Why Some of the Best Businesses Fail to Scale


According to a recent Forbes survey, 9 out of 10 startups fail!

I had recently taken a vacation to Coorg (hail long weekends!). On the way, we stopped at a run-down café of sorts for a quick snack. Do you know what I saw there?

It was a tiny, yet prominently positioned sticker requesting the customers to review their establishment on TripAdvisor. I was frankly, quite amazed (and very heartened). For a startup near Massachusetts that started small, and was founded only a decade and a half back (2000, to be exact), to be featured at an obscure café in the middle of nowhere, is indeed remarkable.

Oh, that is not the only success story out there! Take Facebook, Freshdesk and even the reliable redBus – they all began as fledgling startups before reaching where they are now.

Why do you think they made it? There are so many great business ideas out there. Yet only a few become big news while most fade away! In fact, according to a recent Forbes survey, 9 out of 10 startups fail! Is it really the fool–proof law of evolution “survival of the fittest” at work? Or is it because they made wiser business decisions?

Well, it could be a little bit of both. But, there is a bigger factor at play here. Scaling. There. I said it – the dreaded “S” word.

While there is no magic formula to scale your businesses perfectly, there are three fundamental aspects without which businesses can’t successfully scale.

1. Product Market Fit: The first question to ask yourself is this, “Has the product found the market fit?” Though it might seem a rather abstract concept at first, you will just “know” when you have it. Succinctly put, the PMF is when your product expertly addresses the demand in the market, caters to a specific need and successfully solves a pain point. Or even create a new desirable experience. Take WhatsApp for example. It is used by a wide range of users, both in the urban and rural sectors with equal enthusiasm. It means that the application addressed a solid need in the market and was able to cater to it. The market pulled the product and made it a success.

The point is, with a good fit, it will be a lot easier to achieve Scale! It’s rather like rolling a ball downhill – it will automatically move, without you having to put in much effort. Word of mouth referrals, repeat customers and tremendous customer loyalty will ensure that your product scales – well. Consumer validation is the best way to check if your product has achieved its market fit yet. If a large number of your customers genuinely get disappointed without your product, then congrats – you have achieved PMF.

2. Big Market – So, you have achieved your fit. But, how will you scale if your target audience is a select group? That is, unless there is a widespread demand for your product, there might not be an actual scope for expansion. A large market does not necessarily mean going global. It could mean that the audience is large enough for you to achieve the critical mass!

3. Funding – Assuming you have the first two points covered, the only thing to root for now is the capital. Let’s face it. Scaling is expensive after all – it means different things for different businesses. In the internet business, it would mean getting better servers and infrastructure to provide better user experience and build scale. If you are in the business of selling hardware or software to enterprise customers, you will have to invest in field sales. It could also mean hiring the right kind of talent. To achieve this without the proper funding in place is not the smartest move you can make.

Just so you know, you can hit a lot of operational road blocks. But these can be overcome with sufficient amount of capital and a great product/market fit! Good capital is likely to attract good talent. At the very least, it will give you a decent cushion period till you correct the wrong hire.

Scaling is rarely easy. But it is attainable and if you have these three aspects figured out, you are indeed positioned to scale, and can go ahead and work out your scaling plan!

Disclaimer: This is a guest post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of iamwire and the editor(s).

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