The Plateau of Death
If you are lucky to find Product/Market Fit, congratulations! Now your biggest risk becomes the Plateau of Death.
Businesses are growth. If your business is growing everything becomes easier including hiring, fundraising, and retention. Startup companies are nothing but growth because they operate at a net loss so they have to race to grow before they run out of money. Any business that is flat or shrinking is going to struggle at every turn.
The bigger your business gets the harder it becomes to grow fast. If you want to grow by 40% when your business is at $10k/yr you only need to add $4k/yr of new business. If you want to grow by 40% when you are at $10M/yr, that’s a whopping $4M/yr of new business added in just 12 months! These growth requirements get out of hand very quickly.
The natural gravity of business is to grow more slowly the bigger you get. Larger businesses have more overhead, things take longer and you still have to maintain existing customers. If your business is dependent on the number of employees, it can get difficult to hire people fast enough to keep up with your growth targets.
The balance between the need for growth and the gravity of business slowing you down is the definitive problem of growth stage companies. If you don’t manage it well, you enter the Plateau of Death.
The Plateau is a slowing of your growth rate that continues until you aren’t really growing much at all. This is a huge problem for businesses, since we already mentioned they are all about growth!
There are a lot of factors that can contribute to the Plateau of Death and here are some common ones:
You exhaust your marketing channels. You might find early success in running Facebook Ads, but soon find that you can’t generate 10x as many users no matter how much you spend. Or, you might find conferences to be a great way to meet prospects but there are only so many conferences and most are held only once per year. These channels might not scale in the way you need to grow your business.
You saturate your market. If your market is small, you might start to run out of new customers to pursue! This happens often when companies focus on specific buyers in specific markets in specific locations. The most common case of this is a local services business that runs out of households in their city to service.
You become supply constrained. If you’re selling physical goods, you might hit limits on your manufacturing or supply chain that limit how much you can produce and hence sell. This also happens to digital products like ad networks, where eventually you exhaust all of your available ad inventory.
Regardless of the reason for entering the Plateau of Death, it is very hard to reignite growth after you get there. Just like growth makes things easier, a lack of growth makes everything harder. It’s harder to hire, fundraise and retain both staff and customers. The only way to break out is to take drastic measures such as pivoting the business strategy significantly.
If the Plateau of Death is so dangerous, what can you do to avoid it? The most important thing is to keep an eye out for the signs your growth is slowing. Having a bad month isn’t a big deal, but if you have three bad months in a row your alarm bells should go off! Here are some early signs you might be approaching the Plateau:
Sign: Gradual but continuous increase in Customer Acquisition Cost.
You might still be acquiring new users/customers at the same rate, but if costs more to do so then you are covering up a lack of growth with money. You should be able to acquire more customers for the same CAC as you grow, and if you can’t then you will slow down as spending becomes harder. This can be hard to spot as CAC can be noisy on a daily basis, so zoom out and look at trends over weeks and months.
What do you do if this happens? Immediately begin exploring alternative marketing channels, focusing part of your team and budget on running experiments. You need to find new channels with more consistent CACs as soon as possible.
Sign: Continuous extension of your sales cycle length.
You still might be closing new customers, but if it takes longer and longer to do so you are slowing down. Eventually, a longer sales cycle means you are working harder for each new customer and that will catch up to you. Sales cycles can also be noisy, especially if you only close a few deals a quarter, so measure the different stages of your sales cycle so you can see if any specific stages begin to elongate.
What do you do if this happens? Look at your sales cycle and identify everything that is slowing you down, and try to correct it. At the same time, look at your customers and see if there are specific customers taking longer to close than others. If some customers move faster, ensure you’re building your future sales pipeline to favor them.
Sign: Gradual but continuous decrease in Customer Retention.
If you start losing customers faster and faster, then you have a leaky bucket. This might not hold you back today, but if you don’t fix the problem you will eventually struggle to add new customers as quickly as you lose old customers. The higher your customer retention, the faster you will grow.
What do you do if this happens? Dig into why you are losing customers, including doing post mortems with lost customers to understand where you fell short. Is your price too high? Is your product not working? Whatever it is, fix it. If there are certain kinds of customers you just cannot retain, adjust your market to avoid them in the future and focus on customers you can retain.
If you see the signs, take immediate and decisive action. There is no time to waste because every day that you wait is a day closer to entering the Plateau.
If you miss the signs and find yourself on the Plateau, you can recover but only if you are willing to take drastic measures. You might need to radically restructure the business, redesign the product and re-target your go-to-market. And, in many cases, you need to do all of that and more to re-ignite growth.
Getting to Product/Market Fit is hard and growing a successful business is a lot of fun. It can be tempting to relax and enjoy the growth stage, but you need to stay diligent and watch for any signs of the Plateau of Death. If you see them, act quickly.
It isn’t called the Plateau of Relaxation, after all.
The Humor Point
Great points for that stage of the journey! Tips and tricks and timing. )