Scaling up is a make or break for most startups. Premature scaling or reckless scaling is detrimental to the sustainability and viability of the business itself. A very slow pace of scaling causes startups to miss key opportunities to become big and establish a strong foothold in the market. Scaling up for the sake of scaling up and building a thin business that is simply spread wide are meaningless.
Here are some important lessons that every early- and mid-stage startup must understand before scaling up their business.
#1 Redefine Scale
Is scale only about increasing the number of clients? Is it the customer’s share of the wallet? Or is it something else? The definition of scale varies from startup to startup. For instance, 3 clients could make up 50% of your business and that is scale for your business.
The truth is depth adds value and startups can make good margins only when they have depth. The depth can be the share of the client’s wallet and not just the number of customers you have. In that case, founders need to question their urgency to scale.
There must be some Mathematics behind scale. You must be able to say, “X happens – I scale more, my fixed cost pretty much burns down and because the density increases, my variable cost also goes down. So, my model works.” You must redefine scale for your business context and figure out why scale is so important to you.
#2 Focus On Your Topline Growth
Scaling up must help improve your cost structure and your topline. Early-stage startups must focus on their topline growth for scaling up. Bigger companies and corporate houses need to focus on optimizing the bottom line but there is no point in doing so for early-stage startups as early-stage startups grow due to topline growth.
#3 Build A Substantive Product That Will Stand The Test Of Time
Ask yourself the following questions:
- Have we understood the product-market fit?
- Do we have the right product-market fit?
- Is the problem we are solving for big and deep enough that it will not vanish in a year or so?
- Will there be demand for the product/ will the market exist for a longer time period?
If your answer is a ‘no’ to these 4 questions, then you may not be ready to scale. If you are solving deep, big problem, then the market or the problem will not vanish in a year. If you are solving an ephemeral problem whose demand is short-lived or whose market is shallow/ only here and now, you have to revisit what you are solving/ building. In this case, your product itself will be disrupted.
If your product is substantive and differentiable amidst the clutter, you will be able to focus, stabilize and serve well to one geography now and expand to other markets and geographies afterwards. This is true for startups across industries not just the supply chain industry. At the end of it, the aspiration is to build companies that will be around for many years.
There is always the hunting (customer acquisition) vs farming (product development) debate that happens when it comes to scaling up. Startups tend to believe that product development costs are higher, and that customer acquisition and relationship management costs are lower. So, they tend to focus more on hunting than farming. The truth, however, is that product development costs, though higher, are an investment. But hunting costs are only a burn, not an investment.
#4 Focus On The Basics Of Business
We have been so focused on technology, velocity, asset-light, etc. in the supply chain space for a decade now. But we are seeing that the world is moving away from pure tech as technology is now seen as an enabler and not the core solution in many cases. There is, therefore, a pressing need for startups in the supply chain space, as with other industries, to get their basics – the foundation – right. For instance, you need not do something dramatically next-gen in terms of technology to solve a big, deep problem. You could simply drive value by being methodical in your approach, building a strong product and strengthening your back-end process.
- Do not rush to the market with a half-done product.
- Focus on your basics such as business model, organic growth, customer experience, product quality, etc.
- Figure out which part of the infrastructure you want to play in or solve.
- Solve for customer experience. Put in time and effort into building trust and brand loyalty as it creates organic growth instead of focusing solely on inorganic growth that causes an early burnout.
#5 Hiring Right Is Key
Execution is about strategies, operations and people. It is key to hire the right people to be part of your startup before you can scale up. The acceptable failure probability for frontline employees is 50:50, that is, only 1 in 2 employees needs to be a Rockstar.
While hiring the people for the frontline say sales, warehousing, etc., you must be able to choose based on a limited checklist and not look for excessively specialized candidates. If you are obsessing too much on hiring right for the frontline, it means that your product is not ready and that you need specialized talent to push it to customers.
For hiring mid-level leaders – zonal heads, city heads, etc. who can move the needle to an extent, the failure probability that is acceptable is 1:5. Essentially, 4 out of 5 mid-level leaders in your organization need to be rockstars. Here you need to be selective to an extent.
However, when you are looking for CMO, CTO, business heads, etc., you must remember that the failure probability becomes 1:100. So, even if 1 in 10 people in the top levels of the organization fail, the organization is doomed. That is the impact the top-level employees have on the organization as they can really move the needle and turn things around for you.
You must obsess over their hiring and be extremely selective, even if it takes years to scout for the right candidate. Do not compromise while hiring your top-level leaders. Choose self-learners who have drive and rigor in their functioning.
You should redefine scale based on your unique business context and understand why scaling up is important to your business. Focus on improving your cost structure and topline growth for scaling up. Figure out the right product-market fit and build a substantive and differentiable before you scale.
Further, invest in product development rather than solely focusing on customer acquisition which is not an investment per se. Hiring the right people, especially in the top-levels of management and leadership, before scaling up. and last but not the least, there is always a temptation to scale fast but scaling up without getting the basics strengthened is only detrimental. Always keep in mind that the core business does not change even though the labels and industries differ.