Why Scaling Too Fast Can Sink Your Startup | Entrepreneur

You’ve heard the statistics: Around two-thirds of startups fail.

Young companies fail for many reasons — from insufficient capital to lack of market demand — but scaling too quickly is the primary culprit. Growing at an unsustainable pace too early can be fatal, contributing to an estimated 74% of startup failures.

Gripped by the adrenaline rush of initial success, pursuing new markets, diversified product lines, and a larger customer base in the hopes of massive profits can be tempting. However, without a solid foundation, scaling too quickly can cause a promising company to crash and burn.

You can scale your business sustainably by focusing on steady, strategic and manageable growth.

Here’s my case for prioritizing depth over breadth in startup expansion.

The problem with growing too fast

After securing funding for a startup, you may be eager to kickstart an ambitious expansion plan. However, following a high-growth approach that prioritizes return on investment at all costs comes with risks:

1. Stretched-thin resources

Young startups operate with limited resources — including finances, manpower and time. Expanding too quickly across multiple markets can lead to future layoffs and hasty cost-cutting measures.

2. Strained customer experience

When early-stage startups shift focus to scaling headcount and new markets, foundations like proper customer experience may fall by the wayside. Overwhelmed by a runaway customer base, teams may struggle to maintain the same level of user (or client) care.

Related: To Expand, Or Not To Expand? 10 Factors To Consider Before Expanding Your Startup

3. Quality compromise

Aggressive expansion can lead to compromised quality in all areas of a business, including:

• Hires. There are only so many qualified candidates in the job market at any given time. Bad hires will cost companies down the line.
• Culture. Without proper oversight, runaway growth can breed a toxic work culture. Growing too quickly can burn your team out, contributing to poor productivity, low morale, and a high employee turnover — all symptoms of a toxic work environment.
• Product or service. As startups scale, sometimes the things they do best get watered down. Teams may be unable to meet demand and maintain the quality of their core offerings.

4. Compliance issues

Navigating laws and compliance issues can be challenging enough in one location. Adding multiple cities, states, and countries gets even hairier. As you expand to other jurisdictions, you may run into complications like unique requirements for employment, taxes, and payroll.

(FYI: I learned this lesson the hard way in the early days of setting up my company. My limited understanding of the laws around paid time off in various Latin American countries cost my company tens of thousands of dollars.)

5. Compromised company culture

Sustaining a company culture is easy when you’re a small team with a vision. Expanding to larger teams around the country or world makes it trickier to preserve core values. The bigger your company gets, the harder it can be to establish a universal culture and create a sense of community.

Compromised company culture is a big deal: Plenty of research confirms it matters, with one international study finding that 73% of workers would not apply for a company if it did not align with their values.

Related: Small Business Owners Are Watching the Election — But They’re Deeply Skeptical

How to grow your startup the right way

To mitigate obstacles while building your brand a bigger and better one, consider these three rules for scaling your business the right way:

Prioritize your user experience

In a competitive marketplace, user experience — or people’s relationship with your platform — separates flash-in-the-pan startups from enduring brands.

Consider Slack, an uber-successful platform that built a user base, gathered feedback, and adjusted its product accordingly before expanding into a general collaboration tool. Or Zappos, an online shoe retailer that enjoyed rocketing organic growth by offering free returns and going above and beyond for its customers.

My company, a hiring platform, found early success by offering our job seekers above-industry-standard salaries, premium benefits, and mentors. Our dedication to improving job seekers’ experience helped us recruit the region’s top performers and increased our retention rate. Having top talent made it easy to catch the eye of top clients seeking qualified tech workers.

Stay lean

History is filled with startups that found success by keeping costs low: Spanx was founded in the 1990s with just $5,000 of the founder’s savings; Subway was started in 1965 on $1,000 borrowed from the founder’s family friend.

In the early stages of your company, limit your spending to need — not available capital — to allow enough room for growth. You won’t be able to scale if you’re stretching capital, staff, or other resources too thin.

Dominate one market before moving on to the next

Airbnb initially focused on perfecting its home-sharing model in key cities like New York before moving to other markets, building a sturdy foundation for its subsequent global expansion. Streaming giant Netflix invested heavily in original content creation and improving its recommendation algorithms instead of expanding into unrelated markets.

Your marketplace visibility helps increase brand recognition, customer loyalty, and market share. To achieve a greater market presence, concentrate on becoming a dominant player in a specific niche or geographical area before moving on to new opportunities.