Premature Scaling

So, your company is funded, has a working product, clients, and revenue. On the surface, it would seem like you were growing fast and moving toward the right trajectory, right?

The next train of thought would be that the low level problems have been overcome and now its just a case of making everything to go faster and the end result will be growth, right?

Timing is critical. Too slow to grow means paralysis and a potential loss of market position - but that's another story. Too quick to grow is what this post is really about - and scaling too quickly will kill your company.

Growth

Growth can be one of two things, organic or forced. Forcing growth is a fine line between genius and disaster. The newly-formed theories around growth hacking don't negate the dangers around forcing a company into a cycle of operation to generate revenue without having other aspects of the business in a position to take the strain and maintain the companies ethos.

Slick versus Scrappy

Putting a shine on the companies outward persona seems like the right thing to do. Attending high profile events and conferences, having a large stand or presence at a trade show or using expensive locations to promote your company feels like your lifting your new start-up out of the mud and into the light. This slick and managed step-up puts the company into a new competitive pool of other companies with the same "slick" approach. Upping your approach could easily create more competition or place the company in a more competitive environment.

Scrappy does not mean unprofessional. Scrappy means not being afraid to show you're the new kids on the block and looking to challenge the established paradigm. For companies who have the early adoption mentality this can be extremely attractive.

Keep it scrappy

Trying to scale prematurely is often orientated around attending expensive conferences and trade shows, flights to meet with clients, multiple people in the biz dev team, ego driven decision making processes and 3rd party relationships that go beyond the companies natural levels to operate effectively.

The risk is that growth is placed before the products development or stability. Most early stage companies need to create a scalable customer acquisition channel prior to anything else growth related.


1. Growth has a strict relationship with everything else
There is a ratio of the team that should be working on growing the company. Dependant on sector the ratio should be somewhere between 12% and 18%. If you end up with 20%+ of your current team working on the biz dev then it can end up being counter productive.  If the growth team is good it can vastly increase customer acquisition even though there could be little idea who customers are and how much they are willing to pay. Until there is a predictable, scalable customer acquisition method, there is no need to aggressively grow the biz dev function.

2. Concentrate on customers on-line opposed to going through a lengthy sales cycle. Selling to enterprise level clients can be time consuming and expensive. The strategic decision to go after these large companies(which is hard not to see as the correct choice)is not dependent on a large biz dev team and can definitely be infiltrated in a more scrappy way.  The business rationale behind spending a large budget on conferences and trade shows to acquire customers is contentious. "Chase hard" is a common haiku for start-up sales teams and can be effective, its possible to acquire good customers via this method, but this could have been equally successful if these enterprise clients had been targeted via LinkedIn or email.

When you’re an unproven start-up, you’re looking to find the clients that have a first-mover mentality. These are the types of clients that are forward thinking and will respond to your LinkedIn approaches or emails.

3. Don’t hold any kind of inventory
Don’t buy it until you have sold it in advance.

4. Product and Customer Support are the priority
A common train of thought is to chase the marquee customer for your product or service and thereby gain notoriety and market position. A kick-ass testimonial from a large corporate or celebrity is a happy nirvana for most start-ups. The key is to focus on making the product exactly right for your big client before moving onward to approach others, not treat their early endorsement to mean that the product is "finished" or "market acceptable".

What should be done is to focus the company to buckle down and make the best possible product for their early adopter. Using any early adopter as a testing ground to determine how to effectively capture users and how to seamlessly integrate with any 3rd party systems so that there is never any product or service downtime. Once any product functions well (it doesn't have to be perfect), it should be the case that the company can target other similarly profiled organisations as with the early adopter - citing them as a testimonial. Additionally, this also acts as a template for a customer support model for the early adopter which would allow scale to other clients. 

What's the skinny?

Don’t scale until you’re ready for it. Cash is king, and you need to extend your runway as long as possible until you've found product market fit.