How to Avoid the Premature Scaling Death Trap
“Premature scaling” doesn’t sound all that sinister. It sounds, at the very worst, like some little business snafu -- an easy mistake that’s easy to fix, right?
If you think that, you’re dead wrong.
What if I were to tell you that premature scaling is a startup’s worst enemy? Well, it is. Premature scaling has been identified as one of the most overlooked yet most consistent predictors of startup failure. Premature scaling can slay a business faster than nearly anything else. Premature scaling is something to be afraid of.
I want to explain what premature scaling is, how to spot it, and most importantly, how to avoid it.
What is premature scaling?
In order to understand premature scaling, one must first understand scaling itself.
Scaling is the point in the existence of a startup where it experiences positive growth. The kind of growth depends. Most of the time, scaling up involves acquiring more employees, seeking more capital or spending more on marketing. Usually, it’s accompanied by more sales.
Scaling is a good thing, as long as it’s done right. Scaling is the result of a startup’s growth. Too often, however, scaling is intended to drive a startup’s growth. That’s where we have a problem. That is premature scaling.
According to The Startup Genome Project, premature scaling happens when entrepreneurs start “focusing on one dimension of the business and advancing it out of sync with the rest of the operation.”
Premature scaling is, perhaps, the No. 1 definable cause of a startup’s death. According to some reports, premature scaling occurs in 70 percent of companies and is responsible for the failure of 74 percent of tech startups.
One reason why premature scaling is so dangerous is because it is so deceptive. Scaling is a good thing, hiring is a good thing, funding is a good thing, growth is a good thing. As Nathan Furr explains, “most startups are dying and they are dying because they are doing good things but doing them out-of-order.”
What are the signs of premature scaling?
The broad strokes of premature scaling can be summed up in the aphorism too much, too soon. When any one scalable business feature is on the fast track, beware. You are advised to let up on the gas just a bit.
Here are the most common signs of too much, too soon:
Too much money.
Business financing has built-in stages precisely to avoid overspending on a premature project. At the seed funding rate, you’re only expected to prove your idea. In the startup funding phase, it’s time to build on that idea. And by Series A, you should be satisfying a customer base and seeing steady returns.
If you gain more funding than your business warrants at its specific stage, it can produce undesirable side effects. In essence, it can cause you to expand your operations beyond what is manageable. This is premature scaling in its most common and nefarious form, and it is going to destroy your startup.
One venture investor described the problem of too much money as “putting a rocket engine on the back of a car.” You’ll go fast, but you’ll also get destroyed. A startup must be strong enough to sustain that level of acceleration, which few nascent businesses are able to do.
Too many employees.
If a startup is in hiring phase, you should be at your most cautious. Taking on employees is risky, because it is a massive commitment and a major drain on resources. Hiring will come, but if it’s coming early, you should be on your guard.
Too many early adopters.
Early adopters are typically a good thing. When your business gains a rush of new users, it’s a legitimate cause for excitement -- and caution. The problem isn’t necessarily with the number of early adopters themselves, but rather with the startup’s response to these early adopters.
Many startups confuse early adopters with an existing market. Early adopters are not a market. They are curious. They are quick. But they are also fleeting. Early adopters leave as quickly as they arrive, leaving you with a phantom market and a ruined startup.
How do you avoid premature scaling?
Premature scaling is bad. You know the warning signs. What should you do?
Focus on your customers, not on scaling.
Some startup coaches counterintuitively advise entrepreneurs to “do things that don’t scale.” The idea is this: Forget about scaling. Instead, focus on the unscalable features of a business.
If premature scaling is focusing on one dimension of the business and advancing it out of sync with the rest of the operation, then to avoid this pitfall, entrepreneurs should focus on something that’s unscalable. Learning about customers, spending time with individual customers, listening to a customer’s complaints are all unscalable.
Focus is good, provided you’re focused on the right thing. Focusing on scaling is not the right thing. Focusing on your customers is, by contrast, is healthy and essential.
Be aware that this doesn’t feel “smart.” Hanging out on the phone all afternoon listening to people complain sounds very unsexy, and quite antithetical to growth. Are you wasting your time? Absolutely not. You’re focusing on the only two things that matter: Your product (being awesome) and your market (being present).
Pivot early. Pivot often.
In business, “pivoting” refers to a business’s ability to completely switch directions. Pivoting is more than a slight shift. It is a total change of course
Let me give you some examples. Twitter started as a podcast subscription service. Groupon was originally a social activism funding site. Nokia used to be a paper mill. Flickr was originally a RPG. Nintendo used to sell instant rice. And Pinterest entered the startup world as a retail update site.
What took these companies from struggling startup status to multi-billion dollar household brands?
It was the pivot. A business pivots in response to customer feedback, competitor displacement, market changes, technological shifts, product innovations, and just about anything else. Businesses that pivot are able to “raise 2.5 times more money, have 3.6 times better user growth, and are 52 percent less likely to scale prematurely.”
Keep in mind that your best pivots will be your early pivots. It’s difficult to pivot a large company, just as it takes a long time for an aircraft carrier to change directions. Pivoting a two-person startup is a whole lot easier than pivoting a 200-employee company.
Take your time.
Don’t rush things. Startup entrepreneurs are a starstruck demographic -- brimming with enthusiasm and contagiously optimistic.
Sometimes such enthusiasm spills into unhealthy hastiness. If you’re hasty, you’re likely to scale prematurely. Instead, take your time with funding, take your time to validate your market, and be content with slow gains.
Your best move is to grow strong before you grow up. That may take some time. And that’s OK.