Shifting My Focus To Scaling Up

I’ve spent the past two days at the Global Entrepreneurs Congress in Rio. It’s been really powerful for me as it’s shown how broadly the message of Startup Communities has taken hold across the world. At the point I can see that the Startup Communities movement is in full swing, the language and principles that I introduced in the book are being talked about, dissected, and improved on, and many entrepreneurs around the world are leading the development of the startup community in their city.

In a discussion with my long time friend Paul Kedrosky, we talked about a paper he’s writing about the number of “important companies” that get to $100 million in revenue. Our discussion shifted to the magic number – was $100m the right number for “important”, or was it $50m, or $25m, or even $10m. At some point we both realized it wasn’t about a magic number, but about the concept of “scaling up” a business once it had started up.

I’ve been hearing the phrase “scale up” a lot lately. The first time I noticed it being used was in Daniel Isenberg’s post Focus Entrepreneurship Policy on Scale-Up, Not Start-UpWhile I didn’t agree with the tone of Daniel’s article, the meta-point, that we need to put more attention into focusing on scaling up businesses, range true with me.

I view the concept of startup and scale up as linked. You have to have a vibrant “startup community” to get to the point where you have enough interesting companies to “scale up.” Many geographies haven’t had enough focus on “startup.” That has dramatically shifted and entrepreneurs around the world understand what “startup” is, are learning and doing it, and a phenomenal amount of activity is happening around it.

So, I’m shifting my focus for the balance of 2013 on “scaling up.” Fortunately, I’ve got a great laboratory for this – the Foundry Group portfolio. Of the 55 active companies we’ve got in our portfolio, more than half are solidly in the “scale up” zone – some scaling very rapidly. In the same way that I used Boulder to form my thesis on Startup Communities, I’ll use our portfolio, and my activity with it, to form my thesis around scaling up. That’s where I’m going to turn my intellectual attention over the balance of the year.

This is consistent with the next three books in the Startup Revolution series – Startup CEO (written by Matt Blumberg, CEO of Return Path), Startup Boards (written by me and Mahendra Ramsinghani), and Startup Metrics (written by me and Seth Levine). Each of these are a lot more about “scaling up” than “starting up.”

As part of this, I’ve shut down all my travel for the rest of the year (starting in May, as I’ve got some commitments for the next six weeks that are too close in to cancel.) But I’m going to spending a lot more time in one physical place (Boulder), going deep on the notion of scaling up, while continuing to support the incredible energy around startups that has a wonderful and amazing life of its own.

  • http://freepository.com John Minnihan

    “But I’m going to spending a lot more time in one physical place (Boulder), going deep on the notion of scaling up, while continuing to support the incredible energy around startups that has a wonderful and amazing life of its own”

    I think what you’re discovering (accepting?) is that physical presence isn’t always necessary to make an impact. Back when I started ConfigMan in May ’99, I used the tagline ‘Geography is Irrelevant’ to explain to people how we were putting developer tools online, and that collaboration wld take place in the browser.

    ConfigMan failed (with the capital market collapse in spring ’00), but the idea – and Freepository – lived on. Can you imagine anyone today (other than Yahoo) trying to argue that location + presence are constraints?

    • http://www.feld.com bfeld

      I’ve struggled with this concept for 15 years. I’m still struggling with it.

      • http://freepository.com John Minnihan

        I lost track of how many people – back in ’99 when I was pitching this – gave me puzzled looks or outright refused to even listen to me. A classic ‘no’ came from Andy Bechtolsheim. He said, quote “No one will ever put source code on a server they don’t own.”

  • http://anentrepreneuriallife.com/ Tim Huntley

    Brad,

    This mirrors a discussion a friend and I were having last week with respect to the Research Triangle Park community – so much of the energy and effort here is being put into incubation and hatching.

    We end up with companies that appear to be well positioned to scale ($1 million annual run rate for example), but they don’t seem to take the next steps. But is this really a community issue or more about heads down execution?

    My company building experience in the 1990’s was that I was heavily immersed in the local startup community in year one, but beyond that, after we hit $1 million in sales, the lessons came elsewhere.

    …Tim

    • http://www.feld.com bfeld

      Every startup community needs both! You need a very broad base of companies getting started. Then you need some that are scaling up. Then you need some big successes that generate wealth, new angel investors, additional gravitational pull toward the community, and opportunities for some founders and early employees to start the cycle over again.

    • FAKE GRIMLOCK

      TWO WAYS TO BUILD SCALABLE STARTUPS.

      1. PUT LOTS OF RESOURCES INTO FEW ONES THAT CAN SCALE.

      2. PUT LOTS OF RESOURCES INTO LOTS OF WHATEVER, HOPE SOME OF THEM SCALE BY ACCIDENT.

      MOST PLACES GO FOR #2.

  • http://www.samedaydr.com/ Rich Weisberger

    Love how you stay ahead of the wave. What’s the connection to focusing on scaling up and staying in boulder ?

    • http://www.facebook.com/dgcohen23 David Cohen

      One can think better when at home, i presume. Brad has tons of data from traveling the world constantly for the last decade and more.

      • http://www.feld.com bfeld

        Correct – I don’t need to collect any more data. I just need to think. And have time and energy to write and work through the ideas, which continuing to do the rest of my work (my full time work – Foundry Group!) The traveling has eliminated the time, energy, and desire to think.

  • Kieran McCarthy

    I expect your decision to stay in Boulder for the rest of the year will yield tremendous side benefits for your running, as well.

    • http://www.feld.com bfeld

      Yes – very true!

  • http://www.yanado.com/ Ivan Mojsilovic

    Brad, your books and deeds are changing the world every day. I saw that you are supposed to come to the Fundraising conference in Belgrade on 18th April, is that true?

    • http://www.feld.com bfeld

      I’m Skyping in for it.

  • http://moz.com/Rand Rand Fishkin

    I’m curious about the decision to form this thesis and work on the inputs to scaling up from Boulder, rather than visiting a few of those companies in person and spending time with a greater set of the teams. Obviously, you get to interact heavily with CEOs, but speaking as one, I worry if the only perspective you get about Moz and what it takes for us to go from ~$22mm in revenue last year to $100mm+ over the next few is me.

    Would you potentially have folks from deeper levels of those scaling companies come out to Boulder for discussions? Or maybe is this just a “I need time alone to ruminate” kinda thing?

    • http://www.feld.com bfeld

      It’s mostly “I need time and space” to ruminate. I have an enormous amount of data and personal experience here. I just haven’t put it into a framework the way I have with Startup Communities and other things I’ve worked on.

      And yes, I’ll miss you, but come visit me!

      • http://moz.com/Rand Rand Fishkin

        Got it. And yes, will definitely come for a visit :-)

  • http://www.facebook.com/zkanter Zack Kanter

    Brad – great read! Love the concept of staying put for the rest of the year. I’m a co-founder of a Boulder-based startup / TechStars applicant (Partiva.com), and happen to be in Rio for vacation. I hadn’t realized that GEC was happening right now – thanks for the heads up! Are you still in town?

    • http://www.feld.com bfeld

      I’m at the airport on my way back to the US.

  • http://twitter.com/jimfranklin Jim Franklin

    Love the ideas to separate the concepts, but I have a grammar question. If a company that is starting up is called a startup, then Is a company scaling up called a scaleup? Or are we going with the hyphen here?

    • http://www.feld.com bfeld

      I haven’t decided on the hyphen or space thing yet. But it won’t me mixed case!

  • http://www.cheepmonkey.com/ Kyle Van Pelt

    What a great and necessary paradigm shift. It seems so simple, but there has never been a startup problem. With over 600,000 new businesses started every year in the US alone there is plenty of starting up.

    Scaling up is a brilliant concept regardless of the actual revenue. A CPA starting his own tax shop scaling up to $500k or an SEO Moz led by @randfish:disqus scaling up to $100mm+ is what is truly important to every community in the world.

    Thanks Brad.

  • https://twitter.com/#!/TomLabus Tom Labus

    sometimes scaling up is holding on during the ride. Understanding that you need to function well and how to do it is crucial during this time frame.

    • http://www.feld.com bfeld

      Especially when – per the comment above to @awaldstein:disqus you get “pull” working well!

  • http://arnoldwaldstein.com/ awaldstein

    Like this.

    Scaling implies infrastructure and holding on to growth in a controlled way.

    In 99% of the cases that’s not the case. It’s a slog–$8M trying to break $20M. $25M trying to get to the next step.

    In my experience, each of these steps has oxygen deficiencies of their own and it’s more about the process of broadening and discovering the market rather than holding on.

    You can always scale to meet demand. Discovering demand is what matters.

    • http://www.feld.com bfeld

      Powerfully said. I’m a huge believer in the “pull” vs. “push”. Every great company I ever have worked with that scaled up generated enormous “pull” or demand from customers in the process.

      • http://arnoldwaldstein.com/ awaldstein

        I’m a true believer in market pull as a tipping point. It’s what marketers dream of.

        But it pulls in steps as markets are not just one big kahuna but striated and layered. I’ve had pulls as big as $100M (once!) but you intentionally leverage brand and momentum with broader markets or deeper products and even they just don’t work and all markets are not as big a wave to ride.

        Looking forward to these posts. Marketing is what gets me out of bed every day.

      • FAKE GRIMLOCK

        EDISON NOT INVENTED LIGHTBULB.

        HIM FOUND LIGHTBULB WAITING TO EXIST.

        SAME AS EVERY DISCOVERY EVER.

    • heyehd

      “Discovering demand” is a great perspective. I suggest that discovery is really a collaboration between the market and the startup. Twitter comes to mind.

      • http://arnoldwaldstein.com/ awaldstein

        You might enjoy this post:

        http://arnoldwaldstein.com/2013/03/marketing-matters/

        Playing at the intersection of market and company intent for a long time and have blogged incessantly on it over the years. Consulting in this sandbox is what I do alongside my own projects.

  • http://about.me/gregjohnston Greg Johnston

    Awesome read, Brad. Is it possible to build the processes(step-by-step) for a startup that is templated in a way that ensures they are scaling in the right direction? Including the tools necessary to collaborate with the team, make the right decisions and replicate that success in other projects or startups. Maybe there is something already out there. One of the data points I have learned from my mentorplus.me community is the support required from mentor/expert/advisor that can guide them through a process and hold them accountable in order to achieve success.

    • http://www.feld.com bfeld

      I think there are solid frameworks, in the same way that Lean Launchpad, Lean Startup, and The Business Model Framework work. But, I’m going to dig in and learn what I can over the next six months in addition to relying on the last 20 years of my own experience.

  • http://www.facebook.com/jade.bourelle Jade Bourelle

    Brad, good focus, many communities are good at fostering innovation, and startups – but lack the experienced managers, infrastructure in the communities to support companies to scale. It takes a volume of tech companies in a city to go through scale to get a volume of experienced management talent that can then seed other companies to manage through scale. Often hard to relocated management talent to smaller companies and these communities and this is a tough time to have management spread out all over the place for a company…. also, the skills and focus points in transition from start up to scale is a much harder thing for the founders to get through without more experienced help. As a result companies flounder in between start up and scale up too long… don’t hit their potential etc.

  • http://is.linkedin.com/in/balakamallakharan Bala

    Totally relate to the post. We are in that boat right now, going from no revenue to recurring $20k/month to $200k/month to $2m/month to $20m/month is what its about. Scaling a business requires capital, I think deciding what type of a startup one is an important decision point in the Scale up process. I wrote a blog post about this based on a talk that Joe gave to the Founders School. http://blog.startupiceland.com/2012/11/30/organic-growth-vs-get-big-fast/
    I live by this principle, one has to decide if one is a Ben and Jerry kind of an organic business or a AWS kind of a business. That decision basically makes you think about the strategy to scale your business. If you are in the land grab business you definitely need capital to execute fast or all the available land is gone when you are bootstrapping.

  • Kristjanfreyr

    Great post, there has been a lot of lunch discussions on your talk among SoSummit and GEW delegates. Seems to be a lot more support from the delegates towards learn-by-doing events rather then all-talk-no-action types. This is dynamic change from the events hosted in Liverpool last year and Shanghai two years ago. Looking forward to see next years impact.

    • http://www.feld.com bfeld

      Awesome – I got to reinforce that one more time at the end of the day at the Fringe event that I spoke at.

  • http://twitter.com/fabref fernando fabre

    Greece has 4 times more micro firms per capita than the US. The US has 4 times more big firms (500+ employees) than Greece.
    Starting a business is pretty easy even in Greece, but scaling is the really hard part. Viva los Scale Ups!

    • http://www.feld.com bfeld

      I just saw the Endeavor report you sent me – very powerful

  • http://www.kineplay.com/ben Ben Milstead

    I hope you’ll go deep on the differences between scaleup and growup, and the startup milieu that seems to regard anything not scaleware as failware.

    • http://www.feld.com bfeld

      Yup! Good distinction.

  • http://twitter.com/denerkan Deniz Erkan

    Well said, Brad.

    Once a Startup passes through the market adoption phase and starts generating revenue, “Scaleup” tests have to be launched immediately. Scaling up is an iterative process where the business machine, that financial model, is projecting to be in positive ROI while scaling customer acquisition activities at the same time. Often times, at high scale, the fundamentals of customer acquisition metrics and life time value of a customer will shift and be off target. There are many reasons for that…Marketing channels will yield a higher CPA at scale…LTV of the customer might be surprisingly different than projections at low scale…In any case, “scale problems” emerge and have to be attacked with a solid strategy.

    Also, we need to acknowledge that not all businesses will scale to $100M revenue due to the depth of the market, no matter how solid the product, revenue model and the execution is. I think it’s hugely important for an early stage “Scale-up” company to start “ceiling tests” where they can more or less predict how far that business can scale.

    Zaarly recently had to pivot and change their product, core service and business model once they realized the “ceiling” was too low, which I covered in my blog.

    • FAKE GRIMLOCK

      DECIDE GOAL SIZE.

      NEXT GET RIGHT METRICS TO GET THERE.

  • http://twitter.com/lreeves Lisa Reeves

    I think you are making a great decision to focus on scale up and stay grounded in one physical place. The past 8 weeks I’ve woken up in my house (after years of travel) and it is the best ever–increased clarity/focus, appreciation of family/friends, and just time to think & question. Good luck!

  • RBC

    Hey Brad, agree with the idea of focusing on the scale up – certainly where many people want to get to. But sometimes startups or even established companies get caught up in their hubris and commit really stupid mistakes.

    How do you reward someone who saves a company from running off a cliff in the Road Runner sense?

    ps congrats on taking time off the road – I’m just coming off three months based in London to start the year and it was really rejuvenating to not travel. Looking forward to an exciting year!

    • FAKE GRIMLOCK

      REWARD IS NOT AT BOTTOM OF CLIFF?

      • RBC

        Up the cliff, not off the cliff down. No prizes for crashed servers or hacked customer records. But how do you reward someone who saves you from a huge possible loss?

        Sent from my iPad

  • http://twitter.com/reinpk Peter Reinhardt

    It will be interesting to compare your thoughts against what Paul Graham has to say about growth: http://paulgraham.com/growth.html and then to compare that also to the “Engines of Growth” that Eric Ries talks about in Lean Startup. Looking forward to it!

  • http://bsoi.st/ bsoist

    I’ve shut down all my travel for the rest of the year

    So, maybe Terri and I will arrange a visit to Boulder after all. :)

  • Andrew

    Thoughtful post. As you take your “think time”, it may be interesting to look at the (high performing) nonprofit/social enterprise world where scaling workable models, rather than just starting new ones, has been a primary focus for the last decade or so. In that world financial and human capital are much more scare than in tech and in some sense the necessity of scaling may therefore become clearer more quickly. It has of course proven to be incredibly challenging, with plenty of failures but also successes and lessons learned.

  • http://twitter.com/X2M_biz X2M

    We scaled Webroot from under $10 million to over $100 million in the three years I was there. Happy to share any stories from that experience.

    • http://www.feld.com bfeld

      Yes – that was quite a remarkable ramp! I’d love to connect about it some time- drop me an email.