The Dangers of Scaling Your Startup Too Fast (Full Q&A)

Nine in 10 startups fail eventually while 1.5% score a $50 million exit. What’s the top reason for why the former don’t become the latter?

Trying to scale before they’re ready, according to Mona Sabet, chief corporate development and administration officer at VulcanForms and co-author of Sail to Scale: Steer Your Startup Clear of Mistakes from Launch to Exit. She spoke with b. about how to grow at a sustainable pace, keep your marketing budget in check, and handle team morale during tough pivots.

b.: You identify 18 common mistakes startup leaders make. Why 18?

Sabet: I’ll tell you how the whole thing got started. 

I was wrapping up my time at a company called UserTesting. I was there for a period of four years. We were definitely going from … entering the scale stage of growth, and we took that all the way to exit. Over that period of time, the original founder — who had taken [the company] to $40-ish million in annual revenue — realized, “You know what? I’m not having fun at this anymore; the things that I know I need to do now are not my skill sets anymore.” So he moved into a chairman role.

We brought in an entire new executive team, a new CEO. … We grew the company to about $140 million in annual recurring revenue over that period. We went public, and then because the market tanked during COVID and we were getting a bunch of interest from acquiring companies, we ended up selling to Thoma Bravo for $1.3 billion. So, that was a crazy four-year period for me. 

I’m more of a growth company person than a financial engineering company person, so I chose to leave at that point. I’m sitting there thinking, “OK, that was an interesting experience. How can I get myself into some trouble next?”

My friend Heather Jerrehian, who was also a co-author of this book, had recently sold her company to ServiceNow. So she had gone through a bit of a different experience, not just a general growth trajectory and exit. As we were comparing notes, we’re like, “Geez, there are a lot of commonalities here.”

I really have a problem with the way startup books are written. They’re all written about Mark Zuckerberg, Elon Musk, and Jeff Bezos. These are not startup founders that the average company can imitate! They’re outliers. We were spending a lot of time talking about why more people weren’t talking about that. So that’s how the book got started.

When the two of us looked at our skill sets, Heather is a turnaround person … I’m the scale-and-exit person. And in typical entrepreneurial fashion, we knew we needed the third wheel to be able to cover the entire startup journey. So that’s when we brought in Maria [Fernandez Guajardo]. Maria is the product person. She’s ridiculously skilled at being able to identify and grow new products. When I started talking to her, the experiences that she had were very similar to the experiences that all of us had. So we were seeing these through lines. That’s how the book came together.

Why 18? We just decided we needed to pick the ones that were the most common. There are a million mistakes. Some of them are not as common. Everybody talks about the exciting corner cases, but we’re talking about the ones that everybody experiences over and over again. Literally every company at these various stages will have these challenges, and they don’t often think about them. Entrepreneurs who are really good at the launch phase will have to learn a different skill set if they have to pivot, and those are the mistakes they’ll make if they’re not experienced in that skill set. 

b.: What are some of the most common (but unexpected) mistakes in the early stages of a startup?

Sabet: The first stage we talk about — and we talk about them in terms of waves. People think it’s this linear progression, but it’s not. It’s very much like you’re doing something, but you don’t know. And then, because it builds up, it hits you. It’s like, “Oh, crap, you know it built up too much, and I wasn’t paying enough attention.” So it hits you like a wave you have to overcome.

What we’re trying to do is get people to think, “The wave is coming — how do I prepare for it in advance?”

There’s a kind of technical personality that wants to do everything really well. A lot of founders are technical to begin with and want to build everything perfectly right away. This causes a lot of mistakes because your first wave is all about testing — it’s not about building the perfect product.

People have a tendency to fall in love with the solution they have. I’m experiencing this right now with a startup I’m advising; it came out of university research, it’s technical, and it’s really cool stuff that can’t be done in the commercial industry right now. They’re in love with this, and it’s a solution in search of a problem. They’ve built a business around it, and they do have some customers, but they haven’t figured out product market fit yet.

Loving the solution before you’ve fallen in love with the problem is something that happens a lot. Most startups, if you get rid of all the folklore that TechCrunch tells you, take seven to 10 years before they exit. So you really have to love what you’re doing for a long time as a founder if you’re going to be that committed for that period of time.

When you’re in love with the technical solution and you have to pivot, it’s really hard. But if you started a startup because you were really frustrated with a problem that was out there — and you want to solve that problem — then you’re willing to try many different solutions to get there.

Founders will start what we call scaling too soon. They’ve got their product, they’re trying to get more customers, and the first reaction is to hire a VP of sales. If you haven’t figured out your product market fit yet, then hiring a VP of sales isn’t going to get you there. You’ve got to be the first head of sales because you’re the one who understands the problem. Hopefully, you’ve fallen in love with it and understand why you’ve picked your solution. You’re really doing more biz dev in that early stage, and that’s not a salesperson.

Oftentimes, people will spend a ton of money on marketing too soon. Marketing in this launch stage, again, should be all about testing. Spending money on marketing should be about testing a hypothesis, not trying to grow your user base. You still don’t know for sure if this is a profitable endeavor you’re pursuing.

b.: Too much money can actually hurt you in these early stages?

Sabet: It’s too much. It’s so hard — you’re riding high, you feel like you’re the best founder in the world, and then you’re blitzkrieging because you aren’t ready yet.

b.: Your “second wave” is all about pivoting. What are the biggest challenges leaders face at this stage?

Sabet: You’ve got this initial euphoria in a startup, right? You’ve got your core team. Very rarely do people from large companies who want stability and no risk join startups, so the startup base you’ve got is excited to take on anything. They’re passionate about growing things. They’re self-motivated to be interested and excited about moving the company forward.

But then you hit a challenge. That challenge could be the solution you’ve identified isn’t sufficient to solve the problem, or the problem isn’t real, or it could be a pricing model. It could be a lot of different things. It doesn’t have to be a product issue.

We have a story in the book about a company called TEGA Robotics. Their pivot was an audience model. The biggest problem was they were focusing on a slow, technological, lethargic group of customers, where it would take years to penetrate them, and they weren’t really early adopters — which is hard for a startup. When they switched to a more agile target audience, they started doing a lot better. That’s an example of a pivot that had some product features but was driven by an audience challenge. They weren’t focused on the right audience.

The challenge when you’re trying to figure out how to pivot is that now you’ve got a group of people who were so excited, and you’ve probably acquired some new people, and now they’re suddenly despondent. It’s almost like when you tell a three-year-old they can’t do what they want, and they fall down and start crying.

What happens is that all of these employees have thought bubbles in their heads. What they’re telling you externally isn’t what they’re thinking internally. In their thought bubble, they’re thinking, “You don’t really know what you’re doing; I thought you did.” They’re starting to question your leadership, and whether they want to look for another job. The self-motivation and passion are starting to give way, but externally, they’re telling you what you want to hear. That’s the false commitment.

The pivot exercise is a change management exercise. Very few founders approach it like that. They’re so deep in trying to solve for this issue, it becomes a tactical effort, and usually, you’re in crisis mode. Change management is really about learning how to convince people that the path needs to change. There’s resistance to change. How do you get people to bring down that resistance? How do you get your employee base to come with you?

It involves rebuilding a brand new idea. It’s almost like launching “part two,” but it’s harder because now you have to replace something. A lot of leaders I’ve seen just put their heads down and try to do it themselves. I’m assuming they’re a little embarrassed. They thought it was one way, now it’s another. But you can’t do that — you need people to come along. They don’t necessarily talk to their board, but your board or advisers can add credibility to the change and help you with your employee base.

b.: How does leadership structure typically change over time?

Sabet: You have to move from being what I call a “startup founder with a CEO title” to becoming a true scale-up CEO. If you don’t make that shift, someone else is going to fire you and hire someone else to take your place.

The original group of people who took you to this point, they’re what I call generalists. Generalist might sound like it’s not a good thing, but it is. They’re the kind of people who welcome taking on a challenge they don’t know how to do, so they’ll do a little bit of everything. You hire them for a role, but then you’re like, “Hey, we’re having problems. We have nobody in marketing. Will you take the website?” And they’re like, “Sure, I’ll figure out how to take on the website.” And then, “I don’t know how to provision products. Can you figure that out?” And they’ll be like, “Sure, I’ll figure that out.” It’s fantastic.

So you’ve got 20, 50 people doing multiple things. What happens when you get to a certain level of scale is you can’t do that anymore. It’s perfect for your launch phase because you don’t need to do everything perfectly; you just need to make sure what you’re doing will succeed in the marketplace. But it’s not good in your scale phase. So you have to start hiring experts.

For example, I’ve seen the initial group of people create a pricing structure for their product, and they got some customers on it. But they’re not extracting the full value from their product. It’s a little weird, and customers don’t really understand it. So they finally have to hire a pricing expert because, to be profitable, you need to extract maximum value from your product.

So you start hiring these experts into leadership roles. They have strong opinions about specific areas. They’re taking responsibility away from the original group because you can’t play pricing on the side anymore. You have to give that to someone. They’re also taking decision-making authority away because now the original group doesn’t get to make decisions. They’re used to being in every meeting, part of every decision, and now they’re not invited because you can’t have 50 people in a meeting.

This is when you start seeing “old guard” versus “new guard.” If you can’t manage that, it’s so hard — from a leadership perspective — to scale your team. You have to manage the old guard versus new guard.

In one company I was at a while back, we had this challenge. Many people from the old guard got frustrated, and it turned into a toxic culture. The CEO/founder never had to fire these people before, and they’re friends. They’ve gone through some of the hardest things together. They don’t want to fire the old guard because they brought them to this point, so they don’t. And that brings down how good it is to work within the company. It slows the velocity of the company down.

Sail to Scale is available now.

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