5 Challenges of Scaling Up That Every Start Up Faces
You have launched a startup, have done some really good work and are now looking forward to a bright future. Is it time to scale up?
Not yet. Not so fast. It is a different thing to launch a startup than it is to scale it up.
Thanks to the cheap technology and a considerable youth population, India is a startup hub. But did you ever wonder why most of them stay small? Why there are thousands of startups, but very few Flipkart’s or Ola’s in the Indian startup story.
The answer is simple – because it is easy to start up than to scale up. There are some real and complex challenges that a business faces while scaling up. Here they are:
Choosing the right time
There is a time for everything. Scale up too fast and you might sit on idle inventory and unproductive employees. Scale up too slow and you risk losing the momentum and opportunities. The ‘time frame of opportunity’ is very tiny, and those who miss the bus, miss it for good.
Choosing the right team
Startups start out like a small intimate family. The team members eat, live and breathe their work. They are willing to sacrifice everything for the sake of business. But this won’t apply to the ‘extended family’, your newly hired employee post scale up might feel his vacation is more important than your client deadline. ‘Work-life balance’ you see. If you fail to hire the right kind of people, the passion dilutes and that hurts the culture and the bottom line badly.
Re-designing the processes
Erik Fairbairn, the fabled serial entrepreneur said – Each time your business doubles everything seems to break; your sales process, finance processes, management information flow, so every time your company doubles in size, you end up re-designing every process you have.
Take a bow Erik, you nailed it. A company of 30 can sit out of two rooms and might not even need a phone to contact each other, but a company of 60 would need personal mail IDs, MIS flow, monitoring systems and what not. And, that’s only the tip of the iceberg.
Breaking the cult
Startups are like cults, they have their own cherished way of doing things. But with a scale up, the informal crazy way of doing things so loved by the original team would have to give way to a bureaucratic system full of approvals, reviews, and feedbacks. It might irk the employees and they might start hating the founders and the system.
The batman might have been addressing a bunch of startups entrepreneurs when he said – You either die a hero, or you live long enough to see yourself become the villain. You get the picture, don’t you!
Choosing the right reason
Growth for the sake of growth is the philosophy of cancer. If you are making a profit at a steady pace and at your scale, you might not want to scale up. Remember, small is beautiful! Scale up because the time is right, and the reasons too.
The bottom line is – Do not scale up just because everyone around you is doing so. Every business is different. Review your business and then decide whether a scale up is worth the effort, time, heartburn and the result.
Now that we know what works & what doesn’t while scaling up a startup, let’s look at 4 startups that performed really well in their scale-up phase:
Uber is one of the crazy little idea that turned out to be a billion dollar company. Uber is one of the leading on-demand transport services. Within nearly 5 years, Uber has expanded enormously. It is easy and hassles free process – no cash, no tips, and no more arguments with drivers. Uber has introduced its own food delivery service called UberEats. UberEATS is currently available in Atlanta, Austin, Chicago, Dallas, Houston, Los Angeles, New York, San Francisco, Seattle, Paris, Melbourne, Washington, D.C, and multiple cities in Canada. Once you build a successful market, there are no limits for where you can go and what you can do.
Initially, OYO rooms were misunderstood as the Indian version of Airbnb, by the people. In July 2015, OYO rooms got a $100 million funding from Soft Bank. OYO rooms started from a single hotel in Gurgaon and now it has become India’s largest budget hotels chain in more than 80 cities across India, with over 14,000 rooms. What makes OYO rooms so special? OYO rooms is actually the solution for finding best and affordable hotel experience in India. Finding a hotel is not the problem but the hotel stay experience is what matters which is what OYO rooms focuses on.
Pepperfry received initial funding of $5 million in 2015. They massively grew in past 3 years. Today pepperfry has become one of the leading online home appliances and furniture marketplace in India. Pepperfry won hearts of 650K customers, across 1000 cities providing a wide range and great shopping experience.
In just 2 years, Delhivery expanded from being five co-founders to 2500 plus employees. Delhivery ships over 7 lakh orders every month. Over the past three years, they have evolved into a complete supply-chain solution providing core e-commerce technology and logistics services for everyone in the ecosystem.
Let’s also have a look at 4 startups that didn’t do well while scaling up:
E-commerce focused logistics services provider Delivree King has closed operations as it has been unable to raise fresh funding. The Delhi-based startup, which was formed in March 2015, was trying to raise Series A funding in December 2015. They had scaled to about 15 cities but it was difficult to sustain operations at that level with no funds. This business requires money to scale up and without funds, it’s very difficult to break even which was one of the key reasons why Delivree King Failed.
Since the acquisition of Pixable in 2012, Pixable pivoted from an app-focused social photo aggregation tool to the content marketing space, shifting away from their digital strategy. They tried to seek buyers or investors for the company. Unfortunately, the process hasn’t been successful and they decided to exit the business.
Spending around Rs 2.5 crore a month on an average, Tiny Owl was left with Rs 18 crore at the end of January 2016. In the past year and a half, they had raised Rs 152 crore from various marquee investors and has now run out of options. No investor is keen on funding the company, and no one wants to buy it. Finally, TinyOwl merged with RoadRunner – a Bangalore based on-demand delivery startup.
TaxiForSure was India’s first on-demand cab service. It first started its operations in Bangalore and then expanded to a few more metro cities. Its downfall started from the time ola and uber entered the market. Ola secured a huge funding and thus came up with great offers for its user. This is when the fare war started and TaxiForSure began to lose ground.
What do you consider are the biggest reasons for a downfall in the scale-up phase for startups? Do comment your thoughts!