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You've heard the statistics: About two-thirds of startups fail.
Startups fail for many reasons – from insufficient capital to lack of market demand – but scaling too quickly is the main culprit. Growing too early at an unsustainable rate can be fatal, contributing to a rated 74% of startup failures.
Caught up in the adrenaline rush of initial success, pursuing new markets, diversified product lines, and a larger customer base in 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 grow your business sustainably by focusing on sustainable, 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 launch an ambitious expansion plan. However, pursuing a high-growth approach that prioritizes return on investment at all costs comes with risks:
1. Detailed sources
Startups operate with limited resources – including finance, manpower and time. Expanding too quickly into multiple markets can lead to future layoffs and hasty cost-cutting measures.
2. Strained customer experience
When early-stage startups shift their focus to growing headcount and new markets, fundamentals like the right customer experience can fall by the wayside. Overwhelmed by a runaway customer base, teams can struggle to maintain the same level of user (or customer) care.
Related: To expand or not to expand? 10 Factors to Consider Before Expanding Your Startup
3. Compromise on quality
Aggressive expansion can lead to compromised quality in all areas of a business, including:
- Employs. There are only so many qualified candidates in the job market at any given time. Bad hires it will cost companies down the line.
- Culture. Without proper oversight, runaway growth can create a toxic work culture. Growing too quickly can burn out your team, contributing to poor productivity, low morale, and high employee turnover—all symptoms of a toxic work environment.
- Product or service. As startups scale, sometimes the things they do best diminish. Teams may not be able to meet demand and maintain the quality of their core offerings.
4. Compliance Matters
Navigating laws and compliance issues can be quite challenging in a country. Adding multiple cities, states and countries makes it even easier. As you expand into other jurisdictions, you may encounter complications such as unique employment, tax and payroll requirements.
(FYI: I learned this lesson the hard way in the early days of my company. My limited understanding of paid time off laws in various Latin American countries cost my company tens of thousands of dollars.)
5. Compromised company culture
Maintaining a company culture is easy when you're a small team with a vision. Expanding into larger teams across the country or the world makes maintaining core values more complicated. The bigger your company gets, the more difficult it can be to create a universal culture and create a sense of community.
Compromised company culture is a big deal: Lots of research confirms it matters, me an international study finding that 73% of workers would not apply to a company if it did not match 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 as you build your brand bigger and better, consider these three rules for scaling your business the right way:
Prioritize your user experience
In a competitive market, user experience—or people's relationship with your platform—separates flash-in-the-pan startups from established brands.
Consider Slack, a very 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 rapid organic growth by offering free returns and going above and beyond for her customers.
my company, a job platformfound early success by offering our job seekers above industry standard salaries, premium benefits and mentors. Our commitment to improving the job seeker experience has helped us recruit the region's top performers and increased retention rates. Having top talent made it easy to catch the eye of major clients looking for skilled tech workers.
Stay lean
History is littered with startups that found success by keeping costs low: Spanx was founded in the 1990s with only $5,000 from the founder's savings; Subway started in 1965 $1,000 loan from founder's family friend.
In the early stages of your company, limit your spending on necessities—not available capital—to allow enough room for growth. You will not be able to scale if you are reducing capital, staff or other resources too much.
Dominate one market before moving on to another
Airbnb initially focused on perfecting its home-sharing model major cities like New York before moving on to other markets, building a strong foundation for subsequent global expansion. Streaming giant Netflix invested heavily in creating original content and improving its recommendation algorithms rather than expanding into unrelated markets.
Your market visibility helps increase brand recognition, customer loyalty and market share. To achieve greater market presence, focus on becoming a dominant player in a specific country or geographic area before moving on to new opportunities.