Every successful business starts with one idea.
It is how those ideas are approached, formed and questioned that determine whether or not they will evolve into a startup.
However, achieving startup dom doesn’t complete the lifecycle of these ideas. Instead, becoming a startup is when ideas begin to grow into something doable, driven by a set of intentional goals.
And as all of us who have lived the startup life know – if you’re a startup, your goal is usually simple: to survive.
I like to see being a startup as treading water. To succeed as a startup, you need to be constantly on the move to ensure you can find product-market fit, drive early customer growth, and build a base product at the same time. The moment you stop moving is the moment you lose traction.
And all this before you’ve even started scaling.
Fortunately, there comes a point when you’ve stepped in the water long enough to reach your first lifeboat: investments.
That’s where it gets exciting.
As startups move from idea mode to scale-up mode, there are a number of signals I look for to determine whether to invest. Of course, not every scale-up needs to get every single one of these signals right to be worth investing in, but the more positive signals a scale-up has to offer, the greater the chance of long-term success for that organization.
And then is the secret sauce these special startups have?
7 signs a scale company is worth the investment
While scaling is a universal concept, efficient scaling rarely looks exactly the same for all businesses.
Instead, each scale-up faces its own unique trials, speed bumps and roadblocks on the path to sustainable growth. When looking for scaling companies to invest in, I always consider the individual circumstances of each company in the context of their growth to see whether or not they have prepared for long-term success.
These are the core values that I have seen as an investor and that have proven themselves in companies with growth potential.
1. There is evidence of customer satisfaction.
The customer experience does not lie. In fact it has become one important part of SSM strategies at companies like HubSpot, who are investing in Chief Customer Officers and finding more ways to serve the customer across the organization. That’s not to say that the customer should be at the center of every decision.
For proof of customer satisfaction, take a look at the NPS (Net Promoter Score) and other customer satisfaction scores of the company in question. If the results are green, you are looking at a scale-up that is already positively impacting their customers. If the results are in the red instead, investors are warning.
Another way to determine customer satisfaction is to look for low or declining customer churn. A company’s retention rates are the first sign that they are either a fan favorite or a stepping stone for customers to become a more prepared company.
2. The primary roles of the organization have great people.
In the early years of a startup — when the primary focus is on the product — other roles such as sales, marketing, and operations are typically not fully staffed. However, this practice doesn’t cut it when it comes to scaling.
If you’re a scale-up, these roles need to be filled with great people. If not, there should at least be a plan to employ them.
After all, the potential of a scale-up lies in the potential of the people who are committed to its growth.
Without staffing all the necessary teams of top talent, you could unknowingly hinder the growth of your company. 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, as I’d asked…but I digress…). Those investments paid off, and we’re still surrounded by those people today.
3. Unit economy is stable and sustainable.
Of course, no one expects scale-ups to have an impressive ROI already. A vanity stat or a single data point isn’t precise enough to convince an investor that your scale-up is worth their time and money. Instead, I seek stability and durability.
To be ready for viable growth, your lifetime customer value must be a multiple (usually 3+) of your customer acquisition cost. What this number will tell me is that not only is your business wanted by your customers, but you already have what it takes to keep them and continue to extract value from them as they grow with you over time. .
Scalability and sustainability are two sides of the same coin. With the ability to sustainably unit of economy early in your life as a startup, you’ll be ready 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 its own specific corporate culture, but some know how to articulate it better than others.
Company culture encompasses your mission, vision and values and is the hallmark of a company with which speaker and author Angela Duckworth has coined as “grit.” Grain 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 does not have to be in a slide deck with 128 slides, but it should be written down. This way, when potential investors like me take a look at your scale-up, we don’t have to spend our time guessing the motives and shared vision that drive your organization. Instead, we can see how your culture drives decision-making across your organization.
It’s a good idea to start defining your culture sooner or later. The company culture provides a stable starting point for most of your initiatives, including recruitment, retention, and alignment. The more understanding you have of your culture, the more efficiently you can create a shared vision for your organization.
If your company culture could use an overhaul, check out HubSpot’s Ultimate Guide to Corporate Culture.
5. There is a strong focus on creating customer value.
There’s a reason I love investing in companies that closely monitor their customer value. By continuously integrating customer feedback and preferences into your scale-up, you are better prepared to proactive creating customer value, as opposed to operating purely reactively.
The companies that are successful today are no longer those that sometimes surprise their customers, 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 a dialogue between yourself and your customers. If you haven’t already done so, see this as a sign to start establishing your way of collecting customer input.
Start by asking yourself questions like:
- How does your team get input from customers and act on it?
- Besides customer support, who else is customer focused?
- Is there a customer success team?
- Do you have the . defined voice of your customers?
- How is your customer involved or represented in your company’s decision-making?
6. The company has a strong strategic planning process and knows how to set product priorities.
Remember what I said earlier about the importance of creating sustainable systems? The important thing is not that the planning process works seamlessly and is already prepared at scale.
The emphasis is on the fact that there is a process and mechanism for making these decisions at all.
Trust me, a disorganized planning and prioritization process makes it impossible to scale.
The process of scaling is all about proactively preparing your business for future success. When you have a clearly defined planning process, you communicate with potential investors that you are looking to the future and preparing to scale.
As an aside, as you evaluate your processes, take a look at your systems. Are they built for scaling organizations? Is it easy to upgrade when you’re ready?
7. The organization has a committed workforce.
Last but certainly not least, the last sign that a company is scaling sustainably and worth investing in is employee satisfaction.
An unhappy workforce is a red flag (for both new hires and investors). Not only should a company have a process for collecting employee feedback on a regular basis, but they should also have a proven track record of responding to and acting on the results of the feedback they collect.
A handful of disengaged or disgruntled employees is typical, but a collection of them becomes a trend that must be avoided at all costs. If you’re experiencing high turnover, you’ll want to fix it 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 quarterly for all employees. In this way, we are consistently aligned with their needs and preferences so that 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 the experience of our employees.
To get started with conducting comprehensive employee surveys yourself, find here: Everything you need to know about eNPS.
And there you have it! The secret sauce I’ve noticed at startups with real scale potential, and what they did to get noticed.
Whether I’m actively looking for new companies to invest in or not, I always have my antenna to spot exciting new scale-ups. To invest in sustainable models that support the growth of your organization while prioritizing your customer experience, download our guide to: Scale sales operations for customer-centric growth.