the road from seed to scale is riddled with potholes, claiming the lives of over 90 per cent of startups within the first five years, primarily due to lack of product market fit and poor risk mitigation practices.
It’s an open secret that India is in the middle of an entrepreneurial explosion, with new startups launching every day across the country in an increasingly business friendly environment. The country provides an immeasurable number of lucrative problem statements, allowing founders to ideate solutions that create significant value for themselves and investors while having a lasting positive impact on society.
However, the road from seed to scale is riddled with potholes, claiming the lives of over 90 per cent of startups within the first five years, primarily due to lack of product market fit and poor risk mitigation practices. In most market scenarios, winning the startup game means surviving long enough to keep playing (re: Simon Sinek’s brilliant book, The Infinite Game). This article attempts to put into words my learnings on sustainable growth, offering five specific tips I believe every early or prospective entrepreneur should consider before diving into their scaling journey.
1. Everyone fails – make sure you fail small
The early years are generally characterized by experimentation, trial and error, and false starts. You shouldn’t be afraid to take big swings but understand that every startup in pre “product-market fit” is in risk management mode, and needs to learn how to make big bets without betting the company. Cap your downside and ensure you have a quantifiable measurement of success so you don’t keep the experiment going on forever.
This is true not just at the founder level but throughout the organization. The best ideas will come from the early employees, who need to feel safe enough to try things and fail. As a founder, it is your responsibility to create an environment in which they feel they can fail safely, and where failures that originated with good intentions don’t cause repercussions that can jeopardize the company’s future. Simply put, there is no harm in moving fast and breaking things. But when you inevitably fail, make sure you’re failing small.
2. Passion is great, but don’t let it blind you
People always talk about the importance of passion, and yes, it’s vital in keeping you going as fuel for your entrepreneurial journey. However, as a founder you need to be passionate about solving problems and building your business, not passionate about specifically how you’re doing it. You need to learn to be unemotional about decision making, based on data from carefully designed experiments, and pull the plug or pivot before a bad strategy drains the company of critical resources like employee bandwidth and capital.
It’s exhilarating to see your business grow and gain traction, but it’s more important to keep finding ways to make it better. Entrepreneurs that are content with a semi-successful solution are the ones that struggle with scale, while those that continue to tinker while growing and experimenting in parallel eventually crack the code. Pivoting at the right time and into the right areas is crucial and often overlooked as people glorify hard work and dedication to potentially doomed business models. There’s a reason so many successful founders say, “What we do today is completely different from what we were doing when we started.”
3. The Customer is not always right
Customers are generally well intentioned but can at times be uninformed or subject to their own biased incentives. If a customer gives you feedback on your product, your business model, your employees, or anything else, it’s important to listen to what they have to say, but not mandatory to pivot or take actions based on what you’ve heard. It’s also critical that you avoid overinvesting for customers that are dangling an attractive carrot down the road, as there’s never a guarantee if the opportunity will remain once the winds change.
Additionally, sometimes there are certain customers that just aren’t worth keeping. If there’s a customer who deals unethically, or treats you and your employees poorly, “firing” the customer is painful in the short run but far better for your startups long term health. Your employees need to know you have their back and will only be effective in their roles if they feel this support.
4. Build a team that complements and challenges you
I’m sure you’ve heard variations of this already, but don’t hire smart people and then tell them what to do, let their creativity surprise you. Founders often fall prey to their own hubris and surround themselves with “yes men” until an echo chamber forms where the only right opinion is their opinion. This is far more comfortable than being consistently challenged and questioned but does not set you up for success in your scaling journey. Of course this is easier said than done, since talent like this is hard to come by and even harder to retain.
In my experience, good people flock to businesses that do good, and smart people to businesses that challenge them and allow them to flourish. Building a company with a strong mission and positive externalities is an extremely compelling pitch to get people to the table, but converting interviews to hires (and retention) comes from ensuring employees feel fulfilled. Most critically, this is not a one size fits all, as different employees need to be managed differently, and that’s where your role as a leader and founder comes in. The best founders are the ones that get the best out of their teams, not the ones that simply build kingdoms.
5. Leadership is what happens in your absence, not in your presence
This is one of my favourite concepts for evaluating effective leadership. It’s easy for people to lead from the front in small teams, using a “follow my lead” approach. But the strongest indicator of a successful business is when people across all levels demonstrate the same values in front of their managers as they do behind their backs.
This is the only way you can scale and something that mid-level managers need to understand above all else. The only way they can grow and get promoted is if the people who will fill their shoes once they move on are fully capable operationally and culturally of continuing to build the organization in your collective vision. Failing this, any new scaling company will be building on a precarious foundation, and you won’t know when the house of cards is collapsing until it’s too late.
There are clearly a lot more than 5 things to keep in mind when focusing on sustainable and scalable growth, but these are the most important in my experience. Take pride in your capital efficiency and frugal culture and be careful not to get carried away when markets inevitably shift towards favouring aggressive growth again. The past decade may have been characterized by high burn high growth startups, but the next will belong to those that not just survive, but thrive, in the winter.