Nail It, then Scale It

One of my acquaintances is a successful entrepreneur in Utah who struggled in one of his first businesses. The business was a networking platform. It was intended for use by businesses to connect with customers and suppliers. As the business grew, he decided to expand into new markets, beginning with Los Angeles. It seemed like an ideal target location, with good weather and plenty of business. He had a budget of $1 million dollars intended for the first three years; he burned through it the first year. The second and third year also cost $1 million each with meager results on the bottom line. Eventually he had to return to Utah with his tail between his legs.

In considering his failure, my acquaintance decided that his expansion had caused him to lose sight of his core business. He had not “nailed” the business model before scaling it. Nathan Furr and Paul Ahlstrom detail the concept in their book “Nail It then Scale It: The Entrepreneur’s Guide to Creating and Managing Breakthrough Innovation.”

Nail the Problem

Solid business models are built around some pain point with a monetizable solution. Three common mistakes in nailing a business model are 1) failing to test and prove that the pain point is real, 2) selecting a pain point that targets an undersized niche market that, or 3) selecting a pain point that lacks compelling intesity.

Nail the Solution

A monetizable problem means little without a monetizable solution. Make sure your solution actually works and that your customers value that solution. A solution needs thorough testing before being set loose in the market.

Nail the Market Strategy

Make sure you understand the customer buying process. If you don’t do real testing with real prices, you’ll have no idea how customers will actually act. Customers may perceive both problem and solution in a different way than you perceive them. Understand the job customers are trying to get done and the market infrastructure in which they shop for solutions. Gather an adequate pool of serious pilot customers.

Nail the Business Model

Look at the business model as a whole and make sure everything adds up. If anything is left to chance or overlooked, it could cost you later. If the core business is not profitable, scaling it will only increase financial loss.

Scale It

Now you can scale it! Scaling too early is disastrous, and the temptation is strong. Wait. When you do grow, be careful not to transform your core business from a tested version to an untested version. You’ll have to adapt to some degree to cater to different markets, but risk increases if the core business does not stay the same.

Preferred CFO can help you verify your business model before you scale it. For personalized assistance, please give us a call.