In this article, we talk about the 3 red flags you should be aware of before choosing to expand your business.
In our recent article on e27, we talked about some of the signs it was time for startups to expand. However, not everyone is at a stage where they are ready to expand, and recognising the red flags are important to prevent premature expansion.
According to the Startup Genome report on why startups fail, it was identified that 74% of startups fail because they scaled prematurely, and didn’t heed the red flags that they may not have been ready to.
Below are 3 red flags you can look out for to indicate that you are not ready to expand your startup.
If you are finding yourself in a situation where you are falling short of the milestones on your roadmap, or struggling to meet your goals, then it is time to set back and reassess. Any thoughts or plans you may have had to scale should be delayed. It would also be important to check in with the different stakeholders in your company to align what these goals are and what success looks like as the expectations may look different from the various perspectives.
Instead, re-evaluate if your goals are truly well aligned, and redo the timeline or path you have chosen. For this, we usually recommend going back to your BMC and Value Proposition, and reviewing the different elements to make sure that they are accurate to what you want and need to be doing.
Founding and growing a company can often result in a team with a broad set of skills. According to a recent talk by Yan Fan at Startup Grind Osaka, startups can accumulate what she calls “startup debt”. Similar to the concept of “technical debt”, “startup debt” refers to startups that patch together solutions to issues or challenges as they grow quickly. This can often lead to people in the team being attached to various tasks and problems which are not streamlined or consistent with their core job assignment. This can slow down processes and hinder your company when it comes to scaling and expanding. What we have witnessed in the past is that expansion in a new market without proper processes and team structure in place, may result in messy and standalone operations that makes it hard to streamline from HQ and can stunt further growth.
To overcome this, Founders would need to step back and re-evaluate the entire team structure and reporting lines, making the needed adjustments in order to streamline the team and bring it up to a solid foundation. If you are confident that you could step away for 2 weeks and the place won’t catch on fire, then you are a step closer to being ready to expand.
Finding product market fit is one of the hardest areas for a startup to get right, and is often developed through a series of trial-and-error steps. If you have not found your product market fit in your own market, then you would be putting your company at risk when expanding to a new market. Having product market fit will enable you to build at scale and will be aligned with your target market at a suitable price point. If you have not found this fit yet, take a step back and re-evaluate your current market, your product and your current customers, identify the areas which would need to be adjusted and work on them until they are perfect. In this situation, seeking insights and advice from mentors, investors or even accelerator programs would be beneficial in helping your company resolve these challenges. Only then would you be able to explore expanding.
Through our experience of working with multiple startups at different stages, as well as building some of our own ventures, these red flags have been valuable to us in identifying the “health” of a startup and being able to identify if they are ready to expand, as well as helping pivot decisions in order to focus on stabilising and refining.
Interested in identifying if you are ready to expand and which market you should be expanding to, follow our LinkedIn Page to stay up to date on our programs that approach these steps in expanding through our customised, modular programs.