There is no one-size-fits-all strategy to market a business. If you are launching a startup and want to develop a customer base, the marketing strategy will vary from the channels used for an established company. Startups are beginners and have to start from grass root level - they have to develop a consumer base and sell a new product. Scaling implies growth of a company, rising sales, and more capital inputs. The company grows and scales upwards. Premature scaling is when the growth of an organization. Nathan Furr has identified premature scaling, Assistant Professor of Strategy at INSEAD as: “spending money beyond the essentials on growing the business (e.g., hiring sales personnel, expensive marketing, perfecting the product, leasing offices, etc.) before nailing the product/market fit.” A report by the Startup Genome Project outlines premature scaling as the cause of failure of 70% of internet startups. The report also emphasizes the importance of balancing the five critical aspects of building a startup - Customer, Team, Business Model, Financials, and Product - with no one area growing at a disproportionate pace than another.
Driving growth before your business has learned the ropes may be the formula of failure rather than the success of your startup envisions. Neil Blumenthal mentioned in an interview about the success of hugely successful eyewear startup, Warby Parker that he co-founded: “Rather than taking giant leaps (resulting, possibly, in catastrophic failures), we focused on having a bold vision but moving there with deliberate, small, rapid steps.” Here’s why a slow and steady growth rate may be a better approach for startups rather than rapid growth that may come with even bigger losses:
1. Enough Money to Meet Growing Demands
With great expansion comes the temptation of over-spending. A startup should consider the possibility of sinking under the impact of losses incurred in the form of increased marketing, expansion, and staffing expenditures as the company grows. If finances made by the company can not sustain the rate of growth of your company, you risk losing everything you have developed. The aim of a startup is continued and long-term growth. Excess finances can also make your firm slide down the slippery slope of continued growth. Digital marketing entrepreneur, Neil Patel says that there is a risk of wastage of funds if too much capital is gained at early stages of growth: “If you gain more funding than your business warrants at its specific stage, it can produce undesirable side effects. In essence, it can cause you to expand your operations beyond what is manageable. This is premature scaling in its most common and nefarious form, and it is going to destroy your startup.”
2. Buffer Against Changing Scenarios
A paced-out growth policy serves as a buffer to prevent severe losses if trends and regulating policies change, as customer feedback pours in or as advances take place in the field you are in. If you invest in a specific business model that needs to be modified with time, you can control financial losses by opting for a regulated pace of growth.
3. Timely Recruitment of Qualified Staff
Higher sales and rising consumer demands mandate taking on extra staff. As a result, you may take on lesser qualified or unskilled employees to expedite the recruitment process. Ultimately, your business will suffer from a poor fit of the staff with the company profile.
4. Time to Work out Company Direction
Many new startups are not clear on the vision and business plan for their company. A measured pace of growth gives the startup the potential to modify its initial direction. A case in example: the company Nokia was initially a paper mill in Finland before it changed tracks to become the mobile giant it is today. Pivoting refers to a realignment of a firms’ goals to convert a mediocre strategy to a highly successful one. A steady growth plan allows you to pivot as and when needed based on shifting market demands and feedback.
5. Spotlight on the Customers and Product
If you focus on the customer feedback and products you develop, company growth will follow. Determining a good fit between the market and your products and crafting repeatable success is far more essential to growth and eventually, scaling upwards. Understanding the customer base that uses your product and making the product suitable for the user is the single most crucial factor in generating revenues, so focus on this aspect instead of solely focusing on scaling up prematurely.
Over-estimation and the lure of scaling to the top of the pile can trap startup entrepreneurs into moving into the fast lane before the firm is ready. Slow and sustained growth may be the optimum pace of the beginning of the entrepreneurial journey of a startup.