Every successful company starts with a single idea.
It's how those ideas are approached, molded, and questioned that dictate whether or not they go on to evolve into a startup.
However, reaching startup-dom doesn't complete the lifecycle of these ideas. Instead, becoming a startup is the moment when ideas begin to grow into something actionable, driven by a collection of intentional goals.
And as all of us who have lived the startup life know — when you're a startup, more often than not your goal is simple: to survive.
I like to think of being a startup as treading water. Succeeding as a startup requires constant motion to ensure you can find product-market-fit, drive early customer growth, and build a baseline product all at the same time. The moment you stop moving is the moment you lose traction.
And this is all before you've even begun to scale.
Fortunately, there comes a point where you've treaded water long enough to reach your first lifeboat: Investments.
That's where it gets exciting.
As startups move from idea mode to scaleup mode, there are a number of signs I look for in order to determine if I'm going to invest. Of course, not every scaleup has to get every one of these signs right to be worthy of investment, but the more positive signals a scaleup has to offer, the higher the odds of long-term success for that organization.
So, what is the secret sauce that these special startups have?
7 Signs that a Scaling Company is Worth the Investment
While scaling is a universal concept, the act of scaling efficiently rarely looks exactly the same for all companies.
Instead, each scale-up encounters their own unique trials, speed bumps, and roadblocks on the path to sustainable growth. When I am looking for scaling companies to invest in, I always take into account the individual circumstances of each company in the context of their growth to see whether or not they have set themselves up for long-term success.
As an investor, these are the core values I've seen that have proven to be present at companies with growth potential.
1. There's evidence of customer happiness.
The customer experience doesn't lie. In fact, it's become a key part of GTM strategies at companies like HubSpot, which are investing in Chief Customer Officers and finding more ways to serve the customer across the organization. That's all to say — the customer should be at the center of every decision.
For evidence of customer happiness, take a look at the NPS (Net Promoter Score) and other customer satisfaction scores of the company in question. If the results are in the green, you're looking at a scale-up that is already making a positive impact on their customers. If instead the results are in the red, investors take warning.
Another way to determine customer happiness is to look for low or decreasing churn. A company's retention rates are the first sign that they are either a fan favorite, or a stepping stone that customers take on their way to a more prepared company.
2. The organization's primary roles have great people.
In the early years of a startup — when the primary focus is on the product — other roles like sales, marketing, and operations aren't typically fully staffed. However, this practice doesn't cut it when it comes to scaling.
When you're a scale-up, these roles should be filled with amazing people. If not, there should at least be a plan in place to hire them.
After all, the potential of a scale-up lies in the potential of the people who are dedicated to its growth.
Without staffing all of the necessary teams with top talent, you could be unknowingly stunting your company's growth. In the early days at HubSpot, Brian and I surrounded ourselves with people who were smarter than us, and invested in people we believed in. (Somehow they weren't all developers, like I requested … but I digress …). Those investments paid off, big time, and we're still surrounded by those people today.
3. Unit economics are stable and sustainable.
Of course, no one expects scale-ups to already come with an impressive ROI. A vanity metric or single data point isn't exactly enough to convince an investor that your scale-up is worth their time and money. Instead, what I look for is stability and sustainability.
To be primed for viable growth, your customer lifetime value should be some multiple (usually 3+) of your customer acquisition cost. What this number will tell me is that your company is not only desirable by your customers, but that you already have what it takes to retain them and continue to gain value from them as they grow with you over time.
Scalability and sustainability are two sides of the same coin. With the ability to establish sustainable unit economics early on in your lifespan of startup-hood, you'll be primed to scale when the time comes.
4. The culture of the organization is well-articulated.
Company culture is not something that appears overnight. Instead, it's embedded in every decision your company makes and in the people who work at your organization. Every organization has their own specific company culture, but some are better at articulating theirs than others.
Company culture encompasses your mission, vision, and values and is the mark of a company with what speaker and author Angela Duckworth has coined as "grit." Grit is "the power of passion and perseverance," which translates nicely to what makes startups successful — having a clearly defined passion, and the perseverance to achieve the long-term vision.
Of course, to be effective, your company culture doesn't need to be composed in a slide deck with 128 slides, but it should be written down. This way, when potential investors like myself take a look at your scale-up, we won't have to spend our time guessing the motives and shared vision that drives your organization. Instead, we will be able to see how your culture guides decision-making across your organization.
It's a good idea to begin defining your culture sooner rather than later. Company culture provides a stable jumping-off point for most of your initiatives, including recruitment, retention, and alignment. The greater understanding you have of your culture, the more efficiently you'll be able to create a shared vision for your organization.
5. There's a strong focus on creating customer value.
There's a reason why I'm so intent on investing in companies who keep a close eye on their customer value. By continuously integrating customer feedback and preferences into your scale-up, you'll be more prepared to proactively create customer value, as opposed to operating in a purely reactive state.
The companies that succeed today are no longer those that just delight their customers sometimes, but rather those that consistently find ways to exceed expectations and create a personalized experience.
Ultimately, the best way to maintain a strong focus on creating customer value is to open up a line of dialogue between yourself and your customers. If you haven't yet, take this as a sign to begin establishing your means of gathering customer input.
Start by asking yourself questions like:
How is your team getting customer input and acting on it?
Beyond customer support, who else is focused on the customer?
How is your customer involved or represented in your business' decision-making?
6. The company has a strong strategic planning process, and knows how to determine product priorities.
Remember what I said earlier about the importance of creating sustainable systems? The important thing isn't that the planning process works seamlessly and is already primed to scale.
The emphasis is on the fact that there is a process and mechanism in place for making these decisions at all.
Trust me: A disorganized planning and priority-setting process makes it impossible to scale.
The process of scaling is all about proactively setting your company up for future successes. When you have a clearly defined planning process, you're communicating to any potential investors that you are looking to the future and priming to scale.
As an aside, while you're evaluating your processes, take a look at your systems. Are they built for scaling organizations? Will it be easy to upgrade when you're ready?
7. The organization has an engaged workforce.
Last, but certainly not least, the final sign that a company is scaling sustainably and worth investing in is the satisfaction of their employees.
An unhappy workforce is a red flag (for new hires and investors alike). Not only should a company have a process for regularly collecting employee feedback, but they should also have a proven record of responding to and acting on the results of the feedback they collect.
A handful of disengaged or unsatisfied employees is typical, but a collection of them becomes a trend to be prevented at all costs. If you experience high turnover rates, you'll want to fix that quickly — it's impossible to scale without investing in the long-term growth and development of your employees.
At HubSpot, we have an eNPS (employee NPS) survey that we conduct every quarter for all employees. This way, we are consistently in tune with their needs and preferences, so we can provide employees with the supportive work environment they deserve. We read and evaluate every comment and are constantly looking for ways to improve our employees' experience.
And there you have it! The secret sauce I've noticed in startups with real potential to scale, and what they did to stand out.
Whether I am actively looking for new companies to invest in or not, I always have my antenna up to notice exciting new scale-ups. To invest in sustainable models that support growth at your organization while prioritizing your customer experience, download our guide to Scaling Sales Operations for Customer-Centered Growth.
Originally published Sep 20, 2021 7:00:00 AM, updated September 20 2021