Successful start-ups tend to follow a predictable pattern: they identify a problem that needs solving, develop an innovative solution, find their first few customers and then seek to expand beyond their early adopters and exploit the full potential of a mainstream market they have so far merely scratched the surface of.
Geoffrey Moore described the particular challenges of expanding beyond the first wave of early adopters in his masterly “Crossing the Chasm”, and it’s a path many apparently promising companies have attempted to follow - with, it has to be acknowledged, widely varying degrees of success.
The initial investments in these organisations have tended to focus on building a viable product, but the next focus of investment (typically “B” round and beyond) is on scaling the business, and on the investment hypothesis that revenues will grow at least proportionally to the increase in sales and marketing resources.
And that - unfortunately - is where things can often break down. Investors are very used to doing their financial due diligence. They can build complex and sophisticated business models. They can normally get a pretty good sense of the character of the management team. But it seems to me that they often struggle to apply the due diligence required to accurately assess whether they are about to invest in a truly scalable sales process.