To scale or not to scale: The difficult road to growing a startup

Scaling up is always an exciting prospect for startups. It’s the next step in their journey, and being in the position to do so is usually a sign that a company’s headed in the right direction.

It’s often seen as something to be celebrated – and rightly so. After all, scaling up enables startups to unlock new opportunities for growth, tap into new markets, and build their teams, working toward achieving greater business success.

However, scaling up successfully is no easy endeavor. And against the backdrop of the ongoing Covid-19 pandemic, with startup funding drying up and economic uncertainty all around, it’s become even more challenging.

To scale or not to scale?

“[Scaling up] isn’t easy and it’s not straightforward. There’s a lot that has to be taken into consideration; it doesn’t happen by accident,” says Charles Ferguson, general manager of Asia Pacific at employer-of-record firm Globalization Partners.

Ferguson is no stranger to entrepreneurial life, having started several businesses.

From his experience, he learned that businesses need to ensure that they’ve considered three key elements before moving toward expansion.

Charles Ferguson, general manager of Asia Pacific at Globalization Partners / Photo credit: Globalization Partners

The first, of course, is product-market fit. Companies need to make sure that there is a demand for their products and services before entering a new market.

The second is cash flow, which, in Ferguson’s view, is the “perennial killer” of startups.

“You have to be extremely honest with yourself about your cash position and your cash flow-to-debt ratios,” he says. Startups need to ensure that they have enough cash to support their expansion plans, and that they aren’t seriously in debt – considerations that are especially crucial in the present economic uncertainty.

Third, having the right team in place is important.

“If you don’t have the right people around you, you’re destined to fail,” remarks Ferguson. This is especially true in Southeast Asia, where many founders are scaling businesses for the first time. Having people on board with the experience and insight that could help with that process is vital.

Companies need to guarantee that they are in the best position – operationally and financially – before they scale up.

The devil’s in the details

So a company is certain that it’s ready to scale up: It’s got product-market fit and an awesome team in place, and it’s in a great financial position. But that doesn’t mean it’s out of the woods already.

Businesses will still face competition from other players in the new market and may even encounter difficulties in attracting and retaining customers. They may fail to attain market share and find themselves struggling to stay afloat.

Another common reason for failure, according to Ferguson, is that many companies go too fast and too furious without first considering the nitty-gritty details behind the process.

“It’s the boring stuff: accounting, tax, compliance,” he says. “In the heady, exciting, and fun phases of building a business, it’s very easy to lose sight of the basics.”

Companies need to ensure that there is a coherent communication structure in place and that the business’ goals are made clear to employees at every level of the organization. They also need to look at the markets in question, at any laws or regulations that could affect their operations, and ensure that they’re able to address any issues that could arise as a result.

While ironing out these seemingly banal details is time-consuming, it’s an area where businesses tend to trip up.

Photo credit: Nik Macmillan.

An example can be found in the story of the US-based cleaning business
Homejoy. Homejoy was an online platform that used logistics algorithms to connect homeowners with cleaning and handyman services.

At one point, the company was operating in over 30 cities, including London, New York, and Berlin. However, it faced difficulties in customer and employee retention, as well as high internal expansion costs, which affected its bottom line.

When Homejoy was hit with a slew of worker misclassification lawsuits due to the issue of whether those who were working for the company were employees or independent contractors, it was the last nail in the coffin. After failing to raise a fresh round of funding, Homejoy ceased operations for good in 2015.

Homejoy’s story highlights a key point: Basic processes need to be put in place from the get-go so that when operations scale up, things progress smoothly.

Many first-time founders may not be aware of all the little details that come with scaling up a business, which is why they need to be willing to ask for help. Aside from hiring the right talent to support expansion plans, founders should also reach out to investors and mentors for guidance.

“I’ve seen a lot of people make mistakes and fail because they didn’t reach out and ask for help,” shares Ferguson. There are plenty of resources available to businesses looking toward growth, from mentorship programs to webinars, and founders should take advantage of them in order to scale and grow successfully.

Taking the plunge

While scaling up seems scary – and there are many ways things can go wrong – it’s a vital part of any startup’s growth. Although the pandemic has made many founders feel like they should err on the side of caution, Ferguson is of the view that it’s also presented many avenues for growth.

During this period, startups need to look at different markets and find new opportunities. With the changes in how people work and live as a result of Covid-19, startups have the opportunity to ride them and venture into new and exciting territory.

“Now, when the markets are completely off-balance, when there’s this level of disruption going on – this is exactly the time to be looking at how you can scale,” says Ferguson.

“Blueprint for Success: Scaling Operations across SEA” is a virtual panel discussion that aims to provide founders and business owners with the tools and knowledge to craft successful expansion plans.

Held in conjunction with Globalization Partners, the event will see Ferguson, along with Paul Meyers, director of business consultancy firm Acumula, and Rajesh Sreenivasan, head of technology media and telecoms practice at law firm Rajah & Tann Singapore, sharing their perspectives on how businesses can successfully scale up in the region.

The event will take place on Thursday, September 17, 2020, at 3:00 pm SGT, and is free for anyone keen to attend. Click on the button below to register.

This content was produced by Tech in Asia Studios, which connects brands with Asia’s tech community. Learn more about partnering with Tech in Asia Studios.