Not till long ago, ‘growth at any cost’ was the mantra in the startup world. Investors pushed their portfolio companies to acquire customers and grow the business at any cost. This prompted startups to splurge money with no clear goal to build a profitable and sustainable business. This strategy worked well when funding was a glut.
However, a slowing global economy and the ongoing funding winter turned things around. Investors have now become more cautious and have realised that growth at any cost is unsustainable, making fundraising more challenging for startups. Investing in scalable and sustainable businesses has become the new buzzword.
Growth and scalability: similar but not the same
Although ‘growth’ and ‘scalability’ are two business jargon used to refer to an organisation’s overall development, few understand the differences.
Scalability refers to the ability of a system, process, or organisation to handle increasing amounts of work or expansion without sacrificing performance, quality, or efficiency. It typically involves designing for flexibility, redundancy, and efficiency to ensure that resources can be added or adjusted as needed without significant disruption.
Growth, on the other hand, refers to the increase in size, revenue, market share, or any other metric of a business, product, or organisation over time. Growth can be organic, where it occurs naturally through increased demand or market penetration, or it can be stimulated through strategies such as marketing, acquisitions, or partnerships.
Let me give you an example- one of our portfolio companies, Goofy Tails, sells pet food. When we first invested in this firm, dog food formed the bulk of its sales (90 per cent). In one of our mentoring sessions with the founders, we learnt that the cat food market is big in a market like India, and we helped the company scale into this category with the right marketing strategy.
This led to Goofy Tails’s cat food sales growth, leading to an increase in the startup’s total revenue, and currently, this category accounts for 30 per cent of the sales. This is an example of scaling. Goofy Tails also plans to enter a new geography with the new products. This is growth.
Also Read: Critical considerations: Address these 5 questions before scaling your tech startup
Another example is Healthfab, a firm that provides innovative and affordable health and hygiene solutions. They achieved scale by increasing production efficiency and using economies of scale to reduce cost. They scaled revenue six times in a short period and set up their own factory in Bangalore, India to reduce the costs further.
There are quite a few tools in the market to help with business scaling, but sadly, most founders don’t leverage them to their advantage. Using tools like chatbots to engage customers on your platform can be one simple way. This technique could nudge customers to return or buy more.
Risks associated with scaling, correcting bias with mentorship
A common mistake many founders make is investing a lot of money to scale and grow the business, assuming they can raise money to sustain it shortly. This stems from the belief that unit economic and profitability metrics are not crucial in the early stages and that priority should be given to scale and grow fast.
We believe this may not be an optimum strategy. We must understand that scaling and growing should be sustainable. Founders need to tread a fine line by spending wisely and controlling the cash burn. Of course, this results in slower scaling, but it is definitely sustainable. As the business scales, it is hard for founders to stay focused on innovation. ‘Sharing the experiences’ can be one way to tackle this challenge. This keeps founders motivated and stay focused on the core things.
Sometimes, founders fall into a confirmation bias trap and believe whatever they do is right and good for the business. This narrow mindset often hinders the ability to scale intelligently. Here is where an experienced mentor comes in handy. A mentor with a different and objective mindset could offer alternative and out-of-the-box solutions to their problems and help them scale faster and with less cash burn.
A classic example is Unirec, one of India’s pioneering sustainable fashion brands. It partnered with Netflix to obtain the official rights to produce merchandise for the recently released Bollywood movie ‘The Archies’. They benefited from mentor support, which was instrumental in helping structure this collaboration.
Also Read: Powering startups: 10 cutting-edge digital marketing strategies for rapid growth
We understand that scaling a startup can be a daunting task, requiring expertise and experience that founders may lack. We believe there are five growth engines to help startups accelerate business growth while aiding them in overcoming any strategic or operational challenges that they may face. These Growth Engines, led by industry experts, comprise five pillars, including BeyondMarketing, BeyondDistribution, BeyondServices, BeyondCapital and BeyondPeople.
Collaboration is crucial
Bringing together two or more companies with complementary products is also another great way to scale faster for both.
An example is a recent collaboration between multiple startups in the pet-care space. Companies like Urban Animal and GoofyTails partnered with Dog-O-Bow to offer their products on the Dog-O-Bow platform. Simultaneously, MyPetzOPD, a mobile veterinary care startup, established a satellite centre at DogNation. Such opportunities to collaborate often come in places where we would least expect them.
In a nutshell, collaboration helps companies to scale quickly and easily. However, collaborations occur only when founders know each other well and work together productively.
No more blind expansion
With the free flow of capital becoming a thing of the past, venture capitalists and other types of startup investors have started prioritising sustainability and scalability. Companies that can handle increased demand without compromising quality or burning through cash are the new targets for them.
Having said that, sustainable scaling requires prudent financial management and ongoing innovation. Collaboration, mentorship, and leveraging tools for engagement are vital in navigating the complex journey of startup scaling. Sharing best practices within ecosystems and having experienced mentors can help founders navigate challenges and achieve sustainable growth. By focusing on scalability, startups can navigate the current economic climate and position themselves for long-term success.
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