An Inside Look At The Path To Scaling

Last week, I said that having too much money can be tricky for founders.

But there’s a greater sin.

It’s pleading poverty as the “magic moment” arrives – when traction and everything else comes together.

As I said last week, this magic moment is when you can win big. And winning big is the name of the game in the early investing space.

But companies can do this only if they’re scaling or if they’re on the path to scaling.

Scaling is not just another way to describe explosive growth. It’s a very particular kind of growth.

It happens only when your marketing and sales costs stabilize, allowing these costs to decrease significantly as a percentage of revenue. (See my post here for a more detailed treatment.)

Scaling does not guarantee success, an IPO or another company buying a startup out.

But a company unable to scale usually generates mediocre returns or worse.

So how do all the issues I talked about in my last post – cash reserves, fundraising, valuation, product/market fit, large growing markets and the ability to scale – mesh to determine a startup’s upside?

Well, rather than explaining the process, let me show you instead, via a company from ourStartup Investor portfolio: Privy.

Granted, it’s just one company. It won’t explain everything. But I hope you’ll learn how these issues are linked, so you can begin connecting the dots yourself when researching a startup.

Navigating the Journey From Pre-Traction to Scaling

We put Privy into our Startup Investor portfolio last August. It gives retailers tools that tell them when their customers redeem their online offers.

Privy had only 30 customers – definitely pre-traction. And that’s not so unusual for seed companies.

We thought it had some interesting building blocks – the idea, the pain point addressed, and its customers’ quick 30% uptick in redemption rates.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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