Tesla, Musk, SaaS, startups & getting to scale!

Posted by kdow on Jul 28, 2016 11:18:51 AM

Good lord, that’s a meaty, disgusting, buzzword bingo clickbait title. But it’s all I have. And I apologise for it in advance!

One of the big talking points for any startup — or company for that matter — is how you get to scale. And scale is a very different thing for different companies. It’s even different for different departments in the same company!

Take a normal SaaS business. Scale for the engineers is a very different thing to that of the sales teams. Engineering are working out what stack to use when they get n more users in the door. They need to figure out what database to use, what servers to deploy to, and what technologies can underpin the product suite so that it’s maintainable in the coming years. Sales, though, are concerned about getting those n more users in. How do they tell a compelling enough story around what engineering are building to grow the business by some multiplier? What CRM, marketing suite or BI tools will help draw critical, strategic thinking to improve the funnel & process of going to market?

Let’s apply some lessons from Tesla. All-in-all, they’re an incumbent startup in the automotive industry that’s innovating and disrupting an age-old business model to the point that it’s unsettling the old guard of Ford, Toyota and others.

Tesla rolled about 50,000 cars off the production line in 2015, with 13,000 employees. That’s roughly 4 cars produced per employee. Ford produced 3.2 million cars in 2015, with 187,000 employees; Roughly 17 cars per employee. Toyota produced about 9 million cars with 345,000 employees, which is around 26 cars per employee.

In a scaling business, someone needs to think about strategy. Normally that’s the CEO role, but often times that falls upon a growth person. Not a growth hacker, mind you. I’m talking about someone who’s focus is on the sales & marketing engine. Someone who can dig into the data (and in a small company that’s tough without a BI system in place). In the automotive industry, it’s clear that some simple analysis of the big two versus Tesla, the big incumbent, demonstrates some clear opportunities for Tesla.

To become a big player, Tesla will need to get their productivity per employee up by a multiple of 4x to 8x.

If we go back to SaaS — a more traditional playground for startups —a similar calculation is effective. If you have 2 sales reps and 1 marketer in the growth team (I think a good startup should blend sales & marketing into one pod) then you need to measure productivity per rep (PPR), and benchmark it against the marketing lead flow. If a sales rep has n leads to work with, how many activities are driven per lead? If a sales rep has n-x qualified leads (MQL, SQL, etc.), you need to worry about the productivity per sales rep on those leads, but also time to contact.

Digging back into Tesla versus Ford or Toyota, the numbers look scary. If you’re Musk, it’s a mountain to climb. But it’s a mountain worth climbing. That’s why you’re in the startup game! But, the comparison gets muddy when you consider two major factors: Ford & Toyota are at full scale manufacturing while Tesla is still building towards scale and Ford/Toyota have a more complex product offering.

In a small startup somewhere in Silicon Docklands, Tech City or Silicon Allee, the same factors apply. You have a small product team feeding features to a small growth team, who are nowhere near scale yet but probably facing competition from full scale businesses that make the same money you make in a month in an hour without breaking a sweat. But again, that challenge & mountain to climb is why startups happen. That challenge is what gets these folks out of bed in the morning. That’s why Musk is different to Mark Fields.

And that’s why scaling is fun, and critical, strategic thinking is important during the scaling process.