What could possibly be bad about scaling up your startup? If you’re thinking about growth because the demand is there, you’re clearly doing something right.
But a rush to ramp up too soon can lead to serious growing pains, especially in the human resources and accounting departments. We asked 10 entrepreneurs in the Young Entrepreneur Council (YEC) to share their own experiences with scale—and their best advice for founders about to embark on a big push in the new year.
1. Scale Remotely
The biggest problem with scaling is you take on commitments. Commitments for offices, technology, employees and any number of assets that can slow you down and bleed your bank account. A great option is remote employment. At Staff.com, we run a team of more than 50 employees from 9 different countries; our employees are more efficient than local ones and we don’t have commitments like offices, payroll or the bureaucratic headaches that local employees produce. We still have some local employees, but each local worker is augmented by remote ones. This relationship produces incredibly efficient employees at a fraction of the cost. – Liam Martin, Staff.com
2. Spend Money On The Best People
Whether you’re selling a product or service, maintaining quality during periods of quick scaling is hard. At Pandemic Labs, we experienced this in both our agency business and our software platform. Our solution is in our people. When your business is moving along at a steady, manageable pace, you might not see the value of hiring someone for $90,000 when you can fill that position with someone for $40,000. But there’s a big reason, and you’ll see it when business ramps up. A-level people cost more, but they’ll be able to keep a steady hand on the wheel with you in situations where other companies would crumble under the speed of their own growth. The best people will feel expensive at first, but a team of great people can control a train that would otherwise fly off the tracks. – Matt Peters,Pandemic Labs
3. Understand What It Takes To Serve 10X The Customers
The biggest mistake startups can make when trying to scale a business is to not understand what it takes to support 10 customers versus 100 customers. As an entrepreneur, project all the resources you will need as you grow. Forecast how each of your key resources (i.e. staff, strategic leadership, infrastructure) will need to be expanded. Yodle scaled successfully because we invested in careful planning in order to be properly prepared for each juncture of growth. In this way, we achieved controlled growth – and this was the best way to manage additional costs and resources. – John Berkowitz, Yodle
4. Set Up Systems First
My company, RewardMe, is a digital loyalty platform for restaurants. Our success therefore depends on our ability to capture as much of the market as possible. Our initial 100 clients were in Northern California and it seemed like we were ready to scale: hire sales people across the country and implement as fast as possible. But the smartest decision we made was to delay scaling until we had all our systems and training manuals in place. When you bring people on board to scale sales, everything must be a no-brainer: they must know exactly how to get clients, how long it takes to close deals, how much to sell the product for, and the intricacies of the implementation process. Don’t scale until every single aspect from customer acquisition to implementation is a process. – Jun Loayza, Passport Peru
5. Premature Scaling Kills
There is no doubt about it – startups offer some amazing opportunities to exercise Computer Science and Systems Engineering knowledge. Engineering friends of mine regularly marvel at the amount of data companies like Google, Amazon and Netflix have to process, analyze and serve. Here’s the problem: This opportunity doesn’t exist for early-stage startups, because, by definition, they have no users or customers. Worrying about “scale” in the early days of your startup is simply a bad investment. You may not have even discovered whether a product or market is worth pursuing, but you will have already invested in scaling that pursuit. Startup founders have to develop a craft in rapid application prototyping. Scaling comes later. – Andrew Montalenti, Parse.ly
6. Listen To Your Customers
One of the best barometers for scaling should be customer satisfaction. If your customers are satisfied, you can scale as fast as you want. Typically, when something starts going wrong or you’re understaffed, your customers will tell you! When we started pushing hard toward the 7-figure mark in our first year, my brother/business partner was left managing customer support from his Gmail account. He was a senior in college, a starter on the baseball team, and working 50-60 hours each week. We knew something had to change, and that’s when we found a full-time customer support staff member. While Scott was doing all he could, I knew our customers were growing restless. Since then, I’ve been able to leverage Scott’s abilities, and our business has never been stronger. – Brian Moran, Get 10,000 Fans
7. Ride One Horse At A Time
When we started franchising our business, we expanded rather quickly, and it seemed logical to test out new service lines and launch new brands. However, we stretched ourselves thin and ended up over our heads in unfamiliar waters. Our core business suffered, and the new initiatives didn’t work. My advice: Focus on dominating the sandbox you’re already in before branching out. Make sure you have strong systems and resilient revenue streams. Run market tests and grow your business slowly so that every piece is sturdy, stable and cohesive. If you try to ride more than one horse at the same time, you’re going to fall off. – Nick Friedman, College Hunks Hauling Junk
8. Be Selective, Open Up Slowly
When we launched SaberBlast.com a year ago, it grew so fast that we couldn’t keep up with demand. Our clients would try to send out newsletters with 30,000 or 100,000+ subscribers on it – and either the server would blow up or the resulting traffic would kill us. It was embarrassing. With the recent relaunch of the service, not only have we upgraded our technology, but we’ve upgraded how we onboard clients. We actually have an application process and a waiting period. Then, once a month we open up X number of new spots and email clients who are on the waiting list telling them they can sign-up. This way, by controlling demand and being selective about who we take on as clients, we’re controlling the risk of growing too fast without sacrificing the quality of how our service is delivered. – Matthew Ackerson, Saber Blast
9. Stay Focused On Cash Flow
The most dangerous problem with scaling too quickly is usually cash flow. I experienced that when building my second business when I was 19. We nearly hit our $1 million in revenue in the first few years, but as we got bigger clients, they required better payment terms. One missed payment from a big client could be disastrous, which is what happened. Cash flow is king in scaling up your business. Most entrepreneurs learn the hard way and this is definitely something that needs to be talked about more. – Peter Nguyen, Literati Institute
10. Estimate Growth, Then Divide By 2
As much as we love to dream about explosive growth and unyielding demand for our product or service, our passion and excitement may skew the truth about future projections. If you can estimate revenue for the next 12 months, take that number then divide by 2 – and plan your resources and expenses around that number instead. Case in point, I ordered 2,000 jerseys for my new sports business (we ran rec leagues for adults) based on lofty expectations about how may players would sign up to play. We had 75 people show up on opening day and for an entire year I did not know if I was running a sports business or a t-shirt business. Be modest in your expectations and seek outside help for an unbiased estimate. It is never a bad thing to sell out beyond capacity, it creates demand. – Steven Staley, Playbook Community
The Young Entrepreneur Council (YEC), an invite-only nonprofit organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, the YEC recently launched #StartupLab, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses via live video chats, an expert content library and email lessons.