What’s the biggest threat to a startup? It’s not a lack of cash. It’s premature scaling. Scaling too early and too quickly can ultimately lead to a startup’s demise.
One of the most difficult aspects of managing startups is knowing when it’s the right time to scale. Act too quickly, and you may find yourself overwhelmed by problems that are expensive and challenging to fix.
Many startups lose sight of their mission in the name of profit. Their entire business model becomes centered on maximizing profit and the customer’s needs get lost in the mix.
While profit is important, the focus should always be on your customers — not on scaling. Scaling will come naturally as your customer base grows and you continue to fill a need. Demand is the metric that determines whether it’s time to expand.
In the very early stages, founders have a mission in mind, and they are passionate about that mission. But pressure from investors and to make a profit can cause startups to lose sight of their vision.
When the mission is lost, profit becomes the only focus and how to get as much money as possible out of each customer takes center stage.
In the name of maximizing profit, businesses may release products that don’t really have a market or demand. Many well-established companies fall into this trap. When faced with market stagnation, brands will produce products hastily and later find that there really isn’t a demand for them.
Or they may release products with more “nice to have” features that really don’t appeal to customers.
Instead of rushing to release unnecessary products that have no demand, slow down, and focus on creating solutions that solve customer problems. There are so many business tools for startups that help brands study their market. These tools can help you get to know your customers’ pain points and find products that solve these problems.
When startups launch, their focus shifts to scaling, and they hire more staff in anticipation of growth. Some hire specialists or individuals with skills they don’t really need.
Expanding your team will only benefit your business if there’s sufficient demand for your products. Otherwise, you are taking on a major commitment by hiring more people, and it will drain your resources if you hire too many too quickly.
Before taking on more staff, use all of the business tools for startups at your disposal and allow your team to reach its limits. If your business is growing and you find that you can’t do certain things well because you don’t have enough staff, that’s a surefire sign that it’s time to hire.
Waiting until you absolutely must expand your team can help you avoid the pitfall of having too much stuff with too little to do or offer.
Some startups struggle to get the cash they need to get off the ground. Others have the opposite problem: too much money. Having too much cash can be a dangerous thing for startups that are just getting off the ground.
One of the most challenging aspects of managing startups is proper money management. Startups that have too much money too early on can easily spend their money unwisely. Mismanagement of finances is just as big of a problem as a lack of cash.
Many startups believe they can solve any problem by throwing money at it. They funnel more cash into marketing, press coverage, and customer acquisition thinking that it will solve the problem. But the root core of the issue must be addressed: solving the customer’s problem. If your startup is having trouble getting customers, it may not be marketing, but a poor product that’s the problem.
Premature scaling can ruin your business. Expanding too early and too quickly is like trying to run before you can walk. Focusing on your customers and their feedback is a great way to avoid the premature scaling pitfall by ensuring that you only offer valuable products that are in demand. Waiting to expand your team until absolutely necessary can further help prevent the disastrous effects of premature scaling.