In the world of entrepreneurs, it seems the ecosystem of small businesses and startups are converging more than ever.
As the founders of tech startup Bolstr -- an investment marketplace focused on small businesses -- we’ve spoken with hundreds of small-business owners about their challenges and growth plans.
Having experienced firsthand how many small-business owners think about growth vs. their tech brethren, we often noticed a dichotomy in approach. Historically most small businesses strived simply to be great local businesses, while tech startups strived to become national and global operations. This belief seems to be changing.
More and more, we’re seeing innovative local businesses being launched in the consumer, retail and manufacturing space with the goal of becoming the next Chipotle, Gatorade or big-name specialty retailer. They want to scale and scale fast -- a goal that is standard within the world of tech startups.
While there is no magic formula for success, we do believe these tips will help set the course -- anchored by one fundamental truth: Growth is deliberate.
Adapt a lean-startup methodology. To become a national brand you’ll need to master the art of failing quickly. This means conducting cost-effective tests rapidly before making any big investments and deliberately learning from the failures along the way.
Related: How to Always Be Ready to Adapt Your Business to Change
If you want to launch a new flavor or product category for your granola company, don’t immediately buy inventory for every location. Survey existing customers and offer a thoughtful incentive for their reply. Also test it first in your best and worst selling store and leverage sales data to drive your decisions.
Let your customers dictate how much you invest in the initiative, learn from their feedback and double down on the product categories they like. This allows you to fail quickly if the results weren't what you expected and avoid the devastating outcome of over investing in an unproven product.
If you haven’t read The Lean Startup by Eric Ries, pick it up ASAP. Regardless of stage or industry any business can learn a lot from his thinking.
Measure everything. In our experience, small-business founders often make decisions based upon “gut,” whereas tech startups scour for data points to drive their decision-making process.
Related: Tracking These 6 Metrics Could Boost Your Sales
Making data-informed decisions on a regular basis is critical to achieve scale. Doing quick tests and learning to fail quickly does not matter unless you measure everything along the way. You have to learn from your customers and quickly adapt your model in real time.
For consumer or retail businesses this means paying close attention to your product specific sales data even down to the locational level. This is just one of several important factors which require measurement. For more information, check out Melinda Emerson’s post on five things every business should measure.
Many business owners don’t know this but most retailers like Whole Foods, Target or even small, local chains keep close track of numerous metrics relating to every product's performance. Ask for this data and analyze it. If there’s a sales discrepancy across stores, visit the store. Look closely at any reason which could explain the difference -- whether its product placement, culture of the sales staff or customer demographics of the location.
Raise growth capital. Many consumer businesses tend to look at organic growth as their only option. And rightly so. Access to bank financing has been non-existent, and equity capital from angel investors can be extremely expensive. (We’ve seen early-stage companies give up between 50 and 60 percent ownership.)
It’s no surprise that brick-and-mortar small businesses view growth capital so much differently than their tech counterpart, who aggressively pursue venture capital from day one.
That said, to rapidly scale month over month and year over year you’ll need extra dry powder to invest in equipment, marketing, talent, new locations and your best selling products. It’s time to start making growth capital a priority and to think like a tech startup.
Related: Why Too Many Entrepreneurs Don't Know How to Raise Capital