Startups have been told by investors, advisors, and the media to “scale fast!” The idea is to dominate your space, crush the competition, and become an acquisition target as quickly as possible. You’re even told to “fail fast!” Seems like everything is fast, fast, fast! If that’s such great advise, why do 9 out of 10 startups fail?
The Highway Patrol will tell you that the leading cause of accidents is excessive speed. Is driving your startup too fast “crusin’ for a bruisin’?”
What makes you think you understand all the ramifications of growth when you hit the accelerator? How did you get the idea that you were ready to “step on it?” The answers are many:
Investors. They want you to scale fast so they can get their money back out of your business in the shortest period of time. Never mind that you need to start slowly to understand the true cost of sales. Never mind that you could possibly make greater profits by being more careful and sure-footed. Many investors themselves don’t fully understand the implications of expansion in terms of customer service, overhead and logistics. They may be focusing on ramping up production when sustainable sales should be the first goal.
Landlords. They want you to spin up fast so you will rent more space. Many tend to take sales for granted, and if you do too, they’ve got you. They get paid whether or not you make sales. Startup hubs are exploding around the country; there’s at least one in every city. Whether they call it a tech garden, an incubator, or work space, it’s a real estate play. They can’t get tenants unless the tenants think they can spin up fast.
Services. Like landlords, they are glad you have a simplistic view of business. This allows them to sell you services that may be premature. “If you’re going into business you’ll need a patent on your idea, a trademark on your name, and a licensing agreement,” they may say. Buying all this stuff is expensive and comes out of your precious startup money. None of it guarantees or even helps sales.
Misconceptions. We live in a first world society with everything all pressed up nice and neat on the retail shelves, just waiting for you, the shopper, to decide which one you want to buy. This gives our society the mistaken impression that all you have to do is have a great idea, cute logo, and compelling catch phrase, and – voila! You’re on the shelf! Never mind what goes on behind the shelf that not only got it there, but more importantly, keeps it there!
Ego. We all like to think our idea is so great it will sell itself. It’s our baby. We put tons of work into it. And we know what it needs. Right? We don’t want to hear anyone telling us that there is something even more important than our idea, like distribution. We don’t need anyone telling us that we could fail for reasons that have nothing to do with our quality, price, or the demand for our product. This is our ego talking, and it plays right into the hands of folks who want to take our money whether we succeed or not.
Inexperience. According to the Department of Commerce, businesses that survive 2-5 years are much more likely to make it to 10, and businesses that last 10 are much more likely to stay in business for 20 or more. Why? They gain experience. If you expand too fast you simply won’t stay in business long enough to gain that critical experience. The lessons may kill you at that speed. It’s better to start slow and small. Take the time required to learn about business, and be sensitive to the costs of sales as they more slowly, more affordably, and more manageably unfold. Learn everything you need to do before you multiply your mistakes at a deadly fast clip.
You don’t want to be under the influences of any of the ingredients of this deadly cocktail when you are driving your startup, let alone when you are accelerating. Take your business driving lessons on a limited closed course before you attempt racing in the Grand Prix! As Michael’s nephew, Rick Houlihan says, “Don’t scale to fail!”