Step Change – being bold to achieve success

Movac Operating Partner Serge van Dam

28th January 2020

Serge van Dam

There’s a classic Kiwi cookbook – Edmonds Cookbook – that lives in many Kiwi kitchens and is a great example of how to transform your business. If you’re a baking products company and you want to sell more flour, how do you do that?  Well, you don’t make more flour. You’ve got to try and find a different way for customers to discover your products. So, the genius of the heritage food brand Edmonds was to distribute a cookbook to every New Zealand household which created a demand for flour and related products which led to a wildly successful business that’s been running now for more than a century.

In my mind, it’s about finding a different way to grow. When most companies start out they get their early level of market fit and market momentum based on a particular growth strategy, but at some point, that really doesn’t scale. Something different is needed if a company wants to become a great global company. The step-change is the investment a business makes which really accelerates its growth.

Of course, there are plenty of companies which don’t need to make this sort of bold move. For example, there are lifestyle businesses that are very successful and other niche enterprises which are protected well by intellectual property. But in a competitive market, well-funded competitors can eat away at fringe propositions and really constrain a company’s ability to grow. 

It’s the mindset, stupid

Step change is challenging more, I think, at a mental level than in practice. The first thing you must do is acknowledge that the way you’re doing things right now doesn’t translate to long term growth. It’s about changing your mindset to one of being willing to experiment and that can be difficult and even nerve-wracking for founders, especially if their businesses are swimming along nicely. We use the term “growth hacking” to describe this kind of experimentation i.e. trying different ways to grow then committing to a couple of things without knowing whether or not they’ll succeed.

A great example of step change was the evolution of the Auckland mobile banking start-up M-Com which I was involved in. We realised that selling one bank at a time in New Zealand and Australia was going to be a very painful trajectory, so we essentially bet the entire company on entering the US market and doing so through a distribution partner – the NASDAQ listed company Fiserv – which ended up acquiring our business. Basically, we bet the whole farm on that as a growth model. We lost a little bit of control over our market, but we went from having 6 customers to 2500 over a five to six-year period.

Hunger for risk

Everyone fears change, especially with the scenario of uncertain consequences which I’m advocating. Ultimately, it’s up to the founders to lead the organisation through uncertainty and to tell people you’re deliberately taking risks out of necessity for achieving growth.

Taking your team with you for the ride is the trick as well as telling them it’s okay to fail along the way. Tell them that you understand that it’s not all mapped out, that it isn’t a formula, but that you’re doing your very best to try and achieve the ambitions of the company. I’ve found most of the people who’ve joined these kinds of early-stage companies do so entirely on the ambition of the company. By definition, they would rather be in a going-global business that’s trying to disrupt a particular marketplace than in a run of the mill corporate banking or investment job.

I had a recent example where a CEO, trying to assess different options in terms of a plan, went to all the employees and got them all to rank on a whiteboard, what level of risk they wanted. The employees unanimously voted for the highest risk option. When I asked them why they said they’d joined a start-up for the excitement and the uncertainty.

But again, founders need to communicate why those things are being done, how they align with the mission and then manage the stakeholders, including investors. For example, we at Movac, have to justify to our investors why a company we’ve backed may or may not have done well. But most investors, in my experience, will be very supportive if you’ve lost money trying to do something exciting and made a step-change versus doing the same thing you’ve always done.

Doing it in the wild

I’m a big believer in experimentation and being disciplined around the level of resourcing and funding you allocate to experimentation, particularly around growth. You can try three different things a month and then determine whether or not you want to do them. Should you try a new distribution channel? Should you change your pricing? Should you run an event to see if that’s an appropriate way to acquire new customers? Experimentation is your research. It shouldn’t be desk-bound. It should be stuff you do in the wild.

Failure isn’t the worst thing that can happen, but it is likely. My first startup was a dismal disaster and it was the most likely outcome when I started. The question is why did it happen and what do you learn from it? Everybody knows that second time rounders – people who come from a failed early-stage company and do it again – have a very high likelihood of success. So, in some ways, failure’s necessary as a company makes the bold moves necessary, the step change, towards greatness on a global scale.

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