Taking a new company from the startup phase to the scale-up phase takes a lot of time and effort. Stats show that only about 0.5 percent of startups succeed, which means that only one out of 200 startups make it to a point where they’re ready (and able) to scale.
Christian Kletzl, CEO and co-founder of UserGems, knows firsthand that early-stage startups face various challenges, such as achieving product-market fit and growing a customer base, which can lead to failure if not executed properly.
Christian’s previous startup was a B2C solution that failed to gain traction. He applied the lessons he learned from that experience to UserGems, which has achieved an annual recurring revenue (ARR) of $10 million and experienced 10x growth in the last two years.
He was recently a guest on The Scale Up Show with Ryan Staley, where he shared valuable insights about scaling to a hyper-growth startup. Read on to find out what lessons he’s learned as part of his startup journey and how you can apply them to your business.
6 practical lessons for scaling up from a founder in the arena
A scalable business model and infrastructure is great, but it doesn’t guarantee your startup will scale successfully.
Christian knows that from personal experience. Here are six of the most important lessons he’s learned as a startup founder that will help you take your business from scrappy to scalable.
1. Figure out when to give up or keep going
Whether you’re trying to perfect a product or grow your customer base, it’s not always clear when to give up and when to keep going.
If you give up on a new business too early, especially in the B2B space, you might be doing so on the brink of a breakthrough. But if you continue your efforts and it doesn’t work out, you waste time and resources you could’ve spent doing something else.
Christian shares an example from the early days of UserGems:
“For us, when we got our first customer, who was actually big, it took another four months until we got the second one and then another two months until we got the third. And then faster and faster and faster. At first, we thought, ‘Okay, maybe we just got one outlier,’ and maybe this product isn’t going anywhere. But we stuck with it, and suddenly the acceleration hit.”
So, how do you figure out when you should keep pushing or when you should throw in the towel?
Christian suggests going crazy. “The only way that I've learned to make this decision is to actually go crazy.”
He explains, “What I mean by this is, ask, ‘What is the craziest version of this that I could do?’ It doesn't have to scale. It could be a whole lot of work. It could even be really expensive. But what's the craziest version? And then, if the craziest version doesn't work, you can stop with your non-crazy version of that as well.”
For example, Christian shut down a B2C startup because the response to their most unconventional marketing technique helped them realize it was time to quit.
“We did a whole lot along the way when we did the B2C selling. We went to apartments, put a box in front of their door, and said, ‘Give us the stuff you want to resell, and we'll do it for you. Since the craziest, easiest possible version didn't work, we said, ‘Okay, that's it.’ We stopped with it.”
2. Accelerate the rate of development
Customers will always ask for more features. But as you probably already know, building what they ask for doesn’t guarantee they’ll pay for it.
That means you have to validate any new features before you build them, which takes a lot of time.
Here’s the framework Christian uses for accelerating development in scenarios like this.
“The best methodology is that whenever you say, ‘Okay, someone's asking for this. I'm going to develop this and figure out whether it's interesting.’ Then, you put a timeline on it. Let’s say, two months.
“At this point, my co-founder always asks, ‘Could I have this in two days? What do we need to do to have this in two days? What are we cutting to have it in two days?’ And it's really interesting how these questions accelerate the rate of development. So, I think the framework is just asking these questions at every single point. Even when you think it’s a crazy ask.”
While you may not always meet hyper-accelerated deadlines, they can help you move faster overall. Launching the right feature at the right time can also improve customer satisfaction and increase retention rates.
3. Be open to crazy initiatives
Moving forward with crazy initiatives can help you quickly decide whether to continue or abandon certain efforts. And this doesn’t just apply to products but other areas as well, such as business development and marketing.
“Certainly, this should be done by every single department, especially marketing,” says Christian.
“There are these core fundamentals in marketing that you need to do. For example, you go to conferences, you do X, you do Y, but at least 20 -30% of the budget for the activities needs to be for something completely crazy because it’s the crazy initiative that can have these outsized results.”
In marketing, risky initiatives like this can boost pipeline generation, as demonstrated in the case of UserGems with highly personalized advertising.
“Everyone does highly personalized sales, but we’ve done highly personalized advertising,” says Christian. “We target a company, put the logo of the company on the ad, and that by itself increases the click-through rate tenfold. And that is a lot of work if you have 5,000 companies you're targeting. But with the right process, you can actually get that to work.”
You might wonder if these experiments have a process, but Christian advises founders to avoid obsessing with nailing down a process.
“It's a mistake to think that you need to have a process for it,” he explains. “If you think about the process, then you might not even start because it's completely impossible to start with a process there.”
“Rather, this is where the mantra of Y Combinator comes in: ‘Do things that don't scale. And once they work out, you find a process and a way to scale it.’”
lot of work if you have 5,000 companies
4. Align your sales and marketing team
Aligning your sales and marketing teams increases the effectiveness of your pipeline generation activities, ensuring that you’re targeting the right people at the right time.
“Having a strongly orchestrated sales and marketing motion is our primary revenue growth market strategy,” says Christian.
“We call it outbound, but it's really a combination of sales and marketing. The very same people get the same sales messages and see marketing messages on LinkedIn or any other channel simultaneously. Then they either respond or come inbound through that.
“The key is remembering that we all have a two-second attention span. So, it takes seeing your messaging 10 times in two seconds for someone to remember you. That's why it's so important to orchestrate sales and marketing so that you're reaching the same people with the same messaging at the same time.”
5. Have a pipeline generation strategy
Generating new business is critical to scaling your startup.
It’s possible to have a scalable product, yet still struggle to get new customers. This makes it hard to grow your revenue and leaves your sales team with pipeline anxiety.
Tracking your past champions, power users, and prospects effectively generates a stream of qualified warm leads for your pipeline.
“The idea is if they move to a new organization, then you can quickly sell to them because they already used the product,” says Christian. “It's typically a very easy sales motion, faster and higher lifetime value.”
Your previous customers already know who you are and (hopefully) loved your product at their last organization. Being able to reach out to these former customers when they move to a new job means your sales reps can shorten the sales cycle and close deals faster.
And with UserGems, this play is completely automated.
However, Christian notes that there are two aspects to tracking buyer job changes. The first is generating pipeline while the second helps protect revenue.
“A champion leaving is the second biggest reason for churn we've seen,” explains Christian. “Over the last two years, our conversations with customers have always been around revenue generation. But in the last 3-4 months, pretty much all our customers are now focused on active churn prevention.”
The number one thing companies want to do now is protect the revenue base they already have.
“We've seen a huge uptick in ‘tell me who's leaving my customer accounts’,” notes Christian. “And also interestingly, ‘tell me who's joining my customer accounts’, because that's actually another trend risk if there's a new person coming in who now has the budget and they've never heard of you, so you want to go in there as quickly as possible.”
6. Cultivate an efficient growth mindset
Money plays a huge role in the survival and growth of a startup. Fundraising isn’t easy, so you want to avoid the need to raise funds in subsequent rounds even if you’ve done so before.
To ensure profitability, you need to adopt an efficient growth mindset in terms of how you run the company. Everyone within your startup needs to adopt this mindset, including your marketing teams and salespeople.
“Money has been a question for us, especially in the first five years of our existence,” Christian recalls.
“Because we've been pretty much running out of money for the first five years, we've always had this efficient growth mindset. And for us, it actually carried us into this time right now where everyone is now thinking about efficient growth.”
But how do you know you’re growing sustainably in real-time? And what data do you look at? Christian suggests one specific metric.
“There are a whole lot of things to look at, and then you can always cherry-pick the metrics that you like, but the one that I really like is revenue per employee,” he says.
“Revenue per employee has always been the North Star for us because it aligns hiring people with revenue growth. So, unless you're growing at a specific rate, don't grow your team size at a specific rate.
“You should increase revenue per employee over time. But for us, the psychological number was always a hundred thousand. We always wanted to be above the hundred thousand in terms of revenue per employee.”
Generating new business is key to scaling your startup
Scaling a startup to a hyper-growth company requires keeping costs low while increasing profit margins and new revenue streams. It also means actively working to prevent churn so you can protect your revenue and consistently generate new business to eliminate pipeline anxiety.
Find a balance between being open to experiments and cutting your losses so you can effectively manage risk while scaling your business. And focus on aligning your sales and marketing teams with an efficient growth mindset to ensure you’re set to make the most of available resources.
Struggling to generate a steady stream of warm leads for your business?
UserGems can help. We track when your past customers, champions, and prospects move to new roles and automatically surface them in your CRM so you can sell to them again. We also surface the key contacts you need at your target accounts, so you can execute highly personalized outreaches.