2023 in review: Start phase building blocks

In 2023 Notion broke down the journey of a startup from $0-$100m into three distinct parts: the Start, Build, and Scale phases. Documenting what it takes for a business to land in the 1% of VC backed companies that achieve $100m in revenue in less than 10 years. 

Our research showed that 20% of these VC backed businesses fail to find product market fit and die with less than $1m ARR. While another 20% make their way past the $1m mark but fail to reach $3m ARR. 

Given such a large percentage fail to grow through the “Start” phase, we looked closely at those that had successfully done so. What was true about those who succeeded, and what would we learn from those that didn’t? 

A number of critical “building blocks” were established as being required in order to successfully navigate these early stages of building a VC backed business.  

Moving into 2024 we’ll zero in on what it takes, having survived the start phase, to thrive on the startup journey through the build phase ($3-30m). 

Successful Chaos 

As businesses move out of the early “Start” phase, a period defined by the need to work things out, and establish some business fundamentals, they enter the “Build” phase with a different set of goals. They flip into a mode of operating whereby they evolve away from a focus on finding something that works - to repeating the thing that’s working. 

Ask anyone who’s worked through the “Start” phase and they’ll reflect on a period of “successful chaos”. With a small group of outstanding generalists led by the founders, embracing the chaos and ambiguity needed when going from zero to one in a business. 

In the early days everything is about exploration. Everything is new, everything is an hypothesis and is experimental, up until the point it’s proven or dismissed. It’s this ability to test, iterate, codify and move on to the next unknown, which will be the foundation upon which your building blocks are built. 

A particular set of skills are required to thrive and execute in this way - a very different set of skills than those required in the “Build” phase. Something well documented. What is perhaps less appreciated is that what makes a company successful in the chaos of the start stage will not only, not make them successful, it will lead directly to their failure.

While this period of high speed, high change, high experimentation is required - a business will eventually codify their building blocks, and begin to establish the fundamentals upon which a set of activities can be repeated with increasingly predictable outcomes.. 

As a business moves through the Start phase, and begins looking for higher levels of institutional funding. An investor isn’t only looking for growth in customers and revenue - but a set of lookalike customers, using the product in the same way, seeing the same value, and paying a similar amount. 

It’s this commonality which gives confidence to the investor they can move from chaos, to controlled, sustained, repeatable growth. 

However, it’s a transition many fail to do well. 

Build Phase: From chaos to control 

Having proven you have a common set of customers, seeing value in your product, and paying you for the privilege. The goal posts for your business shift. The focus becomes in finding more of these customers, and growth. 

During our “Start” phase building blocks content, we discuss the importance of not only driving enough revenue and growth to warrant your next round of funding. But finding a way for others (i.e not the founders) to predictably win business too. This will be critical as you enter the Build phase, as you look to replicate what has worked for you during the Start phase. 

Don’t think that the move from chaos to control stops at revenue. 

The build phase encompasses a process of evolving from a chaotic set of successful experiments across multiple aspects of the business, revenue, hiring, onboarding, to a predictable business system, with measurable and predictable inputs & outputs. 

Systems & Predictability as a measure of success

Dave Kelogg, EIR at Balderton has highlighted the need for standard inputs and standard processes, resulting in standard outputs, as being the precursor for a business to really step on the growth pedal. 

This level of predictability is undoubtedly the way to scale through the build phase effectively, but most importantly efficiently too. Meanwhile, the quicker your business gets to grips with your inputs/process/outputs (what I’m calling your business system!) the higher your chances of success. 

To a large degree the understanding and predictability of your system is a good measure for your business health and overall success during the Build phase. Linked to a trend we’re seeing during this stage of growth in investing in operations (specifically RevOps) earlier.

It's the shift from 0 to 1, to confidently being able to articulate that with A dollars invested, we’ll deploy in B ways, and yield C outcomes with a high degree of certainty which is the aim here. 

Different parts of your system will have different levels of maturity and predictability along the way, this is normal and something we’ll cover during the series. 

What next?

Over the course of the next few months, we’ll discuss: 

• Build phase: Building your business system - inputs, constraints, lead & lag indicators
• Scaling the system with predictability: When to invest & how to scenario plan 
• Entering the Scale phase: How your system becomes an ecosystem of products, regions, and more. 

We’ll start with building out the system itself - the first step in your move from chaos to control.