Jan Bosch foto serie 1000×5633

Jan Bosch is a research center director, professor, consultant and angel investor in startups. You can contact him at jan@janbosch.com.

29 November 2021

One company I worked with analyzed the businesses they had tried to build over the years. Their analysis showed that the most successful business inside the walls of an already highly successful company took, on average, 7 years to reach 50 million in revenue. And this was with the entire weight, network and customer base of the large parent company behind it.

Everyone, including myself but perhaps excepting seasoned serial entrepreneurs, underestimates how long it takes to grow a business. Even if you hit market fit immediately and you’re hiring staff as fast as you can, in almost all cases it still takes years to reach revenues in the tens or hundreds of millions. In my experience, there are at least three big hurdles on the road to success: achieving product-market fit, figuring the right way to scale and building momentum with customers and the ecosystem.

First, although many entrepreneurs are convinced that they have the best thing since sliced bread, it will typically require several iterations with customers to get the product-market fit fully established. Your offering is, by definition, novel and there’s no established market for it. If there was, your company would stand little chance in the competition with incumbents. The new offering may provide major benefits, but for these to be realized, it typically requires changes on the side of the customer. And customers aren’t fast in implementing changes. As a consequence, the cycle time of iterations with customers is simply much slower than expected in the beginning.

Second, once you’ve achieved product-market fit and can start to focus on scaling the business, it often requires a bit of experimentation and learning to figure out what the right way to scale the business is. Typically, you need to bring in sales and customer success staff as the product often scales quite well with the increase in customers. However, bringing in new sales staff requires the existing staff to codify how they’ve engaged in the sales process to date. Otherwise, the new people will focus on working as they did in their previous job. Figuring out the best ways to bring in new people and making them productive is a surprisingly hard challenge that costs more time than you would expect. Especially because it will most likely require letting go of people who don’t work out, which is hard as it’s something you try to avoid where possible early in a startup.

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Third, building momentum with the business ecosystem around the company and simply building a brand in the industry have a strong delay factor. Customers may buy from you to evaluate your offering, but it requires significant trust for them to let the product in the core of their business. That’s why many boards of startups track cross and up-sell revenue as this indicates to what extent your customers are willing to put their trust in your company’s offering. Building this trust is time consuming. It can take years.

The media often presents successful startups as overnight successes, but the reality is that they’ve been quite long in the making. The well-known WD-40 lubricant, for example, was the 40th try of the company to build a successful product. Similarly, Rovio had built 51 failed games before the “overnight” success of Angry Birds. For all the gung-ho attitude that many associate with a startup, it’s more of a marathon than a sprint.

Building a company takes a long, long time and you should really settle for committing at least a decade of your life in case the business is successful. Of course, if you fail, you can move on to your next venture, but it’s more fun to make your current one successful. But as Hofstadter’s Law says: it always takes longer than you expect, even when you take into account Hofstadter’s Law.