Good problems to have, and how to solve them

Sometimes in startupland you will be faced with what people call good problems to have. Good problems to have relate to growth and scaling. Too many inbound requests, too much data, too may users and so on. If your greatest worries are how you could be growing faster, those are good problems to have.

These kind of problems will have you feeling like you’re drowning, literally swamped and feeling like there are not enough hours in a day. One of the VC’s we like refers to this as “the breaking point,” and he says that this is the point where you should consider fundraising, not before and not after. So fundraising is indeed one way to deal with this issue, but money doesn’t always solve the problem - and money isn’t always available.

In general, there are four approaches you can take and which approach is easiest will depend on the company’s situation and the problem at hand.

Brute Force

We all know the brute force method. Keep doing more of the same. Increase ad spend to increase traffic. Hire more sales people to tackle more leads. Add more RAM/CPU to process more data. Brute force is the most obvious answer and also the most costly. It’s returns are generally linear or worse as there tend to be limits to this kind of growth as it has diminishing returns. Moreover, if you focus your efforts on a brute force tactic, you open yourself to competition with bigger guns (ie. the Rocket Internet approach).

Change the product

Design and user-experience can have a phenomenal impact on how users interact with your product and how they value it. Or it might not. If you are not solving a real problem for the user, it doesn’t really matter how beautiful or user-friendly it is. Then again, if users are not keen to purchase things in their shopping basket because the checkout process is really confusing (or requires visiting another site), then spending a week thinking about how this could be designed better could yield unexpected, positive and lasting outcomes. Revamping your product through design or a much-requested feature can change the slope of your growth by 10%, 20% or maybe more. But the order of magnitude is in the 1-2x range.

Unlike the brute force method, product change is of course more sustainable and doesn’t require continued investment every month, but even the iPhone starts to look old after a few years. If you are successful, soon your competitors will develop similar features to mimic your success so continued investment in the product becomes necessary. Ultimately, if there are two great shopping basket checkout methods, you can only choose one, so enhancements may be limited.

Leverage users

Another way to jump start growth is through your users. Imagine if Tripadvisor had tried to brute force all their restaurant reviews. Instead, they leveraged the power of the crowd to generate that content for them. Successful marketplace companies have employed this to devastating effect. Think of Ebay, Amazon or more recently, AirBnB. They all started as small, fledgling platforms but thanks to the ingenuity of their founders, they found a way to persuade buyers and sellers that there was no better place to go to market. Good open source projects are also able to leverage users to great effect.

Social and communication platforms have an even greater network effect. You can’t Skype or Whatsapp alone. These products naturally encourage viral adoption and hence didn’t require a ton of features or sales teams to build out. Dropbox is another that leveraged its users to “sell” its product for them as you automatically had to sign up if a Dropbox user shared something with you.

As expected, network effects can have a dramatic, exponential impact on growth. While some products and business models naturally lend themselves to network effects (marketplaces, social networks, messaging, etc.) users can be leveraged in any business. Forums and message boards can be set up for users to support each other. Certifications and partnerships worked wonders for the large enterprise vendors to distribute and establish themselves within organisations and industries.

Change the business model

As a business scales, you also have to find ways to scale the side-effects of the business. Support is a good example. Early customers will flood you with support requests as you will undoubtabley have not enough documentation often your early adopters will have a personal connection (which made them take the leap of faith in the first place). You won’t mind the support queries as they will highlight missing features or bugs in your product, but as you scale, support will increasingly become a costly challenge.

To solve this increasing support cost, you could just hire more support staff and brute force the issue. Alternatively, you could change the product and create helpful hints and links next to features or you could leverage users to create a forum and let users answer other users’ questions. Each of these could have drawbacks of course or might simply not be possible. In these situations, changing the business model could be appropriate. You could offer support packages and charge per ticket, or offer X number of support queries/month. More radically, if you realise the real value is in the support, you could open source the software and only charge for support. This could drive further adoption of the software and as a consequence, your support revenue.

Business model changes are also particularly interesting to consider in marketplace-type businesses. AirBnB would have been much harder to grow if it charged homeowners a monthly fee instead of charging renters each time they booked. Linkedin has recently started to shift from a completely free social network/advertising model popularized a la Facebook to a more freemium model of restricting users to X number of profile views/searches per month and with additional features to users who pay more. This will no doubt improve short term revenue, but could slow down user growth. Changing the business model can also change the market you are in. Linkedin may have been seen as a Facebook competitor, but is now probably better defined as being in the recruitment industry.

There is often no right answer to dealing with scaling problems but i would recommend considering the more creative options available before diving into the brute force approach.