B.D. Dalton II the Lazy Overachiever, writer and dealmaker brings 25 years of success and failure. Rockfine Group.
Scaling a business can be a perilous process. The understandable temptation is to equate growth with more turnover, more hires and an expansion of your product catalog. However, without strategic guidance, these moves can sink promising companies.
After talking to some colleagues on my podcast about industry leaders like Tesla, Southwest Airlines and Amazon, three takeaways came to mind regarding traps to avoid when scaling a business. I believe that if you apply these lessons to your overall strategy then you will be ahead of 90% of the competitors in your industry.
1. Turnover is vanity.
The hunger for rapid top-line growth is understandable. However, uncontrolled turnover without profitability puts you on the path to ruin.
Webvan learned this lesson the hard way. The online grocery delivery startup expanded aggressively across the U.S. in the late 1990s before perfecting its model. Massive investments in infrastructure and marketing drove blistering early growth. At its peak, the company was valued at $3.6 billion.
But the flaws in the business fundamentals and operations meant Webvan was losing money on every order. The extreme cash burn could not sustain the breakneck scaling. By 2001, Webvan had gone bankrupt, a poster child of disastrous growth without profitability.
2. Avoid scaling at the cost of everything else.
As a leader, you want to obsess over refining unit economics and margins. Scale demand in sync with capabilities. Leave room to pivot based on data and feedback. Ultimately, remember that sustainable scaling requires patience and precision.
Many say that more people equals more profit, but does it? Staffing up rapidly may seem like the best way to drive growth, but talent needs to be synchronized with strategy. Blind hiring bloats expenses without guaranteed returns and without designed roles and direct outputs.
Just look at Zynga, makers of hit games like Farmville. At their peak in 2012, they employed over 3,000 people. But the games business moved fast, and Zynga failed to adapt. As revenues declined, their massive overheads became an albatross. Multiple rounds of layoffs ensued. But the damage was done. The talent imbalance contributed to a 90% share price plunge. Zynga learned the hard way about the perils of premature scaling.
Therefore, always align headcount with current needs and projections. Make sure to structure teams for flexibility in case strategies must shift. Bring on excellent leaders who can instill discipline. Only scale talent after capabilities are proven.
3. You can’t be everything to every man and his dog.
Expanding products early and seeing the initial product line can be exciting. However, restraint is required when considering new products and markets, especially early on. The cautionary tale here is General Motors in the 1980s. With dominance in autos, they ambitiously expanded into other services as part of a plan to have 10% of its revenues from “nonautomotive sources.” GM bought mortgage lenders, insurers and credit card issuers, creating a house of cards.
Auto sales declined precipitously, and many of these new businesses crumbled. GM’s debts ballooned to unsustainable levels.
The lesson here is to stay laser-focused on excelling in your core categories first. Move into new areas only after proving repeatable success and capabilities. Avoid distraction by expansion until you’ve honed the fundamentals.
If you want to not fall into the same traps as the companies above, keep in mind how sustainable scaling requires strategic discipline. Don’t equate growth with turnover, headcount or products alone. Map expansion to proven profit drivers and capacities. Stay nimble to adjust course as markets evolve. With prudence and patience, your business can scale prosperously.
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