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Brain Circuits
Are you scaling, or just burning cash?
Sometimes it’s tempting for startups and scale-ups to keep putting money into their exciting new product or service without knowing if it has the potential to become profitable. Seasoned tech executive Katarina Bonde shares tips and tricks on how to gauge whether you’re scaling – or just spending.
Be realistic
It’s easy to give something away for free, but regardless of how wonderful your idea is, don’t fool yourself into thinking that you have a product that’s working for the customer until someone is actually paying for it.
Don’t (necessarily) be put off by competition
It’s rare to find a smart product that hasn’t existed before, so you will likely have competition for your idea. But don’t let that put you off – competition can be a good sign if it means people are interested in – and buying – your product.
Measure what’s happening
Once you start generating sales, you still have to make sure that people want your product in sufficient quantities, so it’s important to continually measure what’s happening.
The bowling alley model is a useful market-entry strategy here: focus on one “pin” or market segment first and make sure that you dominate it before expanding.
Be data-driven
Data is the real gold today – particularly company data. Exploit your internal information to the max and treat it as a resource that’s becoming ever more valuable.
Know how to forecast
There are many readily available tools out there, so there’s no excuse for not knowing how to forecast. Get good at figuring out how fast sales are likely to grow and therefore how many people you need to hire and when, and other business-critical factors.
Identify the low-hanging fruit
As a young company, you can’t attack every market segment at once, so you need to identify where the low-hanging fruit is. The bowling alley model is a useful market-entry strategy here: focus on one “pin” or market segment first and make sure that you dominate it before expanding into adjacent, similar market segments.
Step back
Once you start growing, you need to know whether this growth will continue. This means you need to step back regularly to check where the company is at. It’s vital to be able to show that the business model can pay for itself sustainably.
Checklist
Go through these questions to evaluate where you are in your product development journey:
- Is anyone using our service or product?
- Are any of them paying customers?
- Do we have any competitors out there?
- Are we forecasting sales and trends accurately?
- Are we trying to expand into too many market segments?
- Are we fully exploiting the data available to us?
Key takeaway
It can be easy to keep putting money into a great idea without properly testing it out. Use these tips to check whether the great idea has the potential to scale before you find yourself burning cash with little prospect of becoming profitable.
Expert
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Further reading:Â
Thinking Fast and Slow by Daniel KahnemanÂ
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What makes a great leader? Do you need charisma? How do you inspire your team? Our experts offer actionable insights through first-person narratives, behind-the-scenes interviews and The Help Desk.
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Join Membership
Log in here to join in the conversation with the I by IMD community. Your subscription grants you access to the quarterly magazine plus daily articles, videos, podcasts and learning exercises.
Â