When to Resist the Temptation of Scaling Your Startup Business

Posted in Entrepreneurship On Jan 14, 2020

Dominating the industry you are in is a marathon not a sprinter. The difference between the two is crucial for an aspiring startup entrepreneur. The two run at the opposite ends of the athletic spectrum. At one end, the sprinter lasts for seconds; at the far end, the marathon goes for hours. If the startup is to succeed, he or she got to learn the skills of conserving their resources till reaching the finishing line. A good place to start is to recognize what mindset you have and whether it needs a shift.

The mass production orientation of the second half of the last century is still directing our mindsets. It’s manifested in the way we seek to cut costs through scaling and standardization. The economies of scale focus on the cost advantage that arises when there is a higher level of producing one good. In such a way, profit is more important than progress and the mass count more than the individual. The mass marketers compete for market share where the individual is relegated to the level of machines. As such, the startups follow this pattern of sameness and mimic the marketing strategies of market leaders.

Failed geographic expansion is one of the reasons that hasten the end of startups. When investigating the primary reasons behind the failing startups, the Venture Capital database CB Insights  concluded that being haste in scaling your business, in its early stages, through expanding in new locations, drains the startup resources. Businesses fall into the trap of scaling beyond their territories the moment they make money. The scaling mindset looks for market share through mass production, mass distribution and mass media. These tools are relevant to the market leader, not to the startup, that needs different tools to utilize and change the game of business.

To find a foothold and build a small an impenetrable territory, a startup has to cultivate a whole new mindset. One that runs totally opposite to the mass marketing mindset. Instead of looking for market share, they need to build a customer share. The startup needs to scope, not to scale, at the start of his business journey. Growing one customer at a time and protect that customer through unmatched service, help him know more about his customer’s business and sustain a long-term relationship that protects his nascent business from the incursions of competitors.

Related: How to Differentiate Yourself in a Fiercely Competitive Marketplace

Resisting the temptation of working horizontally and getting more customers enable the startup to defend his home territory. If the startup is to defend his small territory he has to do what the market leaders did before they were leaders – he has to find out what leaders did to become leaders. A reverse engineering  process needs to be tracked and studied thoroughly. The good news is that there is a common pattern of actions that have been taken by such market leaders at the very start of their business ventures. One commonality among them is: keep a narrow focus in your home territory. Those would-be leaders started out being cost-conscious along with being revenue-driven. To make a healthy profit, they focus on one customer at a time. They begin building a long-term relationship with that customer through understanding his business fully. Knowing that working horizontally with many clients dilutes their power and resources and makes them vulnerable to a market leader hundred times their power.

A second commonality is that today’s market leaders, who were yesterday’s startups, never been dragged into the competitors’ timeline. They are more focused and attuned to their customers’ insight. They are not trying to sell a certain product to as many customers as possible. They look instead for selling as many products to a single customer over a long period of time and across different product lines. This won’t be applicable without building a strong relationship with individual customers.

Related: How To Smartly Strike The Balance Between Your Strengths And Weaknesses 

A third commonality is seeking simplicity and trusting it. Growing a startup business is a complex, experimental and exceedingly chaotic at the beginning. To work out a formula for growth takes discipline and patience. Once a startup generates profits, he should track, through a disciplined activity, a consistent pattern. Only then can he work out a system that hits upon a repeatable formula. Nike, for example, when started out, it seeks to strengths its core athletic shoe business. They strive to position themselves as a fashion and fitness company.

Succeed at home first, and then go global. The startup Nike long time ago never thought of reaching out globally until it dominated their local market first. Shoes business drives their vision forward. Positioning themselves first as the go-to place for not only seeking a high-performing shoe but also a fashionable brand. Making such a success after endorsing Michael Jordan’s 1985 endorsement campaign, they moved on with the same formula to baseball, volleyball, and hiking then golf. It didn’t end there, Nike moved into apparel and hard goods as well.

Startup businesses need to scope their business instead of scaling it. Scoping helps them work vertically rather than horizontally. Instead of expanding horizontally and getting more customers and in the process drain their resources; they focus vertically on getting more business with fewer customers. The mindset got to be shifted from thinking in terms of market share to a sound mindset that strives for increasing customer share.

About The Author

Tareq Alaghoury

Tareq M. Alaghoury is the founder and Managing Director of Holistic Communications where he offers business coaching services and guidance to aspiring entrepreneurs who want to build their brands and move their business to the next level.