Growth stage strategy for next stage startup growth

7 mins read

An MBA graduate in business or finance understands there’s a finite number of financial models that create the foundation for any and all business. I don’t care what kind of business innovation or invention someone creates… the science of moving money is pretty stable and has a long, long tradition.

There’s simply not that many different ways to create a capital management and movement system. Sure, the value proposition someone creates in a specific market might be new… but how that value gets exchanged for money is as old as prostitution itself.

As we’ve seen with work from guys like Steven Blank and Eric Ries, there’s clearly a push to elucidate and establish a model for transforming someone’s idea for a business into a systematic framework. Their work is based on the continuous improvement approach fathered by the revered W. Edwards Deming (TQM, Kaizen, Six Sigma all stem from his work).

It’s common sense to smart entrepreneurs… but as we all know, “smart” and “entrepreneur” aren’t necessarily one in the same once the company progresses past that fledgling stage.

Someone might be very smart with their subject matter expertise, and they’re able to innovate some new solution to create value for their target customer. But that doesn’t mean they’re smart in how they develop an operations and financial management model. That’s relegated to the actual successes of business mavens like the billionaire leaders we all read about and love.

Years ago, Michael Gerber wrote the classic book, The E-Myth, which delved into the difference between the artisan or trade person and the systematic approach to developing a scalable business model.

So what does this all have to do with my own work?

Well… I want to help grow small small companies together in a tightly-defined market segment.

Defining the market segment itself is fairly elusive for a lot of folks. So there’s a model-driven approach to actually identifying a market, discovering the value chain of related sales opportunities between strategically aligned small companies, then… here’s the real trick… the secret sauce… being able to consolidate and merge multiple, separate entities together in such a way that blends information management, operations… and… {drum roll} capital.

Capital is always the common framework.

It’s also the least understood by technology people (hand in hand with marketing itself). Despite most technical subject matter experts’ espousing of delusions of grandeur to the contrary, 99.999999998% of them abysmal marketers and even worse capital managers.

If a business founder is lucky enough to identify a business opportunity, develop and release a relevant product or service, and actually survive the first few years of operation to build a sustainable entity… they’re in the significant, minuscule minority. And furthermore, they’re more often than not unable to translate “the way we do things here” into some other context or frame that expands upon their own (largely accidental) success.

Equity capital managers already understand this about early stage entrepreneurs and founders. That’s why sometimes investors have a mixed reputation with business owners… because the likelihood the founder will be replaced with professional management is pretty high.

A venture investor wants to invest in the story – unlike a bank, who lends money on what already exists, professional capital wants to put money into the future net value of the asset based on “what could be”.

But this also comes with the stark understanding that it’s largely a crap shoot on the skill sets of the management team BEYOND the subject matter expertise that brought the company to the point of even being a candidate for consideration of a capital injection.

Quite simply, there’s usually a big gap between capital, subject matter expertise, operations management, and marketing.

Understandably so. They’re all quite different fields of knowledge.

That’s why I am driven to build a structured approach to incubating past idea stage, and working to develop growth stage companies. There’s a lot of focus on incubating startups… proving the market for a particular product or service with minimal capital investment (the Lean Startup MVP “Minimum Viable Product” approach touted by Eric Ries). There’s lots of chatter in the business community about tech incubators, startup accelerators, startup weekends, 500 startups, angel investing, etc… But once a company is able to stand and take some baby steps, what is the next level?

How are the investors going to reduce their risks of that early stage company being unable to enter a growth stage organically?

That’s what the overwhelming majority of early stage investments will face… stalling in the market and being unable to obtain Series B funding. No investor wants to put more good capital into a portfolio asset that’s already missed ROI objectives.

But that’s where I smell opportunity. Capital investing follows the fundamentals of any and all basic business transactions… buy low, sell high. I’m simply looking for discounted cash flows attached to undervalued value propositions (products and services).

Take a stalled, early stage company, create a strategic game plan, build an operations management model, and combine the individual, narrow value propositions into a value chain that accelerates the overall valuation of the assets. Align those assets strategically with existing vertical industry players. Rinse. Repeat.

There’s simply nothing about the idea of buying low and selling high that’s changed over thousands of years.

Michael Hiles

CEO 10XTS, INTJ, chaotic good, PDP/11 in '79 (THAT kid), info architect, Milton Friedman, data science, semantics, epistemology, coffee snob, OG hip hop

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