The Startup Genome analysis, which investigated 650 Internet startups, found that “premature scaling is the most common reason for startups to perform poorly and lose the battle early on”.
Similarly, a complementary report on 3200 high growth startups revealed that “74% of high growth internet startups fail due to premature scaling”.
Premature scaling, thus, is a startup killer. But what, exactly, is premature scaling?
And how can you prevent it from leading to the death of your company? In this article I’ll provide detailed answers to these two questions as well as outline various key strategies for successfully growing your business.Repeatable and Scalable Business Models
Entrepreneur Steve Blank defines a startup as “an organization formed to search for a repeatable and scalable business model”.
Expanding on this definition, I recently pointed out that:“The creation of a repeatable and scalable business model is the point in the start-up lifecycle where a new venture finds ways to consistently acquire new customers for less money than the revenue they are expected to bring in, thereby generating profit.”
In the startup world, a wannabe company becomes a “real business” once it develops the ability to acquire customers quickly and at a cost that’s lower than the revenue that such customers generate.
The formation of a repeatable and scalable business model is essential to a startup’s vitality precisely because it opens up the possibility for a startup to accomplish its central objective, i.e., to grow and scale exponentially.
Achieving such a business model is the ultimate goal of a startup.
Your company reaches this defining point when it secures the following 3 key developments:Your customer acquisition cost (CAC) — i.e., the total cost of convincing a potential customer to buy a product or service — is lower than the lifetime value of customer (LTV) metric — i.e., the revenue that a cus...