90% Of Startups Never Even *Compete* They Go Under From Premature Scaling
Startup Genome had some shocking findings in a couple of recent studies. To wit: startups fail most often because they scale prematurely. They ‘play company’ and hire college buddies, or insist on a big workspace. They fail to be a money-making operation and run out of money. But fear not: making (enough) money – with sales and marketing – fixes all these problems.
Most of the time, startups don’t fail from losing to competition. They fail most often from getting ahead of themselves, or ‘premature scaling.’
We’re not exulting in this fact – we’re former starters ourselves, and respect the drive and purpose and innovation that marks the startup community. We understand the tendency to spend on infrastructure, operations, and personnel ahead of demand, often at the cost of opportunity that could bring profits.
We are but messengers to founders and principals alike, and our message is simple: you can pinch pennies and wonder if you can afford the expenses you like, or you can start selling – start making profits – and neutralize these concerns, from the door.
So, GTM with your MVP, ASAP. And talk to marketing experts about getting sales. We actually provide free initial consults.
What, exactly, makes scaling ‘premature’?
- It is an expense you could survive without incurring;
- It’s an expense made in anticipation of growth that hasn’t yet happened;
- It’s a hire or workspace or other expense that confers legitimacy or prestige, when profits should ultimately do this talking;
- It’s any expense that co-opted funds that could have helped them make money;
- It’s any expense that co-opted funds that could have kept the doors open, proverbially (kept them ‘alive’).
Any of these examples of premature scaling could have been neutralize if the startup were making money.
Here are some other benefits to becoming profitable:
- Investors, Incubators, Accelerators, Advisors And Regulators Give You A Wider Berth. A startup in the black – making more money than it spends – has the upper hand with its other interested parties.
- They Get Influence When It Most Counts: At The Beginning Of The Company Lifecycle: In the early days of a company, where decisions’ impact is magnified over the longest timeline, having control is arguably more valuable than having money. It certainly matters for the morale, authenticity, and ultimate mission and purpose of a startup.
- They Get To Stay Alive, Living The Dream. Have you ever heard of a company that was making money hand over fist that failed? No. No, you don’t hear about that. Unless maybe they were breaking laws.
Another way of phrasing the problem is that most startups run out of other people’s money, often doing things that weren’t necessary at that juncture, before they become viable and can make their own.
If you are selling, you can afford to make mistakes. You can spend too much on lunches. You can spend too much on travel. You can hire marginally-competent college or childhood friends (believe it or not, this is another common cause of startups failing.)
Any way you cut it, with profits being the raison d’être for a company, if a company is meeting that requirement, they get to stay in the game, often with the perquisites of respect and relative autonomy.
So, learn from the Startup Genome study: focus your startup on making money as soon as you can. And do that by leaving marketing to actual marketing experts.
We’ve consulted with startups on the cover of national newspapers with toxic relationships between founders. We’ve seen startups in seedy parts of San Francisco with embarrassing absentee rates. We’re pretty sure at least one startup we helped was a front for a mob operation, but guess what?
They all survived these colorful and significant problems as long as they were selling; there could be no ‘premature’ scaling, because scaling is only premature when it’s done with (other people’s) money you can’t afford to spend.
Out of love for starters, below are some great books on how to get started, and get ‘in the black’ with your company.