Every startup has growth in mind regardless of your industry or current size. However, while scaling might be the hottest buzzword in the world at the moment, it comes at a cost.

Often, startups scaled too soon in some aspect of their business, directly contributing to their eventual failure. There are multiple reasons for this, from investor pressure to an obsessive need to grab as much market share as fast as possible.

At Tech Collective, we look at the harsh realities that come with scaling your startup in the rough and tumble reality that is Southeast Asia.

Firing the wrong people is as necessary as hiring the right people

women's black and gray striped t-shirt

There is a well-known saying in the business world – “Hire slow, fire fast”. Though, in reality not many startup founders actually follow this principle. In theory, taking your time to find the right talent and then having the necessary determination to remove the people who do not fit your vision, is great, but a lot harder to actually get right.

What often happens is that startups overlook potential red flags during the hiring process. This can result in a bad hire that affects productivity and even damages the performance and morale of other employees. Founders are expected (and they should) to be able to quickly identify the issue and then deal with it quickly, before it has a lasting impact.

Besides the negative impact on productivity, bad employees often have an unseen opportunity cost. This usually revolvex around wasted time onboarding and increasing the need for extra effort from the team to correct mistakes and then repeat the process with new staff that come on as replacements.

A growing company doesn’t mean a more profitable one

Often an issue with scaling companies that see growing revenue is for the young founders to start to believe this is a guaranteed success. This can lead to complacency and increasing founder salaries.

We have nothing against paying yourself, because you have to eat, but there needs to be a reality check when it comes to what the company can afford and what you should be doing with the money.

A commonly misunderstood fact about running a startup is that you need to constantly invest the money back into the startup. To maintain a startup’s success, money needs to go back into the business — not yourself. Taking money away from the startup when it is trying to grow will only slow down the growth and seriously impact its success.

Scaling fast is a myth – startups become slower as they grow

The benefit of running an early stage startups is their agility and ability to adapt to new circumstances relatively quickly. However, as you scale and your customer base increases, you actually have to slow down to ensure mistakes do not have serious repercussions.

closeup photo of orange snail crawling down pencil on ground

Like the song, more money more problems. To keep your growing customers happy, startups often have to implement proper process that makes them move slower to prevent these issues in the first place and respond to them when they arise. You have to sacrifice agility for growth.

Increasing revenue often means reducing net profit

Revenue, gross profit and net profit are terms every single founder should and probably is completely aware of as they run their company. So one thing most entrepreneurs know, is that as your customer base grows, and you increase revenue and gross profit, often your net profit margin is a lot lower. Besides marketing and cost of acquisition, the manpower and infrastructure costs can eat in your profit margin easily.

There are startups that are hyper-focused on revenue and market share, so they might flood the market with products are competitive prices and grab market share, but often these are making losses. A smarter approach might be evaluating your product’s performance in the market to see if it is actually a viable product that has a good profit margin.

Advertisements