8 Reasons Why Startups Fail To Scale

The vast majority of companies in America fail to scale.

Even though any small business can fail to scale, learning how to scale can still have huge rewards—and it’s not as risky as you might think if you follow a few tried and tested methods.

For now, let’s focus on the 8 main reasons why startups can fail to scale:

1. The Entrepreneur Is in the Way

Sometimes, we’re so determined to be the star of the show we forget to let others take the stage. Trying to do everything yourself can hinder your ability to grow. It’s time to check your ego at the door and focus on how you can elevate your team.

2. They Fail to Find the People to Grow

Scaling a startup is like building a tower of Jenga blocks—you need to find the right pieces to make it stable and sturdy. If you’re missing a few blocks, your tower is going to come crashing down. Finding the right people is like magic. Once they are in place, you can trust them to build wealth for you without you worrying about it. Believe me, I’ve have had too many “3:00 in the morning moments” because I have been the one responsible for a particular area. Change your mindset by delegating responsibilities, not tasks.

3. They Keep Their Original Staff Too Long

Sometimes people have the right skills to get the company off the ground, but they lack the “runway” to 10X growth—or what I like to call “scale in zeroes.” This is always a tough one because often the original staff have become close friends at this point. Still, growth isn’t just about adding new people on, but also recognizing when people have gone as far as they can. Jack Welch said it best: “Hire people with runway.” If you have a company that is running at 1 million and going to 10 million, you need to hire someone who is already at 10 million. Be careful, though, not to hire someone who has been running a billion-dollar company. It’s difficult for them to scale down to a small business mentality when they have been running a massive enterprise. Focus on DIY people with the drive and know-how to get you to scale in zeroes.

4. Too Much Funding

Having too much funding is like having too many drinks at a party—it seems like fun at the time, but you’re going to wake up with a headache and a bunch of regrets. Unfortunately, the 2010s brought in another era of excess with companies raising millions often only based on a concept. This led to massive carnage on the Silicon Valley Highway. Too much money leads founders to take extra risks, often being prodded by venture capitalist who wanted to see growth at all costs. I have worked with too many founders who catch “Silicon Valley Disease” and never come back from it.

Here is the lesson: even if you raise money, treat it like gold! Keep true to the scrappy startup you used to be. When you have proven your concepts, then you can apply the cash to accelerate growth!

5. Misalignment Around the Vision

If your team isn’t aligned around your vision, it’s like trying to herd cats— You need to get everyone on the same page!

Early on, it’s easy for everyone to share a common vision for the company’s purpose. As the company scales and the team grows, this becomes more difficult. If the vision becomes unclear or misaligned with the actions being taken, a company can quickly lose its way and communicate the wrong message both internally and externally. The key to not derailing is to get the right systems in place.

Back in 2005, the wheels began to fall off the bus at one of my companies, the board moved against me, and the staff and investors had lost confidence in me. Enter my CEO coach, Patrick Thean from Rhythm Systems. We were able to implement quarterly strategic planning, goal setting, weekly meetings, and daily huddles. Thankfully, the systems worked to get everyone in alignment and within two years, we were able to sell the company to a fortune 500 company at 17 times EBITDA.

6. Failure to Expand the Story

As you grow, so must your company’s Story. Where would Amazon be today if they had stuck with only being an online bookshop? By strategically expanding their story, they opened new opportunities. This doesn’t mean you do anything and everything—but it means you expand in ways which are consistent with your values and customer’s needs.

Expanding your story is like adding toppings to a pizza—it can make it delicious and exciting, or it can turn it into a weird, unappetizing mess. You need to be strategic and thoughtful with what you add.

7. They Don’t Kill Failures Fast Enough

It’s okay to experiment and try new things. But when those new things don’t work out, you need to cut your losses and move on. Too often, companies pour too much time, money, and energy into a new product or service which simply fails to connect with customers. They try to force it through when it would be better to let it die.

At Paw.com, a company I’ve invested in that work out of our incubator, they learned how to fail quickly and scale winners fast. They are known for launching the most innovative products in the industry including dog bed rugs, memory foam car seats, and waterproof blankets. They even hit Inc. magazine’s top 5000 fastest growing companies three years in a row. But behind all of that, there were a lot of failed products along the way.

It all comes down to this:

• Test and fail more.
• Cut losers quickly.
• Scale winners big.

It’s that simple.

8. They Don’t Use Systems to Scale

Scaling without systems is like trying to navigate a new city without a map. You’re going to get lost, frustrated, and probably end up in a sketchy part of town. You need to have systems in place, like a GPS guiding you to your destination. The companies who scale best are the same ones who put in strategic systems designed to facilitate growth. From sales playbooks to strategic planning sessions, to HR systems and CEO coaching, goal setting, and institutionalizing customer-centric processes, often eccentric and visionary, entrepreneurs more than any other group need to implement systems to scale.

While avoiding these eight common pitfalls cannot guarantee your company’s ability to scale. It can go a long way towards improving your chances.