There is a graveyard full of startups that did not manage to get from initial traction to sustainable high growth.
In 2011, a Startup Genome Report, which was co-authored by researchers from UC Berkeley and Stanford, surveyed 3,200 startups in order to better understand what makes high growth technology startups succeed and fail. The results were astonishing:
- 70% of startups failed because of premature scaling, and
- startups that scaled properly grew about 20 times faster than startups that scaled prematurely.
Premature scaling comes in many shapes and forms. You overspend on customer acquisition before you have found product/market fit. You invest heavily in growth before you have found a channel that lets you acquire customers efficiently (product/channel fit). You fuel the growth engine in spite of your technology not yet being secure, stable and scalable. You hire too many employees… and too fast. Essentially, you burn unnecessary amounts of cash before you have validated the fundamental elements of your business model. This is a template for failure.
A specific form of premature scaling is blitzscaling. Reid Hoffman and Chris Yeh coined the term blitzscaling for an approach to growth that prioritizes speed over efficiency in the face of uncertainty. You make decisions before you know exactly how things will play out. You accept the risk of making mistakes and operating inefficiently, in exchange for moving faster. You start scaling without having proven that your business model actually works. It is like drawing to an inside straight. When you hit you win huge, but most of the time you will lose.
Some founders have indeed managed to blitzscale their businesses successfully. Hoffman and Yeh mention, among others, the founders of Airbnb, Alibaba, Amazon, Dropbox, Facebook, LinkedIn, Netflix, PayPal, Slack, Spotify, and Stripe.
It is undeniable that this aggressive approach to growth has worked well for these founders. And it may be tempting to emulate their blitzscaling approach. But blitzscaling is by no means the right strategy for each and every founder. The contrary is true. Hoffman and Yeh emphasize that blitzscaling means disregarding many of the normal rules of business and comes with an abnormally high risk of failure. They make it loud and clear that it makes sense to blitzscale only if speed into the market is the critical strategy to achieve massive outcomes.
Until you reach this strategic inflection point where you need to prioritize speed over efficiency, you can avoid any form of premature scaling and pursue the FastScaling approach to growth. The odds of extraordinary success are so slim to begin with that you should consider using growth methods to help yourself succeed. FastScaling is one of them.
The FastScaling methodology consists of two distinct growth phases.
You establish the FastScaling foundation that validates the viability of your business model. You generate product/market fit and product/channel fit. You ensure your technology is stable, secure, and scalable. You strive for market leadership in a sufficiently large market.
If your growth readiness is reflected in strong unit economics, you FastScale. You focus relentlessly on customer success. You generate predictable revenue and scale cash efficiently. You demonstrate strong leadership skills and create a successful high growth organization.
Many founders try to sprint through the growth valley of death by focusing solely on top line growth. But until you reach a strategic inflection point where you need to prioritize speed over efficiency, you may be better off FastScaling. You first create a solid high growth foundation and then scale your business fast, predictably and efficiently.
If you FastScale, it may take you a bit longer to create a massively valuable business. But the probability that you succeed is significantly higher.
You do not have to end up six feet under. Be smart and consciously decide which growth strategy suits your business!
If you want to learn more about the FastScaling methodology and the nine fundamental FastScaling building blocks, please subscribe to my blog and order the book on Amazon. There, you may find your smart path to building a massively valuable business.