5 Dangers of Growing Your Startup Too Fast
On a recent earnings call, Uber CEO Dara Khosrowshahi proclaimed that “the era of growth at all costs is over.”
Throughout the 2010s, we saw many unicorn startups grow and expand at alarming rates. Companies like Bird and Desktop Metal reached $1 billion valuations in under two years from the time of founding.
For many investors, growth has taken priority over profitability. However, when it comes to startups, hyper-growth can be as threatening as stagnation.
It’s exciting when you’re ready to deploy or scale your product to an enthusiastic target market. But, doing so poorly can set your business back tremendously. For some companies, expanding too quickly becomes their ultimate doom. They buckle under the weight of their success.
It’s important to channel your ambition appropriately so that you have the best possible chance of succeeding over the long term.
Here are five challenges that can surface from growing too quickly:
1. Poor Customer Service
Your customers are the lifeblood of your startup. Building a good reputation right off the bat can help you maintain healthy revenue streams and enable you to invest back in your operations.
Early on, you take care of each customer like she is the most important person in the world. Eventually, this level of customer service is impossible to uphold. Your customers become tasks in a queue that you have to address to keep the cash flowing. The positive relationship-building that used to characterize your brand evaporates in a matter of months.
2. Inefficient Operations
Needing to bring in new talent is a good sign for any young scale-up. It’s an indication that you’re doing something right. However, if you aren’t prepared for your organization to grow more complex, efficient operations can morph into productivity drags.
All of a sudden, the way you used to run meetings or communicate in the office no longer works. Information takes longer to travel from person A to person B. The flexibility you enjoyed early on won’t work for making sure that everyone has the resources and insights they need to do their jobs effectively.
3. B-level Talent Acquisition
When sales are skyrocketing, your small team will bear the weight of a much bigger business. People will work at burnout levels, sacrificing quality for quantity.
When ramping up, it’s easy to lower your recruiting standards. You need more bodies in the office to help with the massive amount of work on your startup’s plate. The intensive screening process you once had flies out the window to accelerate the hiring process. Before you know it, your A-level leaders are now managing B-level players.
It might make sense to outsource recruiting until you are ready to build a high-powered internal hiring function.
4. Inaccurate Reporting
When you’re an agile team of 5-10, every person typically has a sense of what's happening in the business, especially before products or services launch. Team members have visibility into other lanes and can easily gather information they need. The startup overall is much more straightforward and easy to manage.
During phases of fast growth, it’s easy to fall behind on reporting. If the market demands more than you projected, sales can escalate to the point where your finance team loses sight of key, simple metrics, such as revenues, expenses, and operating cash flow.
When this happens, bad months could trigger the end of your business or the need for an emergency cash injection. With incorrect information, you might make a poor investment decision or overlook a broken process that you could mitigate otherwise.
5. Waning Long-term Vision
In phases of hyper-growth, you are all hands on deck. Everyone is cranking through lists of never-ending tasks. All heads are down seven days a week.
When there’s so much to do, this is little opportunity to breathe. The vision-casting and long-term planning you did each month are easy to replace with the fire drills that pop up more often. When it’s most important to track your progress against your goals, you stop doing it entirely to keep the business running.
Walking the Tightrope
There’s no magic formula for how to balance growth with the integrity of your startup. Every company is different. You have to learn how to walk the tightrope based on your unique team and industry.
Obviously, you need to grow. You want to succeed, and your investors want their returns. But, you need to be conscious of how growth affects your organization. Expanding too rapidly can hurt your operations in many ways and add unnecessary complexity on top of everything else you have to do.
And, as entrepreneurs, we know that’s a lot.
Ray Gibson is founder and CEO of Funded.club. He brings 20 years of experience in recruiting across Europe, North America and Asia and 5 years running his own startups.