Every tech start-up goes through four critical stages of development. In this series of articles, we’re exploring what defines success and failure at each of these stages.
The Expand phase is often the point when the market demand, either regional expansion or product range expansion will require start-ups to change their structure whilst remaining focused on the successful seeds of growth sown during the initial period of Incubation. Or, as is often the case, fixing issues while they can still be rectified.
What are the characteristics of the Expand stage?
- One or more products established in the market
- Loyal customer base with one or more big brands using their services
- Series C funding under way or secured
- Expansion of the leadership team (e.g. the addition of a key leadership positions)
- Heading towards the pivotal Scale stage of development (i.e. towards a potential IPO or sale)
At the Expand stage, one of the most important factors that will determine whether a business is nurturing success or cultivating failure are the decisions made to safeguard their capacity to continuously improve their evolving products and services.
By this point, the company has established the features and services that makes their product different and valuable, what they are good at, and what is best left to others. Successful start-ups have:
- A flexible and modular platform that enables them to quickly adopt changes or integrations that can bring new revenue streams without re-engineering the whole platform i.e. change small parts of the system, or use flexible configurations
- Leveraged best-in-class third parties to provide complementary services and features (e.g. card processing for a payments platform), so they can expand their product range and launch new products quickly
- A track record for automating operations, using managed services, and sourcing expert partners so the growth does not rely on hazardous hiring plan
- Methodologies or playbooks that help reduce time to market based on lessons learnt through their journey so far
Scaling the IT capability is often a bottleneck to growth and is unlikely to ease over the coming years.
A common trait of businesses who falter at this stage is the inability to recognise third-party opportunities. At the Expand stage, many start-ups can become insular – either unaware of complementary third-party services or fixated on the idea that they must do everything in-house.
Successful businesses will choose their third-party partnerships strategically, with a focus on outsourcing commoditised elements, allowing their in-house team to focus on core product features/services that will prove to be true differentiators. They will also aim to minimise contractual lock-in to specific vendors, building greater flexibility in the development journey.
At the other end of the scale, some companies become over-reliant on third parties, and use them to build their core product services. This often results in sub-standard code quality, not to mention a loss of IP control and core product knowledge within the in-house team, which can further impact product expansion opportunities.
Another common issue is a lack of alignment between a start-up’s internal product KPIs and its vendors’ KPIs. While the start-up may be achieving its targets, if its vendors aren’t delivering, or if the two sets of KPIs aren’t aligned, then ultimately the outcome is the same – customers receive a poor service and the customer-facing brand is damaged.
Technical traits at the Expand stage
Moving from a monolith to a microservices architecture is commonly an important objective for many start-ups in the Expand stage. As the business, and its development team expands, efficiency and effectiveness hinges on the ability to compartmentalise the product application into a series of individual services, to improve the efficiency with which different teams can work on them and deploy them.
Although companies will ideally already have been operating within a microservices architecture from the Incubate phase, the reality is that most won’t and may not even have a well-structured and modular codebase. In the race to get a product out to market, many will have stuck with a monolith approach because it has served their current needs well enough or even helped them get to market more quickly.
The Expand stage is the last opportunity to re-engineer and fix these kinds of issues without incurring a significant cost overhead. Businesses nurturing success will, if not already operating within a microservices architecture, have set out a clear timeline for the transition, with sufficient resources allocated to achieve it.
Those cultivating failure will stick stubbornly to a monolith approach, especially where the underlying architecture is hard to maintain, keep stable and scale, which will have significant implications when they reach the third stage of development (Scale).
Retaining a lean operating model
Successful tech start-ups must be lean operationally from the outset, to build and launch their product while moving through the initial funding rounds. As businesses develop towards the Scale stage that follows expansion, it is vital they retain that leanness in their operating model. In practice, this means that if the work doubles, you shouldn’t need twice the people.
Better use of technology and tools is certainly part of the answer - investing in the skills and capabilities to create an effective DevOps and SecOps culture with well formed, optimised processes and pipelines, as well as the platform engineering to underpin scalability and performance. The use of cloud-based managed services (whether from vendors or third parties) can all be considered to reduce the burden on the start-up’s operations.
As part of the Expand stage, start-ups should also look for any opportunities to reduce friction when using their products. This could be through the automation of onboarding, redefining and optimising the customer journey and, where relevant, allowing customers to self-serve integrations to the start-up’s digital services. For example, in creating SDKs (Software Development Kits), effective documentation, guides, online training, and online configuration and management tools, in-house teams are able to stay focused on tasks that drive value as the client base grows.
By the Expand stage, when a company has at least one product proving its value in the market, with the customer base rapidly expanding and the data generated via those products beginning to accumulate, it is important to build the data architecture, security and controls to safely manage and optimise its use.
Businesses nurturing success will have a coherent data strategy and architecture – a plan for storing, unpacking and extracting value from all their data. Businesses cultivating failure will be reactive, using siloed data stores, no data stewardship and limited, if any use of AI and Machine learning to understand this data’s true meaning – and value.
Overall, if the technology leaderships and governance has been unable to steer the start-up in the right direction then the technical debt for these businesses cultivating failure will continue to mount and start seriously hindering growth. A lack of automation and reliance on manual processes will begin to cause problems. Poorly designed platforms with unmaintainable, badly organised and undocumented code will get progressively harder to fix. All these issues will inevitably amplify in significance when these businesses reach the critical third stage and the topic of our fourth article – Scale.
Read additional articles from this series