Not every entrepreneur has access to startup capital. In fact, the vast majority of startups are born well outside of established innovation hubs like Silicon Valley and New York, and might not have access to any sort of support structure whatsoever.
These days, a small service business can become high-growth business without a lot of up-front investment. Here are four ways I’ve experienced the low-growth to high-growth transformation, either with my own startups, those I’ve advised, or those I’ve worked for.
Automate a service or put automation around it
Two of the startups I advise are transforming the way businesses hire. One is already funded, the other is bootstrapping.
Both startups are helmed by former staffing company leaders who saw massive opportunities in the shifting needs of the modern workforce. As their experience increasingly told them that the old ways of hiring were too slow, too manual, and were producing diminishing results, they both turned to automation to add speed, remove friction, and provide better results at a fraction of head count, time spent, and costs.
This still takes time and money. Technology is still expensive, old habits can be hard to break, and there will always be one or more incumbents trying to crush you. The solution here is to use your existing service income to fund change instead of using it to compete against the incumbents at their own game.
Create a subscription product
Recurring revenue is a coveted alternative to the “feast-or-famine” periods that are always associated with service work. It can also help smooth out spiky customer demand, which in turn allows your company to scale, and thus results in the higher valuations associated with product companies.
A simple way to create a recurring revenue stream (simple on paper, anyway) is to package your most requested services into a monthly subscription product, with pricing based on expected volume.
At my previous startup, Automated Insights, where we delivered automated content based on our customers’ data, we rolled up most of the costs of our customisation and maintenance efforts into a monthly platform licensing fee. For instances where we had to go above and beyond to customise, we established a managed services team that we could dispatch at our old hourly rate.
This not only smoothed out our demand curve and provided reliable income, it also actually reduced the number of requests for customisation, as customers realised that they could instead have “automated content in a box.”
Turn an expert service into an expert marketplace
Most service providers have a referral network they turn to when a customer needs something that’s adjacent to their own expertise.
These networks can grow to be very large, and each member of the network usually has a network of their own. When all these networks are connected and exposed through an app, it becomes an expert marketplace.
Expert marketplaces are more work than they first appear, because expert marketplaces that are just vendor directories don’t provide any additional value, and thus rarely succeed. So use your service income to create that value by vetting the vendors and removing friction from the transaction.
Pivot from providing services to selling frameworks
The first startup I ever joined was a technical consulting firm that built custom software. We used our “feast-or-famine” downtime to start building frameworks for development steps we had to take each time we built an application.
These frameworks helped us deliver better quality software in a lot less time. Eventually, we got so good using the frameworks that we stopped building custom software altogether and started selling the frameworks to other developers.
That pivot cut our resource costs, spiked our margins, and led to a much higher valuation when we were acquired a few years later.
Service income keeps your startup growing at a sane pace
In every case, these transitions used existing revenue to turn a valuable service into a high-growth business. It’s the opposite path of conventional venture capital funded startups. Here’s what that’s a good idea.
When those VC-backed startups get traction, they often find themselves on a treadmill of constantly needing more investment to reach constantly increasing valuations. When they don’t get that investment, or they don’t hit their milestones, they fail.
On the other hand, the bootstrap path can turn an existing service customer base into a repeatable, sustainable, high-growth customer base, keeping your startup off the VC treadmill and reducing growth risk as your valuation increases.
This article was originally published on Medium by Joe Procopio
Joe Procopio is a multi-exit, multi-failure entrepreneur. He is the founder of startup advice project TeachingStartup.com and is the Chief Product Officer of mobile vehicle care and maintenance startup Get Spiffy. You can read all his posts at joeprocopio.com
If you want more direct advice and answers, look into Teaching Startup.