Don’t believe the entrepreneurial pundits who say startup success is as simple as launch, prove, and scale. It’s more like launch, prove, scale, prove, scale, prove, scale, and prove again! Most businesses fail not because they couldn’t prove their concept, but because they proved it, and then expanded too quickly… too quickly for conditions they couldn’t have known about until after they got to that next level.
Like a stick shift, each gear has its own skills to master. First gear is slow but powerful, designed to overcome inertia. But too much acceleration and you easily break traction and spin your wheels. Second gear is faster, but still inefficient, and you can easily spin out on the curves. Third is faster still and more efficient, but now the speed itself is less forgiving. By the time you hit fourth gear, you’re moving so rapidly that sudden stops and tight maneuvers are treacherous. Now let’s add interference, such as a little rain and traffic, to the scenario.
Any State Highway Trooper will tell you that most accidents involve excessive speed. The drivers just didn’t allow enough time to adjust to changing conditions. In business, the conditions change with every level of growth. Each level must be proven, like the concept itself. Even though there is a market for your product or service, there is no guarantee of success at the next level. In fact, early proof of concept can easily lull you into a false sense of security. Your doubts and anxiety are relieved. You “know” your idea works. People want it and it makes money! – But not so fast! This is a time to be more cautious than cocky. Here’s why:
- Personnel Management Blows Up. When you started your business you worked closely with only a few people. Everybody worked as a team and knew the business would fail without sales. Information was shared freely to keep the customers happy and the cash flowing. Now, with each new level of expansion, you hire more people. You orient and train them – or not. They want raises even if the business is stalled. Turnover begins to erode your corporate intelligence. You spend more time worrying about your staff. Will the critical relationships continue, or will you have to start over with a new employee? As you grow, managing your personnel and building a solid team becomes increasingly critical. Prove you can before you go to the next “gear!”
- Distribution Management Explodes. It’s one thing to have a few buyers who prove your concept, but getting your products and services to many buyers becomes much more challenging as you expand. You realize that your customers experience is often out of your hands, and you have to do the jobs you thought others were doing. But now that you have expanded, it’s clear that you can’t adequately police the market yourself. So you have to scale back until you have enough intel, money, and people to guarantee your customer the experience that will keep them loyal.
- Cash Flow Crashes. Every level of expansion simply costs more. Sure there are efficiencies of scale with larger supply purchases and buyer discounts for cash. But now you’re playing with the big boys who are deep discounting and you have to match. Now you’re held hostage by big buyers demanding lower prices. You quickly discover that the sheer size of your market requires a higher cost of sales per unit.
Proving your concept in first gear doesn’t mean the concept will work in the next three gears. Slow down and meticulously build your way to success!