Why do most businesses fail after their first growth spurt?

Growing pains are inevitable once you start scaling, but the faster you overcome the hurdles, the smaller the chance your business fails. Over the past decade, I have personally helped thousands of startups and mid-market companies move from one phase to the next. By now most companies have successfully scaled with my framework of tools and tactics, the Scaling Up methodology.

One of the main reasons CEOs and executives of fast-growing companies struggle and fail is that they try too many things at the same time. It’s really important to focus, be disciplined, and gather the data you need to be able to know what works and what doesn’t.

Below are some of the most common mistakes most top executives of scalable businesses make and how you can avoid them.

*Scaling up fast 

One of the most common miscalculations companies in the startup phase make is that they scale up precociously. After getting one or two customers, they believe they’ve already proven their market- fit. Although the excitement is understandable, you have to validate your business model before you scale. Because even when you already have more than one or two customers or users as a startup, you still have to gain traction in the market.

Make sure to test your product request fit completely and that you know exactly who your ideal client is. Also, without proper preparation and strategic focus, rapid growth doesn’t necessarily mean profitability. You have to be ready to measure. In any growth phase, dig deep to ensure that the growth is sustainable and you can keep it up. otherwise, you’re not scaling at all – you’re just getting bigger and less efficient. 

*Lack of focus and alignment 

When your company is gaining more traction, the decisions you need to make growth even more complex. This pressure can cause you to make poor decisions that can hurt your potential for success and indeed set you back. 

More companies die from the excess of activities and split focus, it’s essential to know exactly what your focus is. This means you’re deliberately choosing what to do, but also and equally important deliberately choosing what not to do. Don’t go crazy trying to add new features or related products once you’ve achieved product-market- fit and started scaling up.

 It’s important that you can do one thing better than anyone else before you start building new goods. A great tool that you can use in your organization to gain further clarity on what your focus should be at any point in time, is the One-Page Strategic Plan or OPSP. This is a very concise plan that’s easy to communicate with your entire team. This one-page document will get your employees on one page and achieve team alignment. You need to have the right goals and metrics in place and these need to be clear and transparent for everyone in your team. Because without alignment, focus, and commitment, fast growth isn’t sustainable. Everyone makes mistakes but the key is being aware of them. This is the only way a business can discover what works and what doesn’t. It’s how we distinguish smart, well-informed opinions in your business from the opposite. What you don’t track and measure, you can not improve. A daily huddle is also an effective tool that helps you and your team (s) to remain flexible without losing alignment or focus. This is a 5-15 minute meeting to discuss tactical issues and give updates. It’s part of a proven meeting meter that many of the most successful entrepreneurs in the world implemented in their organizations to enable their major, rapid growth. 

*Hiring early

Another common mistake startups tend to make in their first period of significant growth is to hire too fast. Take your time and train each new employee. However, you may find yourself getting out over your skills If you are constantly trying to rush. It’s also important to remember that you need to stay lean. Don’t hire too many people ( middle managers or specialists) as this takes away from your core competencies and leaves you prone to trying to scale other areas too quickly. A small, motivated, and highly productive team is better than a sluggish team with poor morale. But don’t postpone hiring new workers too long either as failure to deliver is at the core of many business closures. Just make sure to hire efficient resources that believe in your vision. And don’t forget that especially amidst rapid growth, outsourcing can be a great solution for-core tasks too. 

* Mistaking leadership for the operation 

When your company is still in its initial startup phase you may be able to handle all of the functional roles, but it’s a fatal mistake to believe you can continue to do so. Stick with leading and don’t start managing. Business leaders inspire others, have the vision, make connections, and secure funding for their companies’ continued growth. They’re idea machines. These aren’t necessarily the same qualities found in a good manager. It’s important to leave the execution to those who are great at that.

 * Not setting long-term goals

 Goals give you direction and keep you on track during the day-to-day operations. By making sure your goals are SMART, you can identify where you want to go and outline the specific action steps needed to get there. This is something most business leaders understand and do well. But although most startups and scale-ups do set short-term goals ( monthly, quarterly, yearly, and perhaps also 2-to 5- year goals) to measure their progress, they often fail to define long-term ones too. However, your short-term goals might end up being the wrong ones, If the long-term isn’t clearly defined. Long-term goals are often overlooked in startups for reasons (or excuses) of agility but if you want to move fast, you need to know where you’re going. You have to be able to make quick but smart decisions. And this requires a clear sense of direction. Coming up with a Big, Hairy, Audacious Goal (BHAG) that you’re striving towards for the next 10 to 20 years can help you steadily grow your business.

 *Saying yes to every customer request (“over-customizing”) 

Another mistake that fast-growing companies frequently make when they start to gauge-up, is that they say yes to every customer request. In this case, you’re running the threat of over-promising and under-delivering. 

Below are questions  you should ask yourself:

  • Is your management team competent and experienced?
  • Are you able to demonstrate your ability to repay the loan you are seeking?
  • Does your business have sufficient equity and capital?
  • Taking your business project into account, is your working capital sufficient to cover short-term needs?
  • Is your business at the start-up or development stage?
  • Has a complete business plan (including a financial forecast and a description of your management team, products, and market) been prepared?

 

Share in the comments below some of the other reasons that may have caused a startup to fail.

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Author: P . Wakesho

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