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ACHIEVING SCALE

Scaling Too Fast Can Tank Your Business

Too many growth businesses try to scale before they are ready. You're better off creating enormous value for a few customers first.

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As you are building a business, it's natural to think about how to make it really, really big.  But scaling a business too soon is a surefire way to tank it.

Every business, no matter how big its ambitions, needs to start by thinking like a small business aimed at serving a few customers, and serving them extremely well.  Once the business has mastered its craft with a few customers, the leadership team can then think about how to build a larger business serving a high volume of customers.  This more disciplined approach to growth involves trade-offs, but the business will be able to understand the impact and value of those tradeoffs given its experience at a small scale.

A CEO with high growth ambitions recently reached out to us with the following question:

I'm trying to build a startup of hydroponic farming.  I understand that I will gain success by building a brand and pushing the product with a strong marketing strategy.  Which methods would you use to communicate your value proposition? In your opinion, what are the best marketing tools?  -Ricardo Silvestrini

Ricardo, we're sorry to say that there are no marketing tools that we know of that will take a startup and turn it into a large company.  The first step in building your business is creating a viable product that a customer is willing to buy.  Focus your marketing strategy, and by that we mean the 4 Ps--product, pricing, promotion, and place (distribution), on a single customer or small group of customers.  In your case, you may find a specific food market or restaurant that you can uniquely serve.  Or, you may find a specific product that you can produce better than food produced with traditional farming methods.

Once you have proven the business model with a few customers, you can think about new ways to promote your business.  This might be through "push" methods such as advertising, where you are trying to reach new potential customers with your message.  These methods may reach the largest number of potential customers, but you may be more effective with targeted "pull" methods aimed at specific customers.  The easiest "pull" approach is a referral from existing customers.  Can you ask your delighted customers to refer your business to their friends?  The beauty of emerging social media marketing is that it is based on these "pull" techniques, and can be both impactful and cost effective.

Once you've built a solid small business with a set of core customers, you can think about the next step in scaling your business, and the next set of trade-offs. Will you lose some aspect of product quality or customer service?  Those elements can be measured once you understand the value of your core customers.  Without this core base, any scaling strategy is likely to fail.

How do you think about building a customer base from a core group of customers?  Send us your questions at karlandbill@avondalestrategicpartners.com.

Last updated: Aug 6, 2013

KARL STARK AND BILL STEWART are managing directors and co-founders of Avondale, a strategic advisory firm focused on growing companies. Avondale, based in Chicago, is a high-growth company itself and is a two-time Inc. 500 honoree.
@karlstark




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