Lessons from Freshworks on how to grow your startup and scale rapidly

Are you a startup founder who's eager to grow and scale your business? Make sure you make these fundamental preparations first.

We all know the statistics for startups — and they're not good.

More than two-thirds of startup companies never make a profit. Most companies simply don't bring in enough money to grow. However, not every startup fails. Founders who research their target market, find early adopters and retain their customers can build long-lasting, profitable companies.

Here are some lessons we've learned at Freshworks to grow our company from 100 customers to over 58,000 now.

Phase 1: Set yourself up for success

What exactly is growth?

A successful startup usually goes through three phases:

1. Slow. The hustle period, where the startup settles on its target market and product fit.

2. Rapid. If the product is a good fit for customers, the startup can see rapid growth through market expansion.

3. Consistent. The growth curve gradually slows, and the business settles into a repeatable and predictable revenue stream.

Whether a company makes it to phases two and three will depend heavily on the founders' mindset and attitude toward growth.

Y Combinator co-founder Paul Graham says founders must have a growth mindset from the beginning. He advises startups to pick a growth rate they think they can hit and attempt to (just) reach it every week.

But the key word here is "just." "If they decide to grow at 7 percent a week and they hit that number, they're successful for that week. There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed," Paul says.

Once the growth rate is hit, founders must keep momentum to scale.

Phase 2: Grow and scale rapidly

Step 1: Grow

1. Evergreen rule: Get the right product-market fit

A total of 72 percent of new products don't reach the company’s revenue goals. Worse, they fail to make any money at all.

Lack of product-market fit is usually the reason why. Startups achieve product-market fit when retention provides sufficient signals and creates enough money to drive sustainable acquisition.

Casey Winters, Chief Product Officer at Eventbrite, says reaching product-market fit is a recipe for sustained growth. But he says startups should be mindful that customers may never be totally satisfied with a product. Casey says, “Product-market fit is not when customers stop complaining and are fully satisfied. They’ll never stop complaining. They’ll never be fully satisfied. Product-market fit is when they stop leaving. Customer expectations are an asymptote a product experience can rarely hope to achieve, but the product-market fit is a line a product can jump over and try to maintain a higher slope than over time.”

2. Find early adopters

Early adopters help startups fine-tune the product-market fit.

Focus on the one customer type you believe will receive the most value from your product. For us at Freshworks, it was small businesses that wanted customer support tools that were affordable and easy to set up.

As University Professor Everett Rogers observed in The Diffusion of Innovation, a product needs to be picked up by certain segments of the market before it scales. First, it's the innovators. Then, the early adopters.

But you're unlikely to know who the innovators and early adopters are until you start selling. When course-management platform Podia started out, the company believed the product's target audience was coaches. But after capturing its first 100 customers, Podia's founder realised his best customers were content creators. Quite a pivot!

The company has since raised over $3 million in capital and has thousands of users.

Keep searching for your ideal customers, and don't let bias get in the way of who you think they are.

3. Sell and expand to other markets

Creating a new product can break the bank at a startup. Selling existing products to bigger geography or larger accounts is the secret to rapid growth.

Larger accounts usually have a formal process for buying products like pitching and negotiation. But startups can pattern-disrupt by innovating the buying process with transparent pricing or product-led growth. The same is true for international expansion, which is a quick way to grow, even if it means incurring some short-term costs for (potentially) massive profits.

Your TAM (total addressable market) will give you an idea of how much revenue you can potentially generate by expanding into, for example, North America.

That said, Zachary Nelson, the NetSuite CEO during the dot-com bust and 2008 recession, encourages founders to conserve cash because VCs are not going to be as free with the capital as they once were. Zachary says, "Be smart about where you will be putting the money. But it's the perfect time to start because of the first-mover advantage over others.”

4. Hire the right growth leaders

Fast-growing software companies now lean on a product-led growth approach.

According to a 2021 report by OpenView, billion-dollar companies like Slack, Zoom, and Atlassian invested in growth teams to achieve double-digit conversion rates compared to companies with no team.

At Freshworks, we have teams that are focused on monetising users on our free plans and an acquisition flywheel to help buyers discover our product, engage with it, and turn into paying customers.

So, why doesn't every company make this investment?

According to HBR's Thomas Steenburgh and Michael Ahearne, the problem is senior leaders not believing in their ability to commercialise their products. "Our research suggests that this gap results from a lack of formal processes and effective talent-management strategies. It’s a big problem, because it limits the return companies reap from their R&D spending. To put it simply, companies that have invested millions to dream up new-to-the-world innovations need to become more adept at selling them to customers,” they say.

Startups can avoid this by investing in a growth team.

5. Build a data strategy

Data shows you if a startup is growing or failing.

The exact metrics to track will depend on your industry. SaaS startups will focus on monthly recurring revenue (MRR), churn rate (revenue), net retention rate (NRR), and customer acquisition cost (CAC), while companies with usage-based models will track compounded monthly growth rate (CMGR), retention rate, and gross margin.

Don't track every metric — it's counterproductive. Pick a few that matter and use them to measure success.

Step 2: Scale

6. Identify and decide on the right growth channels

Many founders don't think about scaling until they've achieved product-market fit.

But it's best to start thinking about your growth journey early. Stacey Epstein, the Chief Marketing Officer at Freshworks, says teams need to use data and metrics to really understand what's working and what's not. “As marketers, you want to do everything - events, webinars, spend money on search marketing. But one should really understand what is delivering ROI. So when things don’t look great, that can be your moat, your differentiator,” Stacey says.

Find the channels your target market is using to solve their pain points and discover new products. Some founders will find their audience on channels like SEO, LinkedIn or Twitter, while others will have more success on Product Hunt.

Dabble in these channels early to see what resonates best with your buyers.

7. Unlock revenue growth by retaining customers

The best way to retain your customers is to deliver a delightful experience and ensure they’re comfortable with your product.

If a customer is at risk of churning, your team should know about it. Invest in a modern, all-in-one CRM, so marketing, sales, and support teams have a full view of each customer, their records, and purchase history. With a CRM, you can store your contacts, make calls, send and track emails, generate reports and keep track of your sales pipeline.

This is the best way to ensure your customer-facing teams stay aligned and retain customers.

Phase 3: Work with the right people

It takes a startup to understand a startup.

Working with people who have built a company from the ground up or worked as early members of a startup is arguably the best decision a founder can make. At Freshworks, we never forget where we come from. Now, we want to help other startups.

That's why we’ve created the Freshworks for Startups program to #payitforward. It has everything founders need to get through each stage of the scaling process, from accessing products built for sales to marketing, IT, and support teams. You'll also have access to the startup mentorship community to bounce ideas off other founders and get feedback throughout your journey.

Partner with the right people and the customers (and revenue) will follow.


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