How Startups Survive the High-Growth Stage

Mike Peña, Stanford University April 4, 2018

Like humans, a venture in its infancy can get away with virtually anything. It’s small and hard to notice, still figuring out its strategy, occasionally breaking rules and, often, testing people’s patience. But unless it knocks over something super-expensive or someone gets hurt, the market is a nascent business’s sandbox.

Early-stage startups are easy to identify. They usually have a few dozen employees at most, are still in their seed or “A” round of fundraising, and are bringing in about $1 to $5 million in annual recurring revenue (ARR). But as with humans, there comes a time when that venture must grow up if it wants to make its way in the world – in other words, to scale and survive.

At the other end of the spectrum, a mature business can be even more obvious to spot. They’re often public companies in clearly identified markets that sustain themselves and grow through repeatable processes. Think of any number of established firms in tech today: Apple on the consumer side, Salesforce in the business-to-business (B2B) space.

So, what do startups in the transition — the “teenage” years — look like? Complexion and peach fuzz aside, these scrappy firms have some telltale signs of their own. But it’s not as straightforward as age, according to Laura Marino, a Silicon Valley veteran who has led product teams at young and established B2B companies to scale successfully.

Marino, vice president for product management at MOVE Guides, has spent many years working with large and small software companies across a variety of industries. While each startup is unique, she says there are ways to avoid the most common mistakes growing companies make as the number of customers and the product complexity increases.

So, if you’re wondering if this is you, here’s how to tell — and more importantly, what to do to get through it:

Why doesn’t this fit anymore?

If you’re at a startup with 40 to 60 people and it just got way more crowded in the office, congrats, your venture has entered its teenage years. During this stage, headcount increases to 200 and sometimes up to 700 employees, Marino says.

While there’s no one trigger that sends startups into the teen years, the rapid growth is usually brought on once product-market fit has been achieved and the company has figured out how to penetrate its target market. This, in turn, attracts more customers and allows the startup to get to its next round of funding, which Marino says often gets invested in scaling to support the fast growth.

What’s happening to my voice?

Once a startup enters this high-growth stage, the form and tone of communication must change. Shouting questions and answers across the room will no longer do. Processes and, more importantly, the startup’s mission and values need to be written down.

“Ensuring that every existing and new employee understands them is probably an important first step, but it is not enough,” Marino says. “The values have to be reflected in the company processes and hiring criteria.”

Why do I need to act responsibly?

Startups in their “teens” can no longer just move fast and break things. They know what they’re doing and need serious capital in order to ramp up production. They are typically in their series B, C or sometimes D round of fundraising, which can be anywhere from $10 to over $20 million. So, big investors and new customers are watching.

But the strategic switch from shortcuts and hacks to “investing in scalable architecture is more about the need to scale, not necessarily to establish a better reputation for funding,” Marino points out.

Do I need to be more independent?

Yes. According to Marino, early-stage startups typically develop close relationships with one or two big-name businesses and depend on them for vital revenue and references that give them credibility as they seek out more customers. That dependency leads the startup to customize its product or service to meet the needs of those all-important clients.

“Securing early adopters is critical: They will help the startup understand market requirements and build the product,” Marino says. “But they will also ask for functionality that is not useful for the broader market.”

The other way a startup gains independence is by bringing on other big-name clients. But in order to do that, Marino says, the young hustlers who locked in your first customers may not be the best suited to interact with enterprise-level businesses. For that, you’ll need seasoned salespeople with experience in closing deals with complex and sometimes long-established companies.

In the end, the reason why the teenage years are so awkward for startups is because so much is counterintuitive. “The initial strategies that fuel a company’s ascent can actually become obstacles in getting it to the next level,” she explains. “Be prepared and embrace the change.”