How to know if your start-up will work

Karan Bajaj, author and technology entrepreneur.

By Karan Bajaj

We had 20 employees in the first nine months of starting up. Then, in the next nine months, WhiteHat Jr grew to 5000+ employees, while using almost no incremental funds. One of the most crucial decisions a start-up’s founding team makes is when to scale. Do it too early before your unit economics are positive and you’ll rapidly lose your limited early-stage cash reserves. On the other hand, if you miss your narrow window to scale, well-funded competitors will enter the new category you created, making your start-up irrelevant. How do you recognize the exact moment your small startup will work and is ready to become a large company? Here are some indicators I found useful in making the decision:

1. Your Product is Ready or the 50/50/50 Rule

In my experience, a founder has to wear three distinct hats in a start-up’s lifecycle:

• 0 to 1 (Pre-Scaling Phase): Be the first product manager, obsessively involved with each product detail.
• 1 to 100 (Scaling Phase): Become a business systems expert, meticulously instrumenting operations, systems, and organization structures to scale.
• 100 to 1000 (Post-Scaling Phase): Transition into a culture champion, instilling the organization’s values in each new employee.

All of the above is extremely compressed in a start-up as you switch hats within months and any delay in any of the phases materially impacts the entire organization. For instance, I felt I was too late to enter the 100-to-1000 post-scaling phase leadership, which I later course-corrected by spending inordinate time on articulating and encouraging deep debate and discussion on the founding values of the company.

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In the 0-to-1 phase though, the founding teams’ biggest role is to build a product ready for scaling and track a few key metrics daily, obsessively, that indicate product readiness. For example, I had defined a 50/50/50 rule for us to begin scaling:

• Net Promoter Score(NPS)=50
• Renewal %=50%
• Referral Contribution to New Revenue=50%

I kept our team limited to 20 people for nine months, resisting all pressure to scale, until we hit the 50/50/50 point above. No press, no social media, very limited marketing, obsessive control on spends, using only a fraction of the $1 Million seed funding we’d raised.

Our 1st curriculum had a Net Promoter Score(NPS) of 23, for example. So we called users daily to figure out how to make each element of the curriculum stronger, doing hundreds of iterations on each class for each level, and launching new features like post-class projects and quizzes daily, based on their feedback.

The moment we hit the 50/50/50 point, we blitz-scaled, adding thousands of students, teachers and employees almost overnight. As a result of positive unit economics, we grew without increasing cash burn.

Your metrics will be different depending on what it takes to get to positive unit economics but define, then track them daily. I’ve found the best approach for a startup is extreme patience in the beginning to create a product users love, then extreme impatience to distribute the product widely once you’ve hit your golden “user love” metrics.

2. Your Users are Ready

You’ll start to get small indications from the world when your product is ready. Organic traffic shows an uptick, Moms’ Whatsapp groups are recommending it, a celebrity starts using it without you even knowing it, daily there’s some signs users are ready for you! The moment you see the signs, make a deliberate intention to break away from incremental thinking to 10x thinking. WhiteHat Jr were growing at a steady 20% growth rate each month, for instance, when we started seeing these indications. This catalyzed our resolve to step back and break away from incrementalism to start growing 100% month on month, restructuring the whole organization to enable this growth. Start-ups shrinks or expands in proportion to one’s imaginations, the moment your metrics and indicators go north, so should your imagination!

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3. Your Team is ready, fully inspired by the mission

Like most startup founders, I’ve often felt that you could take my business, brand and systems away, but if you just left my team with me, I’d probably rebuild the company from scratch once again within months. Your team is everything for a startup. Blitzscaling puts immense pressure on the team whether in managing outsourced call centers struggling to cope with your daily doubling customer service needs or setting up internal operations to recruit hundreds of folks a week. Every team member goes over and above. Only a deep belief in the company’s mission unites the team in this period. We all believed deeply, for instance, in our mission that kids’ should be creators not consumers of technology. Similarly, our vision to create 100,000 live 1:1 women teaching jobs in India was more urgent than ever as the Indian economy shed thousands of jobs daily in the pandemic. This kept us strong. If your team has the same conviction in the start-up’s mission, you know you’re ready to face all challenges in your path.

I hope this is a little useful as you decide when to transition from the inward focus of the 0-to-1 phase for the turbo-charged 1-to-100 adventure. Good luck for this unforgettable journey!

(Karan Bajaj is an author and technology entrepreneur, and also founder and CEO of WhiteHatJr. The views expressed are personal and not necessarily that of Financial Express Online)