There can be no debate about which is the most precarious period in the life of a tech startup—it is the early days. Trying to merely survive until the next round of funding can be an ulcer-inducing experience, and most tech startup founders cannot wait for this period to end. Unfortunately, many of them are so happy when they get out of the woods that they mess up the next step—scaling up their startup into a sustainable company that will grow its customer base and establish a stable stream of revenue.
In other words, they fail to notice and avoid the innumerable traps of scaling a tech startup. So which are these and how can they be avoided?
Taking on too much
Optimism is ingrained in everyone, despite how they might see themselves. This is especially true for people who manage to keep their business alive through the initial chaos and uncertainty. This is the perfect time for business owners to become overconfident, and this overconfidence can lead to problems. In such a situation, business models that have worked get thrown out the window for much more ambitious ones, and in the atmosphere of utter excitement, goals and targets get inflated to a point where they become unrealistic.
At first, this might not be such a huge problem, but down the line, it becomes obvious that a whole series of bad decisions were made because of these haughty new goals. In the end, deadlines are unmet, customers are disappointed, and investors start disappearing.
Not taking care of infrastructure
Scaling a tech startup means much more than just adjusting the company’s appetites. It entails more work, more people, more tasks, more everything, really. In such a situation, relying on the existing, basic infrastructure is toying with fire.
It is perhaps even worse than that.
Since your startup will grow in size (people-wise), it is highly likely that you will need an upgrade of all of your SaaS solutions. For instance, your project management software will need to be upgraded from its trial or super-cheap version to one that will cost you a bit more. The same goes for your accounting and HR software, in case you use it.
More importantly than that, you will want to upgrade your computers and ensure your Internet connection is up to the new tasks. This might be a good time to review the speed of Internet providers near you and to ensure you are getting the best deals.
If you do not take care of the infrastructure early, you will be losing valuable time once you hit a snag (and you will hit it). If you are not sure when or how to upgrade, it might be a good idea to find a person within your startup and assign this as one of their tasks.
Hiring the wrong people
Before the time came for your tech startup to scale up, you operated with a very limited number of employees. It was you and perhaps half a dozen more people. Anything more than that was just wishful thinking.
Now, all of a sudden, there are extra new tasks to assign and projects to complete, and it becomes obvious that you will need to take on new people.
Trying to approach this thinking that you will be able to improvise it will result in total disaster. Namely, wrong hires can cost your growing startup an arm and a leg and then some. There have been numerous studies and research done on the cost of high employee turnover that occurs when wrong hires are made. In all of these cases, the actual costs ended up being much higher than anyone expected. We are talking about companies practically hemorrhaging money.
For a growing startup, wrong hires are even more costly because they can disrupt the existing balance within the company and cause a whole slew of additional personnel issues. If your hiring and HR skills are limited, this might be time to start brushing up on them or talking to an outside agency that will sort this out for you.
Do not underestimate the devastating effects of wrong hires and bad HR.
Lure of luxury
Getting a tech startup over the proverbial hump is difficult work. We get it. You worked 18-hour days for two years, your colleagues are spent, and you are tired of the 20-year-old couch that is the only piece of furniture that is not one of the chairs or desks.
The new round of funding you attracted seems like a lot of money and the mind goes to nonessentials. It is only natural. It is biology. Unfortunately, this kind of biology gets out of hand very easily, and one might start embracing luxury without noticing it.
“Well, we really should get those ergonomic chairs considering how much time we spend in them.”
“Maybe that Star Trek: TNG pinball we loved to play when we were kids?”
“The couch is ripe for retirement. I saw a great $8,000 Italian one yesterday.”
And so it starts. Before you know it, you are spending $20,000 on an espresso machine. You are wasting your money. It happens. Do not think you are above it. Until the money rolls in, you cannot be sure you are really, 100% above it.
Be careful of the lure of luxury.
Be smart. Take a long breath. Survey your startup. Think long and hard about where you are going and how to best get there. Do not rush into anything.