6 Chokeholds That Prevent Startups From Scaling

6 Factors That Stymie Startup Scalability

Starting a new business is a lot like bringing a new baby into the world. At first, that baby is an infant – incapable of doing anything but the most basic tasks. Initially, eating and crying are his fortes. But as the months pass and he learns more from the world around him, the baby adds new skills and abilities to his worldly resume. Eventually, he smiles, laughs, crawls, walks, and even talks. And while some of these skills are self-learned, there are other traits and abilities that must be cultivated by the parent – things like counting, reading, and riding a bike.

It’s helpful to think of a startup as a fresh newborn baby. The only way for that baby to grow into a functional toddler, useful child, and productive adult is for you to be there every step of the way. In addition to supplying the right technology, systems, and ideas, you also have to think in terms of weeding out the chokeholds that ultimately stymie scalability.

Beating the Odds

There’s plenty of room for optimism in the world of entrepreneurship, but the data speaks loud and clear: Just over 90 percent of startups fail. And while it would be nice to blame this failure on outside factors, the truth is that self-destruction – not competition – is the main driving force behind startup deaths. And if you study the lucky 10 percent of startups that don’t crash and burn within the first few years, you’ll see that they typically encounter several near-death experiences along the way.

The simple truth of the matter is that we – meaning entrepreneurs – have yet to discover an infallible game plan or strategy for developing successful startups and grooming them into sustainable businesses.

The good news is that for every nine startups that fail, there’s one that succeeds. So no matter what other entrepreneurs are doing around you, there’s always a chance that you can beat the odds. Doing so, however, requires a rich understanding of the traps and challenges that so often ensnare other startups and founding teams.

6 Chokeholds to Avoid When Scaling Up

Every startup is unique. Even if you take two startups in the same niche at the same time, each one will face a proprietary set of circumstances, challenges, and opportunities. So while it’s impossible to offer a definitive plan of action, it’s constructive to know and understand the common chokeholds and constraints that frequently hold startups back from achieving significant growth. Let’s explore:

  1. Hiring People Prematurely

People can make or break a startup. They’re the source of good ideas, as well as the manpower for executing said ideas. But when it comes to scaling a startup, prematurely hiring people can stunt growth at the root.

Startups often hire people because they feel the strain of growth. As demand rises, so do stress levels. You go from working 10-hour days to working 18-hour days. Hiring someone feels like the right choice, but if you aren’t actually ready, you’ll end up regretting the decision.

There are two dynamics to this chokehold. First off, hiring people is a financial investment. Each employee commands a salary, some sort of benefits package (even if it’s basic and rudimentary), and an investment of time (which is money). It’s never just the hourly pay or salary. That’s simply the baseline figure. If you don’t understand the full financial cost, you could erode your profitability from the start.

The second dynamic is less tangible but equally important. When you hire people, you must focus on bringing in people who align with your culture and mission. Premature hires are typically rushed through the vetting process, which leads to improper fits. And if you get enough of the wrong people in your company, their bad habits and selfish tendencies will spread by osmosis.

This is really a dual issue. For one, you need to wait until you’re ready to hire. Don’t start posting job listings just because you sense an increase in demand. Instead, use this energy to develop a hiring strategy that’s financially feasible and well suited for your startup’s culture and mission. Secondly, when it is time to hire, a comprehensive due diligence process is a must. This means vetting a candidate’s background, conducting a thorough interview, speaking with references, and introducing the individual to the team prior to hiring.

  • No Structured HR

On a related note, startups rarely have any sort of structured HR. And while it may not be totally necessary when your business consists of two people in a living room, it quickly becomes a necessity as the business grows.

Structured HR simply means having documented and consistent policies and procedures for interviewing, hiring, onboarding, nurturing, and terminating. There should be a systematic plan for handling each element of human resources without having to sit down and discuss every single situation as it arises.

Structured HR aids growing startups by creating comprehensive job titles/descriptions; conducting useful and unbiased job interviews; protecting the business from legal issues; compensating employees fairly; cultivating workplace culture; developing internal career paths; and simplifying the volume of administrative tasks that weigh founders down. 

  • Failing to Casting Vision

Vision may sound like a buzzword, but it’s an integral and concrete element to startup growth. In order for a business to scale up over time, there has to be a clear vision that’s understood and embraced by all team members. The problem is that most startups fail to meet this mark.

According to a groundbreaking survey, only 15 percent of employees can define their organization’s most important objectives and goals. More than half (51 percent) don’t understand what they’re expected to do in order to help the organization achieve these goals. Overall, just 49 percent of available work time is spent on an organization’s primary objectives.

You don’t just need a clear vision – you need to cast the vision in a compelling manner that enables your team to use time efficiently and effectively for the good of the business.

  • Reaching Too Far, Too Fast

As an entrepreneur, it’s tough not to dream of high-profile success stories. Magazines, movies, and business school textbooks make us think the Facebooks, Googles, and Ubers of the world are more commonplace than they actually are. At the very least, they trick us into thinking that the best strategy for success is to quickly scale on a global level. However, reality paints a much more diplomatic picture.

Yes, it’s easier than ever to go global – but that doesn’t mean you should. Your chances of long-term success are much higher if you begin with a local audience and then expand your reach in an incremental fashion.

The problem with competing at a massive scale is that you don’t have the resources to go up against the giants of the business world. Even if you’re first to market, their large R&D teams have the ability to replicate and surpass you in a matter of months.

The better plan is to begin local (geographically speaking) and use this as a model for growth. By going local, you gain access to familiar markets; have lower execution costs; have a clearer scope for testing and experimentation; and enjoy greater agility for faster and more precise pivots.

Starting local doesn’t mean you have to stay local. If your plan is to expand in the coming months and years, approach each problem and opportunity through this lens. Take meticulous notes and develop scalable systems that you can take with you.

  • Saying Yes to Everyone

Nobody likes to say no. Internally, we’re all people-pleasers. We want to avoid discomfort, which often requires us to tell people what they want to hear. If you act on this impulse too frequently, you become a “yes person.”

In your personal life, being a yes person isn’t a huge deal. It probably just means you do things on a regular basis that you don’t truly care about. As an entrepreneur, being a yes person can put a strain on your startup’s chances of growing.

One of the most dangerous aspects of saying yes is that it leads to over-customizing products. In other words, if you apply every insight or piece of feedback that a customer gives you, you’ll end up with a product that does a lot of things, but doesn’t do any one thing well.

  • Inconsistent Branding

Branding is a massive challenge for young, growing startups. Few starting teams take the time to develop a brand identity and flesh out the details. Of those that do, just a small percentage actually follow through and maintain consistency and integrity to the brand.

An inconsistent brand is one of the worst things you can have – particularly when you’re just getting out of the starting gates. One minute a customer thinks you’re about “this,” and the next minute he thinks you’re about “that.” Even if it’s unintentional, your flip-flipping from one ideal to the next makes you appear dishonest and foolhardy. Put simply: It’s not a good look.

It’s paramount that you develop a brand image from the start. This includes a brand name, logo, precise color scheme, attitudes, core values, messaging, tone, voice, etc. Then you need to work exceptionally hard to make your branding shine through in everything you do. Any deviation should be quickly identified and rooted out.

Putting it All Together

There are dozens of frameworks, lifecycles, and plans designed to help you understand how to bring a business from ideation to IPO. You can find these formulas in business school textbooks, webinars, and startup blogs. And while you should dig into this information and pull out as many helpful insights as you can, it’s most helpful to look at startup development in three key phases:

  • Phase 1: Formation. In this initial stage, you come up with an idea or concept and begin actively exploring what it would take to start a business around it. You develop a mission, cast vision, hone a rough strategy, and form a team. It depends on how aggressively you’re pursuing the concept, but this phase can usually move fairly quickly.
  • Phase 2: Validation. If formation was about talking and dreaming, the validation stage is all about taking action. It’s during this phase that you develop a minimum viable product (MVP), validate through targeted testing and feedback, iterate the product, and possibly even make several pivots.
  • Phase 3: Growth. Finally, there’s the growth phase. It’s during this stage that you scale the startup and (hopefully) turn it from a validated idea into a thriving, highly profitable company.

Growth happens in all three phases of startup development, but the majority occurs during the third phase. The problem is that we live in a world where patience is no longer a virtue we teach or believe in. We’ve been conditioned by fast food, streaming video, and same-day shipping to expect a minimal delay between idea and consumption. And if we aren’t careful, we can expect startup ideas to act in much the same way.

When an on-demand ideology permeates your thinking, you’re much more susceptible to the aforementioned chokeholds. Thus it’s more important than ever that you stay committed and remain realistic. Nobody is telling you to let your foot off the proverbial gas pedal and relax. It’s good to be proactive and strategic. However, you can’t let time discourage. If Formation and Validation phases are steep lines on a graph, the Growth phase is a long, sweeping line that incrementally inches its way higher and higher.

Research from the Startup Genome Project, which analyzed 3,200 high growth internet startups, found that 74 percent of startups fail due to premature scaling. Likewise, the research shows that startups that scale properly grow approximately 20-times faster than startups that scale prematurely. In other words, don’t rush the process.

Be aware of the chokeholds discussed in this article. Implement the insights and adopt a posture of patience. Remember that there’s no proprietary formula for success. You have what it takes to grow a sustainable business – now go do it!

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