David Cummings on Startups

When Growth Stalls

Written by

David Cummings

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Things were going well. The startup was making good progress over the course of several years and had reached a point of modest self-sustainability. Then, what had been steady 30-50% per year growth rates, stalled completely and turned into a revenue decline. For Software-as-a-Service (SaaS) companies, growth is the biggest driver to earn a premium valuation for the business.

Here are a few ideas when growth stalls:

  • Evaluate how much of the change in business growth is due to market dynamics (e.g. new entrants or competition) vs. macro economic factors (e.g. a recession that hits all players)
  • Review expenses, cash burn, and runway, especially if the business isn’t profitable (venture investors are going to be extremely concerned when a portfolio company stops growing)
  • Consider adjacent products, verticals, geographies, etc. and how that will help/hurt the core business vs. the overall business
  • Reach out to mentors and advisors and get feedback and advice — you never know who’s already experienced this first-hand
  • Engage with key team members as the most talented people are going to start looking for other opportunities if the business isn’t growing

Remember that a startup is a scalable, growth-focused company. If growth stalls or a decline sets in, the dynamics of the business can change dramatically.

What else? What are some more thoughts on growth stalling in a startup?

Comments

3 responses to “When Growth Stalls”

  1. Isaac Garcia (@isaacgarcia) Avatar
    Isaac Garcia (@isaacgarcia)

    I’d say that more often than not…..stalled growth is a symptom of poor product / market fit. Many times, you can achieve early product / market fit but in the process of scaling you still hit wall (i.e. slow growth). This is a topic that needs to be explored more…..as many companies achieve a “premature product / market fit” that stalls out in a couple of years. This becomes a deeper conversation about “how much can/should a company burn while “scaling” its product after its achieved a perceived “product / market fit.”

    Reply
  2. Mike Gomez Avatar
    Mike Gomez

    Having spent the last 12 years advising companies (tech, product, services, manufactures) how to overcome stalled growth, I have to agree with David’s observation – that stalled growth can be attributed to numerous factors.

    Here are just a few I have personally observed with clients:

    (1) Externally caused: new competitors (same product or better product), market saturation, technology shifts, new consumer/business trends, regulatory changes, new Google search algorithms,
    (2) Internally caused: excessive spend on non-value activity, in-effective marketing spend, no plan (long or short), loss of largest client, pursuit of non-core business opportunities, unaware of core competency, lost core competency, no respect for competition.

    My point is the first challenge to overcome stalled growth is to accurately identify the cause (more likely causes). And one heck of a lot of experience says that you, the owner/founder, are not the best person to uncover these causes. After all, stalled growth did not happen in an instant.

    There is a great Harvard Business Review study/article titled, “Evolution and Revolution as Organizations Grow” that has achieved “Classic” status because of its long standing relevance. The study involved thousand of companies from all sectors. It concluded that companies go through basically five stages of growth. Each stage is preceded by mini “revolutions” and growth occurs when leadership recognizes those tell tell signs and evolves both management style and operating practices to address them. The companies that don’t “evolve” stagnate or die.

    Here is an excerpt: “The problems at these companies are rooted more in past decisions than in present events or market dynamics. Yet management, in its haste to grow, often overlooks such critical developmental questions as, Where has our organization been? Where is it now? and What do the answers to these questions mean for where it is going? Instead, management fixes its gaze outward on the environment and toward the future, as if more precise market projections will provide the organization with a new identity.”

    Stalled growth has huge implications. This is not the time for ego to drive your decisions because guessing and attacking what you “think” are the causes can accelerate the death spiral.

    Mike Gomez is a mentor at ATV.

    Reply
  3. Andrea Arena Avatar
    Andrea Arena

    Great ideas. I expanded to Canada after realizing that they were not facing the severity of the economic downturn that the US was dealing with. I also recognized that none of my competitors were there yet. Hope this helps!

    Reply

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