ve got that money. Even so, you’ve got to know they are ready to go full-tilt once an investor signs on the dotted line. At the same time, it can take more time than expected to attract the right functional leaders, so founders need to be diligent in their recruiting and networking efforts, knowing that the clock is ticking but also knowing they can’t afford to make haphazard choices for these leadership roles.

Nonetheless, thinking in terms of a long-lived core team must be the key driving factor to preserve institutional knowledge from these early days and provide stewardship through the scaling phase. Once the funding is secured, things will start changing fast, which makes maintaining consistency at this stage even more imperative. You’ll soon find yourself making too many decisions in the course of a single day to be confident that all of them are good ones. In fact, they won’t be: If 80 percent of your decisions turn out to be good and the other 20 percent turn out to be not bad enough to impede your ability to scale, you’ll be doing well. A committed core team helps you keep that barometer consistent.

Many of these decisions will be made around staffing. You’ll need to go from having just your core team of three or five to a staff of thirty or fifty. A number will be bad hires and will fall away over the course of the first twelve months. Even then, the vast majority of the good ones from this first staffing wave may not be with you beyond the first few years, so getting the core team right and investing in them so you can bank on their longevity is key. These are the people who will help establish and preserve the company culture, remain true to the underlying hypotheses upon which your business is based, and create and spread the lore of the progression of the company from its humble beginnings.

We’ve seen some founders adopt an opposite tack and explore outsourcing some, if not all, of the core. This, unfortunately, will not likely be received favorably by investors. Outsourcing reveals a willingness to give away ownership of some aspect of the business. Investors want to see a founder who can place trust for critical operations in the hands of others, but they don’t want to back someone whose instincts tell them it’s OK to relinquish responsibility for the full range of business operations. They don’t want to see this model and won’t invest in it, or you. VCs are looking for founders who can show both a fierce allegiance to their product and an unwavering confidence in the leadership team.

In the earliest stages of a new company, when you’re used to giving your full and complete attention to making sure your MVP has solid product-market fit, it can be extremely difficult to pivot towards thinking several steps ahead of where you are at that very moment. Maintaining the proper balance between delivering in the here-and-now and building the team that will help you scale at a moment’s notice is both excruciating and essential. It’s clear that a founder working on his or her own is well advised to find a partner. And as soon as you’re starting to see traction in the marketplace, you’ve got to start recruiting the core team members who will help you build the business. Maintaining this delicate balance may well be the most important thing you can do to land that first big investment and push your company closer to foregone success.

After that, all you have to worry about is scaling your business at the pace your investors will demand. Not exactly a piece of cake, but nothing to get choked up about, either. We’ve got a time-tested strategy to help growing companies relieve pressure on their recruiting efforts and scale their businesses. You can read out it here.