7/10 Startups Try to Scale to Early. Here’s how to avoid being one.
Written by GAN Member: Chris Adams of Adams Hamilton
Growing your startup is a tightrope. If you try to scale too soon, you risk spending additional capital before you are ready. Or on the flipside, if you wait to long to scale, you miss out on taking to long to get to market.
The fear of the latter is likely why a study by Startup Genome and Stanford University revealed that 70% of 3,200 startups attempted to scale their business prematurely. And many of them never recovered due to cashflow restraints.
In many cases, the business could have been saved and the course could have been corrected had the business owners recognized the early warning signs.
These warning signs often include:
Have you done extensive research to prove that there is a demand for your product or service? And is your product going to be the right fit to solve your potential customers’ pain points? If you haven’t, the unfortunate reality is you have a dream, not a plan.
In a perfect and balanced growth, your development and your research are done concurrently. You confidently develop a better product than the first one you put on the whiteboard because you discover new insights into the specifics of this demand.
Don’t waste your time developing and selling a product that the world does not actually need or want. First, prove they want it, then build it.
Or, maybe the burning demand you have unearthed in your target market is causing you to start selling a product you don’t 100% have yet.
Now, you’re having to take that not-quite-there-yet concept off of the whiteboard and start building it. This leads to a rushed product that doesn’t hit the market looking or working as well as it could.
Don’t let the tantalizing opportunity to bring in cash right away lure you into rushing your product’s development. The business may be ready to scale, but the product simply isn’t.
If the demand is there, your customers will wait for you.
We have covered this topic before. Ask yourself, “Is my business selling a vitamin or a cure?”
A vitamin is something that can help relieve a pain point and the results may take time to reveal themselves. However, a cure is something that gets rid of the pain point completely.
A vitamin is something that you can easily put off. Maybe you’ll try it in the new year if you hear enough good things about it from other people. But, a cure is something you want right now because you’re sick of this pain. You’re worried about what will happen if you don’t get this cure.
If you’re selling a vitamin, your sales staff may be frustrated because a lot of their efforts end in, “That sounds interesting, but call me back at the start of the new year.”
And if you’re selling a vitamin, you’re going to have a tough time scaling.
You have your core team in place. They are the ones who got this business off of the ground and got you this far. Now, you may be thinking it’s time to bring in some more auxiliary positions like sales, marketing or HR.
How much time are you investing in looking for the right fit for these roles? Are you looking for the right fit or the perfect fit? A good rule of thumb is that if you have the time to be too picky about applicants, you might not actually need to fill this position.
However, if the position currently represents an urgent gap in your business, you don’t have time to be picky. You need this role staffed ASAP because not having this person is costing you money. You’re willing to look past a lack of specific experience and open to hiring someone with intangibles that you can train.
How are you going to pay for this aggressive expansion?
If lenders aren’t approving your application, odds are good they saw something in your business plan or your sales that led them to think that you’re too risky.
On the other hand, angel investors are far more likely to look at your potential instead of your past. But, they could also see flaws in your operation that forces them to take a pass. If they do, listen carefully to their feedback. The reg flag they see will likely stand in your way of scaling, with or without their help.
Of course, these are only a few examples of warning signs.
Care to help us with your experience? Let us know of any issues you’ve faced in scaling your business over the years. If you overcame them, how did you do it?