Scaling is one of those buzzwords that every startup in Kansas City seems to be talking about, but seldom with any specificity.

It means building a system that can accommodate rapid growth. The term originated in the world of technology, but it has become a key concept for startups of all kinds.

Theoretically, everyone should strive to be good at scaling. Its principles lay the groundwork for every business that wants to grow. How smoothly this is done is relative to how successfully the principles of scaling are implemented.

Let’s discuss the three stages of scaling.

Stage One

At this stage, a startup is trying to build a repeatable and efficient set of processes meant to exchange value with consumers. Facebook has to repeatedly facilitate the interaction of humans, and eBay has to repeatedly match buyers with sellers of goods using the power of auction. WordPress needs to provide a platform that makes it easy for beginners to build websites, repeatedly.

This is the first step of scaling: testing the founders’ educated guesses for how the startup will repeatedly provide value to a consumer. Without proof, all they have is a bunch of glorified hypotheses.

Stage Two

The second step is refining the engine that has been created. This means testing alternate customer acquisition strategies, partnering for economies of scale, split-testing copywriting, experimenting with pricing, and taking on massive amounts of feedback. Founders must use data—both qualitative and quantitative—to make their decisions.

By the end of this stage, founders should be able to say:

» I know exactly how much it costs to acquire a customer.

» I know exactly what I’m doing to acquire customers, and it’s repeatable.

» I know exactly how much it costs to serve a customer.

» I’m pretty darn close to knowing exactly how long an average customer will stay with me.

» The feedback regarding things I was doing wrong is plateauing, compared to when I first launched.

Stage Three

This is what most people think of when they talk about scaling. Unfortunately, this is the most fun. It’s unfortunate because being the most fun means people tend to skip the first two steps and start at this one.

It involves spending money like there’s no tomorrow. Let’s say it costs $5 to make and ship the product you’ve produced, and it costs $10 in Google Adwords to find a customer who wants to buy it, and said customer is willing to pay $30 for it. That leaves $15 left over. So start spending money faster and faster while simultaneously paying attention to the aforementioned metrics (especially the cost of customer acquisition).

There are three ways to scale.

1. Software or algorithms do the work.

2. Employees do the work.

3. Users do the work.

Some methods are more “scalable” than others, but eventually, it’s a good idea to implement multiple systems. Facebook uses employees, algorithms and users to do the work. But at first it was mostly just users—which, to this day, are Facebook’s most lucrative asset.

Stage Three is also the stage of scaling where investors want to come onboard. Very few sophisticated angels or VCs will come in before the third stage, which is why most of the questions you’re probably getting asked by investors are designed to sniff out startups that are not ready to scale.

‘Do Things That Don’t Scale’

To figure out what things to work on in order to scale, ask yourself these three questions:

1.  What activities must our startup efficiently repeat?

2.  Currently, who or what is doing this work?

3.  Can you get someone else or something else to do that work?

The next statement is going to seem counterintuitive, but came from a man who owns way more startups than you, and makes way more money than you do: Paul Graham, the forefather of super angel investing. He says to “do things that don’t scale.”

What the heck is he saying? How can one of the most successful mobile and Internet startup investors of all time say such a crazy thing?

The answer is simple; figuring out how to scale isn’t until step three. Stop worrying about all the stuff other people are saying about the need to scale. Worry about steps one and two first.

Too much time worrying about how you’ll take on customers No. 100 through 10,000 will make it way too hard to get the first hundred.