Some companies are like clockwork, or a gearbox. All the important questions are about transmission and ratios.
— Benedict Evans (@BenedictEvans) April 18, 2016
When I saw this Tweet earlier today I thought ‘yes – I know that feeling’. It’s amazing when a team has all the elements of a business working beautifully together. You can see their pride and their confidence and of course the results flow.
My next thought was about how can we all get our companies to that moment more quickly. The following four step guide is a mechanistic perspective on building a business that glosses over all the emotional context and sweat and tears that go into startups, but I hope it will help people get to that gearbox moment a little quicker.
Start selling something and growing. If you’re strategy is to build an audience first and monetise later then start building your audience, but for the transaction focused businesses we invest in, step one is most definitely to start selling.
Identify your growth engine. This definition of growth engines from our Head of Marketing Tom MacThomas is the best I’ve seen:
A growth engine is a set of activities that you can systematically undertake to drive growth. This could be as simple as running an AdWords campaign or blogging and sharing your content. Typically though, these are more complex constructs made up of lots of moving parts. Lots of parts usually means that the engine can be iterated on and optimised well by tackling each part at a time.
Read Tom’s Path Forward article on the subject for an in depth explanation of growth engines.
Model the business in a spreadsheet. Spreadsheets force you to make the relationships between the elements of your business explicit and to put values on key variables (cost of traffic, conversion rates, average order values, margins, repeat customer rates). These are like the ratios between the gears in an engine – when they are in harmony the engine purrs, but when they’re not the engine falls apart…
Get all the variables to reasonable levels. The engine is now purring, and you have your gearbox moment.
From here on in it’s about fine tuning and rapid growth. Until something breaks and you have to start again….