Lean scaling: a playbook from Defacto’s startup journey 

Defacto, a portfolio company, is on a mission to become Europe’s largest API-first B2B lending platform. This article is written by their co-founders, Morgan O’hana, and Marc-Henri Gires as the startup became the first B2B lender to be licensed this year. They have a total of 21 employees and have funded more than half a billion to 10,000 SMEs. 

Scale took on a new meaning in recent years. Companies scaled by growing their headcounts as quickly as possible, often hiring in anticipation of future needs. Then the economy slowed down, the thousands of new customers didn’t appear, and those new hires (in many cases) became too expensive. 

For too many companies, hiring became a false safety net and consequently a false metric of success. 

The end of the ZIRP phenomenon exposed cracks in the system. Awash with what looked like free cash, companies hired coordinators and managers to oversee operations, yet these roles have often failed to create long-term value. Looking back at headlines during that period, articles may point to return-to-work policies and reduced perks as the significant changes in tech jobs, but in many cases, the jobs themselves were a symptom of organisational bloat. 

Without that free cash, these ZIRP roles have nowhere to hide. Companies are now forced to re-evaluate their hiring practices and focus on roles that directly contribute to the bottom line.

True “scalability” drives exponential growth without exponential costs. Companies that scale can serve more customers and develop new products without a bloated staff. 

At Defacto, we believe that throwing more people at a problem is rarely the most effective approach. And we believe we’re on a better path to profitability as a result. 

 

Overhiring eats away at culture and value 

From day one, we had a really strong desire to be lean. All three of us co-founders have had frustrating experiences in teams that grew too quickly. Where the focus quickly moved from how we can deliver the best customer experience to internal processes and over-spinning on topics such as OKR definitions. We wanted to avoid these pitfalls. Thus, we set out to solve a business problem that didn’t require hypergrowth to succeed. 

 

Focus product & GTM strategy on profitability

Defacto was built to be profitable as quickly and sustainably as possible. We made conscious choices from the get-go to keep our product and go-to-market strategies efficient. 

For one, Defacto is an API-based product. If you have a really complex platform with a wide range of features and users, the “lean” startup model is not applicable. We only have a few basic features and one core product: our lending API. By design. 

Today, if we finance salaries, payables, and receivables across more than 200 industries and dozens of partners, that’s because one API can serve all these different use cases. We have chosen a low-resistance path to acquire and retain customers by embedding ourselves in other products. This in turn drastically reduces the amount of marketing, sales, and support staff we need. 

That’s obviously efficient and highly scalable for us. But we also believe it’s how most of our customers want to operate. Low-touch, self-service onboarding is a wonderful thing. Yet we had to fight every instinct to over-communicate, over-develop, and over-complicate the process. 

 

Empower people to make fast decisions

Team structure and dynamics are also very important, and the key is to empower each employee to have maximum leverage on the business path. Every team member is expected to operate like an entrepreneur – a startup within the startup. 

As a result, we don’t work in sprints; we never say “the team has two weeks to ship this.” Instead, everyone works on the task they consider most critical for the company at any given time. They can swiftly pivot their focus as priorities shift. 

This approach is powered by a decentralised decision-making engine. Any team member can initiate a decision-making process seeking feedback and approval from relevant stakeholders:

Once approved, you can focus on execution without further discussion. This approach enables rapid and efficient decision-making while maintaining momentum. However, this model’s success hinges on the team’s quality. Hiring too quickly or for the wrong needs jeopardises its effectiveness.

 

Our lean scale principles

While we don’t set aggressive hiring targets, we do have ambitious revenue and customer growth objectives. As such, we are continually scaling our internal operations.

Here are the core principles that guide our hiring decisions and operational practices:

• Choose entrepreneurs. We’re all here to grow the business and serve customers. While we hire experienced individuals, our culture embraces an “all hands on deck” approach where everyone is expected to deliver value to customers without asking for permission.
  
• Use meetings wisely. We’ve streamlined our routines and processes to be as practical as possible, prioritising asynchronous decision-making and minimising recurring meetings.
• Augment and automate everything possible. From platform development to business operations, we proactively automate low-value tasks. This means embracing AI in everything we do and encouraging ongoing training for the latest tools. 
• Quality over scope. We have high standards for what we deliver to our customers and prioritise excellence over the quantity of features and projects. 
• Top and bottom line minded. We’re focused on profitability so we’re serious about keeping operational costs low.
  
  

Finally, one of our favourite expressions is: “feel the pain first.” We never plan or hire for problems that haven’t hit yet. We prefer to experience and validate an issue firsthand, attempting to solve it ourselves, and always hire as a last resort. We’re agile enough that if we find ourselves in a difficult situation, we can quickly recover, often leveraging a strong roster of experienced operators.

 

Lean scale is the surest path to profitability

Three years into the lean startup journey, we’re still thrilled with the Defacto team and our company structure despite the challenges of staying small.  We remain steadfast in our focus on efficiency and profitability. 

Today’s tools, experience, and entrepreneurial spirit make it a great time to be a lean startup. We can achieve more with automation, innovation, and AI than an extra set of hands.

This might sound anti-people, but it’s the opposite. We care deeply about our people and culture, which is why we defend their interests. They’re our secret weapon. 

You can access Defacto on getdefacto.com