Getting rapid scalability right is about creating the ideal balance between addressing market potential and ensuring product delivery. Especially for start-ups - and in some cases scale-ups - there is a strong technical focus on developing and delivering a product which can solve a specific problem. New ideas are rapidly converted into new versions or additions of the product (or solution) a company offers. The appeal of fast-pace innovation is great and the investments in especially tech-driven start-ups and scale-ups is on the rise. 2021 has been a record-breaking year for start-ups investments according to experts from organizations like Forbes, KPMG, CB Insights and many more. Techcrunch headlined in october 2021 “Global startups raised $158B in Q3, an all-time record”.
So, the potential value of start-up companies is great. And still, 90% of all start-ups fail to transform their business idea into a sustaining business. Even with venture-backed companies, 75% never return cash to investors according to research done at the Harvard Business School. All the hard work which is put into product development and offering a new ‘solution’ isn’t a guarantee for success. Good products or solutions don’t sell themselves.
Recurring business and continuity
When looking at transforming a start-up to a scale up, the challenge is to convert the - so valued - potential to large scale valuable adoption. In this phase creating the ideal balance between addressing market potential and product delivery requires new investments in organization scalability. You could say a company most likely needs to switch from delivering a product to a client, to building a relationship with their clients. Recurring business and valuable longer term customer relationships are essential to provide the continuity every business needs to survive and stay in business.
70% fail due to premature scaling
So scaling is the way forward, but it’s also the biggest challenge. According to a report published by Startup Genome in collaboration with Stanford University, premature scaling accounts for 70% percent of all tech startup failures. That’s a big number. Premature scaling will happen when a company expands their business faster than their organization or products are ready for it. To prevent premature scaling it’s important to take two points into account:
1. Critical to get scaling right (and to prevent premature scaling) is to know the value of your customers and your cost to acquire them.
2. Additionally you need to have a clear repeatable business model in practice, which allows you to acquire customers in the same way.
The combination of the two points mentioned above are essential in lowering acquisition costs and increasing revenue so you can reach (more) profit. It allows a company to optimize their conversion funnel and find ways to retain more customers.