The Startup Genome analysis, which investigated 650 Internet startups, found that “premature scaling is the most common reason for startups to perform poorly and lose the battle early on”.
Similarly, a complementary report on 3200 high growth startups revealed that “74% of high growth internet startups fail due to premature scaling”.
Premature scaling, thus, is a startup killer. But what, exactly, is premature scaling?
And how can you prevent it from leading to the death of your company? In this article I’ll provide detailed answers to these two questions as well as outline various key strategies for successfully growing your business.
In the startup world, a wannabe company becomes a “real business” once it develops the ability to acquire customers quickly and at a cost that’s lower than the revenue that such customers generate.
The formation of a repeatable and scalable business model is essential to a startup’s vitality precisely because it opens up the possibility for a startup to accomplish its central objective, i.e., to grow and scale exponentially.
Achieving such a business model is the ultimate goal of a startup.
As venture capitalist and billionaire Vinod Khosla once put it, “if there is no problem, there is no solution, and no reason for a company to exist. Nobody will pay you to solve a non-problem.”
Successfully establishing a problem/solution fit requires discovering and thoroughly understanding a customer pain so significant that sufficient numbers of people not only recognize its existence but are willing to pay good money for its solution.
On a pain scale of 1–5, a monetizable pain is a 4 or 5, i.e., it needs to be addressed now.
Discovering a problem/solution fit is an indispensable part of building a successful startup.
Because every single entrepreneurial activity is ultimately predicated upon the capacity to create something that people are willing to purchase but such a purchase will never materialize unless your creation effectively solves one or more of your customer’s pressing pains.
How can a startup validate what it believes to be its monetizable customer pain?
Acquiring as much valid insight as possible requires attaining brutal honesty from your focus group.
Rather than eagerly pitching specific ideas to your participants and trying to sell them your particular pain hypothesis, you should ask open-ended questions intended to allow respondents to speak freely and openly.
It’s also important to avoid priming your audience by ensuring that you don’t explicitly tell your participants that you’re working on a business idea.