Premature scaling - the main reason for the death of startups?

    Startup Genome has published an appendix to the May start-up analytics report . Now information has already been collected for 3200+ companies and the main reason why startups are falling apart is being considered in detail.

    Having studied the experience of thousands of startups, Startup Genome concludes: 70% of failures are due to premature scaling.

    In short, what is meant.

    Startup Genome experts consider a startup as a kind of 5D organism. During growth, he should develop harmoniously five independent areas:
    • the users
    • product
    • command
    • finance
    • business model
    At each of the six stages of startup development before becoming a large company, a different ratio of these five areas is considered harmonious. Premature scaling - too fast or too slow development in one or several directions. The art of managing a startup consists precisely in managing to develop all of them equally and harmoniously, otherwise collapse occurs.
    • Users
      1. Too much cost to attract users before the market has matured and developed a sustainable scalable business model.
      2. Excessive compensation for unavailability of the market by marketing and press efforts.
    • Product
      1. Creation of a product (product as a solution to a problem) in the absence of a suitable problem.
      2. Investing in product scaling prior to market maturity.
      3. Adding cool features.
    • Command
      1. Prematurely hiring too many employees.
      2. Hiring specialists before they are critically needed: financial director, employees of the customer service department, database specialists, etc.
      3. Hiring managers (VP, product managers, etc.) instead of employees.
      4. The presence of more than one level of hierarchy.
    • Finance
      1. Attracting too little investment to overcome the "valley of death."
      2. Attracting too much investment. Although this is not necessarily bad, it almost always deprives entrepreneurs of discipline and gives them the opportunity to scale prematurely in other areas, for example, by over-developing a product or hiring extra staff. Too large investments also pose a greater risk to investors who would be better off allocating limited amounts as needed.
    • Business model
      1. Too much effort to profit too early.
      2. Excessive planning, actions according to plan without the necessary feedback.
      3. Lack of adaptation of the business model to a changing market.
      4. Inability to comply with the business model, as a result of which, when scaling up, expenses cannot be kept to a lesser extent than revenues.
    In the report (distributed free of charge) you can examine each item in more detail, see statistics on startups and comparative graphs (harmonious / inharmonious).

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