Summary of Startup Genome Report Extra: Premature Scaling – Compass

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StartUP Product‘s insight:

Dominant cause of failure: premature scaling.

Startups progress along 5 core interdependent dimensions: Customers, Product, Team, Business Model and Financials.

The art of high growth entrepreneurship is to master the chaos of getting each of these 5 dimensions to move in time and concert with one another. Most startup failures can be explained by one or more of these dimensions falling out of tune with the others. If a startup shows signs of premature scaling on any of the five dimensions we refer to it as inconsistent.

Consistent Startups scale properly 

  • grow about 20 times faster than startups that scale prematurely
  • team size 38% bigger at the initial scale stage than prematurely scaled startups
  • take 76% longer to scale to their team size than startups that scale prematurely.
  • In discovery phase, 80% of consistent startups focus on discovering a problem space

Inconsistent startups

  • monetize 0.5 to 3 times as many of their customers early on
  • show signs of premature scaling
  • 74% of high growth internet startups fail due to premature scaling
  • don’t pass 100K customers
  • 93% of startups that scale prematurely never break the $100k revenue per month threshold.
  • valued twice as much as consistent startup and raise about three times as much money Before scaling
  • team size 3 times bigger
  • 2.3 times more likely to spend more than one standard deviation above the average on customer acquisition.
  • write 3.4 times more lines of code in the discovery phase and 2.25 times more code in efficiency stage.
  • outsource 4-5 times as much of their product development than consistent startups.
  • In discovery phase 60% of inconsistent startups focus on validating a product
  • In validation phase, 2.2 times more likely to be focused on streamlining the product and making their customer acquisition process more efficient

The following attributes have no influence on whether a company is more likely to scale prematurely:

  • market size,
  • product release cycles,
  • education levels,
  • gender,
  • time that cofounders knew each other,
  • entrepreneurial experience,
  • age,
  • number of products,
  • type of tools to track metrics and location.

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