This post is part of a small series that takes lessons from Spotify's founder and applies them to mid-market companies based on our experience and observations at Yield Group.
We recently listened to the "Invest Like the Best" podcast episode with Spotify Founder and CEO, Daniel Ek. The podcast is great in general, but this episode in particular is a full-course meal of interesting lessons for anyone interested in business.
Here's the first of the lessons we'll look at as they apply to the mid-market:
Growth is its own function (and it's hard)
Growth is its own function within a company
One of the most common misconceptions we see about sustainable revenue growth in the mid-market is that there's a primary lever to pull to make it happen. The most common levers executives try to pull are marketing and sales, but, as many find out, focusing on one, or even both of those functions, often produces less than spectacular results.
Even if there's an initial spike in growth, maintaining the pace becomes a game of diminishing returns (i.e., hiring more sales people doesn't move the needle).
As we've written before, Growth (with a capital G) spans the entire organization. In other words, achieving sustainable revenue growth requires more than just shoring up the lines in marketing or sales (though those are major parts of the equation).
In the podcast, Daniel Ek mentions the mindset and operating models required for modern companies seeking growth. Here's an excerpt:
I think nowadays that growth is...almost a function of a company...You have to build all of the processes and systems in anticipation of that growth.
...it's so hard for people to comprehend what exponential growth looks like or even see around corners and see where something three times the size of what it is today, what are some of the issues that you are going to run into at that point?
I realized I would have to think differently about how I would have to build my company on the basis of how quickly we were growing.
If you listen to the entire podcast, you'll notice that Ek doesn't mention "marketing" or "sales" specifically, but he does talk about a company culture of experimentation and risk-taking in pursuit of growth. In other words, at Spotify, the entire organization is responsible for (and organized around) growth, not just one or two departments.
It's common to think about growth and look primarily towards components that are external, like more marketing leads or more outbound calls from the sales team. The reality is that growth requires actual change within and across the organization, which is a significant undertaking.
As we've written before, the companies that will win (like Spotify) are the ones who view Growth as a cross-company function, whose goal is to develop the best possible understanding of their customer.
Growth is hard
Patrick O’Shaughnessy, the host of the podcast, has a very insightful response to Ek's comments above:
...growth is not free, it's hard and expensive, and it creates revenue growth...but also more errors to be dealt with.
And Ek's reply is spot on:
You...need to build a buffer into your system for that...
The big lesson here boils down to expectations: we all want there to be a silver bullet for driving revenue growth, but the reality is that sustainable growth is difficult, expensive and time consuming.
In the mid-market, organizational change and dealing with the impact of trying new things (which we will discuss in the next post) is hard, because it almost always requires a significant departure from the way things have operated in the past.
It might be hard...but every company can do it
It's never fun to realize, "this is going to be harder than I thought," but the good news is that there are plenty of companies facing these challenges head on—and building a competitive advantage that will last far into the future.
At Yield, we have the privilege of seeing (and helping) companies transform in incredible ways that build long-term growth and competitive advantage.