PREMATURE SCALING: LEADING CAUSE OF STARTUP FAILURE

I’ve failed at a lot of things in my life including start-ups, and you know what, I’m pretty excited about it. You would think that I would be sitting here crying a river like most people, but I’m not. Instead I’m reading, learning, studying, asking tough questions, reflecting on my screw ups, and working on a bunch of new start-ups with amazing and brilliant people.

Realizing that it is a combination of things that cause a start-up to fail, one question that I’ve asked myself over and over after having a start-up fail pretty bad is, “What makes start-ups succeed or fail?”

You might not realize it, but it is some 90% of startups fail. This is a huge number and probably blows your mind at first sight. The interesting thing though, the primary reason they fail is self destruction – which means that “We” ourselves screw them up.

So how do you overcome this? I found a pretty cool study done by Max Marmer. He and his team have been attempting to quantify the art of start-ups. Rather than using speculation of why start-ups fail or succeed, they believe that they can crack the code of innovation and turn entrepreneurship into a science if they had hard data. With that, Max and his team interviewed and analyzed over 3200 start-ups and in May they released the first Start-up Genome Report — an in-depth analysis on what makes early-stage Internet start-ups successful. They believe that they have discovered the common reasons start-ups fail.

I don’t know if you’re interested or not, but if you are, they summarized their results in a report “Startup Genome Report Extra: Premature Scaling.”

Here are a few main points: 

  • For many people they believe it is how big it is, when in reality it’s more about how well it performs.
  • Success isn’t about size – of team or funding. It turns out Premature Scaling is the leading cause of bleeding cash in a start-up — and death.
  • The team size of start-ups that scale prematurely is 3 times bigger than the consistent start-ups at the same stage
  • 74% of high growth Internet startups fail due to premature scaling – growing to quickly
  • Start-ups that scale properly grow about 20 times faster than start-ups that scale prematurely
  • 93% of startups that scale prematurely never break the 100k revenue per month threshold

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DISCUSSION QUESTION: 

Is your start-up scaling prematurely?