Knowing when to scale?

At some point in a start up journey, the discussion of 'scaling' arises. What does it mean to 'scale'? For a CEO, the moment to begin scaling a tech means an increased capital investment. For a dev it might the moment to get to work so to speak. Choose this moment right and you're riding a wave towards market dominance. Done too early and it will drain even the most well funded companies quickly to bankruptcy. Done too late one risks becoming the niche player.

How do you know when to scale? I suppose it's up to you to decide based on your goals. I define that moment as probably a few months after discovering product market fit as the opportune time. This is why.

Scaling before product market fit is throwing money out the window. It can be tempting to grow revenue early in a SaaS. After all, it's all about growth. And yes, there is truth to that. But it's much easier to make a change when 100 people are using a product compared to when there are 1000. It's easier to collect and really hone a product for a specific niche when there is less input. What if early customers don't like a small product pivot that most others don't want? All that cost of acquisition gets wasted.

Thus the cheapest method of iterating to product fit is going to be just only acquire the customers needed to iterate your value propositions. For a big enterprise software with a long sales cycle, maybe a 3 or 4 companies is all you need to get the prospectives of the space. For a mass market product you may need hundreds or thousands. For social sites perhaps tens of thousands.

Knowing when you hit product market fit is a topic unto itself. After developing a few products you gain an intuition on when this is. For me it's when customers start to get excited about how it's going to improve their lives after using the product. It's easy to get excited before using a product. It's easy to promise the moon. It's hard to deliver it.

So then why wait a few months? VC's and business folk will push to get ROI asap. Proceeding forward on a feeling is dangerous. Once you feel you have product market fit, you need to prove it first.

Proving market fit is quite easy. It's directly demonstrated in revenue or contracts signed. Some companies might have a different leading KPI but for most its profit or revenue. If your company uses wide net casting strategies to acquire customers (display / social ads, widely distributed marketing campaigns), your acquisition costs and lifetime values should make sense and a profitable business case. If you use spear fishing acquisition strategies then your sales people should be having to turn away customers to focus on the ones with the most potential. If this is not the case, do not scale. Proceeding forward would create waste. If you have one sales person that isn't booked fully, why add another? There isn't proof you can fill up the time of one yet. Sure, perhaps it's because you just need some time to build pipeline. But usually the culprit is the product doesn't hold it's own yet in the market.

So thus, I personally like to take a quarter after achieving what I feel is a product market fit to see if there is tangible results when executing on the proposed strategy. If the checks come back green, it's time to invest. Come back red, and it's time to admit I was wrong on the product and get back to product iteration. Rinse and repeat. When the team is having so much success they can't handle it, it's safe to scale.

Choosing when to scale is ultimately up to you. My focus as usually working alone and in teams without resources focused on how to do this in the most economic way possible. The fastest way possible is not the most economical. Once you begin scaling, how fast you try to scale increases your risk. Plan for faster growth than the market supports and find yourself shedding cash until your pipelines can get filled. Underestimate the market and see your competitors sign your pipeline deals you don't have time for. Every company is different and choosing this moment is an art form with dozens of different styles unto itself. May your choices be wise.