Premature Scaling

As discussed in our definition of a startup, startups must simultaneously develop 5 interdependent dimensions: Customer, Product, Team, Business Model and Financials.  “The art of high growth entrepreneurship is to master the chaos of getting each of these 5 dimensions to move in time and concert with one another. Most startup failures can be explained by one or more of these dimensions falling out of tune with the others.”
This chart was taken from the Startup Genome Report, Extra on Premature Scaling.  
DimensionExamples for inconsistency
Customer• Spending too much on customer acquisition before product/ market fit and a repeatable scalable business model


• Overcompensating missing product/market fit with marketing and press


• Spending money in poor performing acquisition channels
Product• Building a product without problem/solution fit • Investing into scalability of the product before product/ market fit


• Adding “nice to have” features
Team• Hiring too many people too early 


• Hiring specialists before they are critical: CFO’s, Customer Service Reps, Database specialists, etc.


• Hiring managers (VPs, product managers, etc.) instead of doers


• Having more than 1 level of hierarchy
Financials• Raising too little money to get thru the valley of death 


• Raising too much money. It isn’t necessarily bad, but usually makes entrepreneurs undisciplined and gives them the freedom to prematurely scale other dimensions. I.e. over- hiring and over-building. Raising too much is also more risky for investors than if they give startups how much they actually needed and waited to see how they progressed.
Business Model• Focusing too much on profit maximization too early 


• Over-planning


• Executing without regular feedback loop


Executing without regular feedback loop 


• Not adapting business model to a changing market 


• Failing to focus on the business model and finding out that you can’t get costs lower than revenue at scale.
Scaling prematurely does not just risk bad timing and headaches, it’s beyond expensive.  Startup Compass found that premature scaling requires more capital, with inconsistent startups raising three times more money than those that wait to scale.  Startups that scale properly take 76% longer to scale their team size. [2]

Footnotes

[2] Startup Genome Report