The Dangers of Scaling Your Startup Too Fast
Nine in 10 startups fail eventually while 1.5% score a $50 million exit. What’s the top reason for why the former don’t become the latter?
It’s because they’re trying to scale before they’re read
On October 16, 2024, I spoke with Business.com about how to grow at a sustainable pace and handle team morale during tough pivots.
Here’s the short version of the conversation.
b.: What are some of the most common (but unexpected) mistakes in the early stages of a startup?
Sabet: A lot of founders are technical to begin with and want to build everything perfectly right away [but] your first wave is all about testing… People have a tendency to fall in love with the solution they have. … But if you started a startup because you were really frustrated with a problem that was out there — and you want to solve that problem — then you’re willing to try many different solutions to get there… Oftentimes, people will spend a ton of money on marketing too soon. Marketing in this launch stage, again, should be all about testing. … You still don’t know for sure if this is a profitable endeavor you’re pursuing.
b.: Too much money can actually hurt you in these early stages?
Sabet: You’re riding high, you feel like you’re the best founder in the world, and then you’re blitzkrieging because you aren’t ready yet.
b.: Your “second wave” is all about pivoting. What are the biggest challenges leaders face at this stage?
Sabet: That challenge could be the solution you’ve identified isn’t sufficient to solve the problem, or the problem isn’t real, or it could be a pricing model. It could be a lot of different things. … What happens is [your] employees have thought bubbles in their heads. What they’re telling you externally isn’t what they’re thinking internally. In their thought bubble, they’re thinking, “You don’t really know what you’re doing; I thought you did.”
They’re starting to question your leadership and whether they want to look for another job [but] they’re telling you what you want to hear. That’s the false commitment. … A lot of leaders I’ve seen just put their heads down and try to do it themselves. I’m assuming they’re a little embarrassed. … But you can’t do that — you need people to come along…
b.: How does leadership structure typically change over time?
Sabet: The original group of people who took you to this point, they’re what I call generalists. … It’s perfect for your launch phase because you don’t need to do everything perfectly; you just need to make sure what you’re doing will succeed in the marketplace. But it’s not good in your scale phase.
So you have to start hiring experts [who] have strong opinions about specific areas. They’re taking responsibility away from the original group… This is when you start seeing “old guard” versus “new guard.” If you can’t manage that, it’s so hard — from a leadership perspective — to scale your team. … It slows the velocity of the company down.
Sail to Scale is available now.
To see the full, unfiltered conversation. check out https://www.business.com/b-newsletter/content/sail-to-scale-interview/.