WORLD EXECUTIVES DIGEST | Every major business started out as a small operation but when demand necessitates a growth spurt, a business must decide how to scale.
The number one reason that startups fail is from premature scaling. A study from the Startup Genome Report found that 74% of startups fail because of premature scaling, while those who scale properly typically see growth that’s 20 times faster.
To better understand scaling risks and rewards, I worked with Alligatortek to analyze a list of major companies that scaled quickly, with good results and bad. Here’s what we found:
- Companies who scale quickly have many similarities, including the ability to raise capital to support growth prior to turning a profit.
- Slack, a popular cloud-based team collaboration and communication tool scaled quickly from 2014-2017. The popularity of the app globally spurred a need to grow quickly. In that time period they went from 8 to 385 employees and raised over $160 million in funding. Their valuation also went from $1.2 billion to $3.8 billion in just under 3 years.
- Chobani also got scaling right. Chobani knew they could scale quickly for two reasons. One their product was extremely popular in a limited area, so they could safely assume it would be popular if they took it nationwide. Lack of competition was the other factor that contributed to their success. In just 7 years they went from a revenue of $2 million to over $1 billion.
- Many companies have got scaling wrong including Groupon, Blockbuster and Kodak.
Take a look at the rest of our analysis and let me know if you can use any of this for a story. There are a few interesting storylines from our analysis that show why many startups fail while other’s succeed that I’d be happy to discuss with you further.