In the near decade since Mach37 Cyber Incubator’s founding, more than 100 early-stage companies have participated in its program. In every case, these entrepreneurs have sought to answer the question, “What factors predict success for an early-stage company?”
Experts generally cite factors like the quality and experience of the management team, evidence of customer engagement in the product/solution definition, compelling competitive differentiation, and proof of market viability through early customer adoption as key success factors.
As a technology executive who sought out innovative solutions to offer enterprise level clients and an investor in early-stage companies, I would argue that a frequently overlooked factor is scalability.
Scalability has two dimensions. (1) Can the product/solution ultimately meet the demands of an industrial strength operating environment typical of an enterprise level customer? and (2) Can the company scale to deliver the product or solution for multiple enterprise customers?
I do not mean to suggest that scalability should be the number one priority of an entrepreneurial management team. Demonstrating that an innovative idea can translate into a workable product and that a potential customer will try it out and provide useful feedback should top the list. However, enterprises and investors are also trying to sort out whether the product fills a niche or might provide an answer to an enterprise-wide concern. For example; early product versions frequently have limitations on the number of users or devices that can be supported. Having a roadmap or plan that envisions how an entry level solution will mature to address a compelling business problem at scale can increase the interest of potential buyers or investors.
Spending time pondering how you will serve the demands of multiple customers when you are trying to land your first may seem unimportant to a start-up. However, both potential customers and investors do think about it. An early corporate adopter knows customer support will be readily available, but what will happen when the customer base expands. An investor knows that the early focus is on how to acquire the initial customer set, but the business case likely depends on aggressive sales growth. An entrepreneur needs to build confidence that the sales and customer support infrastructure can expand to meet that challenge.
Early stage companies compete for both market position and investment resources. Scalability factors into both. The window for exploiting a market opportunity can be alarmingly narrow. Success may depend on how fast a beachhead can be secured and expanded. Military analogies can be dangerous, but perhaps useful in this case. Launching an attack requires the intelligent deployment of resources to gain an initial advantage, but management of the reserves to exploit a breakthrough is essential to the success of the operation.
As for investors, they are generally looking for a return in a 7-10 year horizon. They need to be convinced that the product or solution will address a broad business problem, but also that the company can meet an aggressive financial time schedule. In the cyber market, Crowdstrike offers an example of a company that effectively planned for rapid scaling, achieved an early market leadership position, and built an infrastructure to exploit the opportunity. Having a realistic and convincing plan for scaling the business can be the difference in a successful Series A round.
The message to early stage entrepreneurs is to ensure that scalability is not overlooked in your business planning.
Jim Sheaffer spent 45+ years in the IT industry. First in the course of 27 years with American Management Systems (now CGI), he established the firm's European business and spent a decade expanding it from a base in Frankfurt, Germany. Later, for Computer Science Corporation (CSC), he was President of its public sector business. A former naval officer, he earned an MBA from the Univ. of Chicago and a B.S. in Economics from Penn's Wharton School. He is an investor and adviser with early stage businesses, and has been a Mach37 Stars mentor since its inception.