Growth is key to the success of any startup, but the best businesspeople know that following a path of careful, calculated growth is smarter than pursuing expansion you can’t handle.
A great example of scaling gone wrong is Groupon. The compant famously hired 300 team members in a single week when it opened offices in Korea, and the growing pains the company faced serve as a cautionary tale for startups that expand too quickly.
If your business is on the verge of explosive growth, make sure it’s in a healthy state before undertaking major growth initiatives. At my company Varsity Tutors, a private academic tutoring and test-prep provider, we learned this lesson the hard way. As we began to grow, we undertook too many expansion tactics that stretched our resources thin.
To avoid our mistakes, answer these four questions before entering a major growth spurt:
1. What does the future of your industry look like?
Before you launch a new product line or enter a new market, analyze the growth trajectory of your business relative to your industry.
- Do you have a working, scalable business model? If your margins are tight or on a downward trajectory, you may want to revise your growth strategy. Focusing your resources on optimizing your existing business could be a better route.
- How will the competition change in the next few years? Other talented entrepreneurs and large corporations are likely aware of the market opportunity and pursuing a similar vision. How quickly can they build and scale their products relative to what you and your team can achieve? Your answer will dictate whether you can afford to grow in a slower, more modest way.
- What does the projected customer growth look like? Assess your existing customer base and your projected customer base. Can you provide the same level of service after you achieved rapid growth? Quality of service often drops when companies start expanding too fast, which impacts client lifetime value and your brand’s reputation.
2. Do you have the capital and infrastructure to pursue this strategy?
Entrepreneurs seeking to expand should evaluate whether they have enough capital to make the leap. You need to spend money to make money, which means dedicating sufficient resources to ensuring your team, training program, hardware, software and processes can handle an influx of new customers.
If your business becomes wildly successful overnight, but your website crashes because it can’t handle the traffic, you forfeit transactions. Invest in future-proofing your business to prevent this problem by preemptively hiring for customer service, sales and software developers.
3. Is your timeline realistic?
Everything takes longer than you think it will. Make specific timelines for each component of a project and tie them to important milestones, such as a new product release. Usually you’ll have dozens of moving pieces involved in a new product release or feature. If you understand each sub-component of your growth strategy, you can determine whether your growth plan is realistic and allows ample time to complete your objectives.
4. Is your growth strategy aligned with your overall vision?
Before you decide on a course of action, make sure your current growth strategy is aligned with the vision you’ve established for the company as a whole.
You’ll often have to choose between investing in long-term strategies that yield few short-term gains and quick wins that offer tangible financial benefits, but don’t set you up to become a market leader in the future.
Although you may be anxious to scale your business, it’s crucial to step back and evaluate the current state of your company before pursuing any major growth strategy. Asking yourself these four questions can help you uncover potential weaknesses, fix problems and forge a working plan for sustainable growth.