This is What I Observed When a Scaleup Explodes (& How You Can Protect Yourself)
Growing from 0 is easy. Descaling from 1? Well…
Everyone, virtually everyone I know, talks about the sexy glimmer of running a startup.
Everyone outside of The Startup/Scaleup World, that is.
They make their observations as a bystander.
Are these viewpoints accurate? I have my reservations.
For one, there is no steady state in the startup or scaleup paradigm. In fact, forget those words ending with up. They distort reality.
Because what goes up, comes down.
Bouncing up and down is the norm.
The Explosion of Euphoria
Euphoria explodes both ways.
First, the positive manner.
- You start,
- You grow,
- You grow bigger, better, faster,
- You earn unbelievably higher than market margins,
- You hire more sales professionals to push the revenue boundaries,
- You secure more funding from venture capitalists and private investors,
- You open new offices around the world,
- You hire local staff,
- You grow more.
The economics of Boom Years sold you a brilliant Startup-to-Scaleup story.
You are convinced that employment is for dummies. And you are too smart for that.
And you believe that entrepreneurship is the only path to walk down. It is your ticket to success, financial freedom, and wealth explosion.
But.
Let me say this.
Boom Years nurture stupidity. Bust Years cultivate humility.
I say this because the exact opposite will happen in reverse order when Boom turns to Bust.
- Sales revenue tapers.
- Losses mount across all entities.
- You release staff in different countries to reduce overheads.
- You terminate office leases at a loss to prevent further operational losses.
- VCs and private investors ignore your pleas for more funding.
- You fire senior sales folks because they are expensive.
- This results in fewer opportunities in the pipeline.
- Junior sales team members struggle to get sales.
- Sales revenue falls as big deals disappear.
- You survive on upselling existing clients.
- Profit margins erode even further.
- You plan to release more people.
- You freeze salary increments.
- Employees get disillusioned.
- They start resigning.
And then… You are back to where you were 5 years ago.
No, I am not kidding.
This is one real sequence of events that unfolds as a startup grows into a scaleup and then descales back to a startup.
How do I know? Easy.
I am in one right now.
And I am in the front-row seat.
I witnessed all these events happening before my eyes.
And it is psychologically challenging to get to work when you hear this daily.
“Hey, it is my last day today! I enjoyed working with you!”
Riding the Downtimes
It is tougher than you think.
It is because it hinges on the personality of the founder. Here is the thing. These are not steady-state leaders. They will not talk to you about trust, performance, or building a great team.
They won’t. And they can’t.
It is not in their DNA.
Why do you think they start a startup in the first place?
Think about that. Think deeper. Get real. Reflect.
The answer is obvious.
Entrepreneurs succeed by being nimble. They capture markets because they move faster than the markets. In short, they are not strapped by bureaucratic red tape.
The opposite is true.
They act fast when things take a turn.
You might be asked to leave before figuring out what has happened.
Riding the down wave can be a psychologically terrible experience if,
- You are not ready for it,
- You are not prepared for it.
And so, the million-dollar question is how can we be?
That is what I am addressing next.
The Startup, Scaleup, Downside Preparation
If you want to cut your teeth in startups and scaleups…
… then you must learn to stay ahead of the curve.
It is the only way to protect the chair you are on when all hell breaks loose.
I am sorry to dash your startup dreams.
But that is the reality.
You don’t want to be one of those human dominoes at the center or towards the end. In fact, forget that. You must avoid becoming a domino in the first place.
Here’s how.
(Note. You need to be in one of these positions to anticipate what is coming. You don’t have to be everywhere.)
Get involved in sales. You get to see how the company’s PnL is doing. And you have ample time to respond when sales start to taper because you see it happening.
Be part of the customer service team. Listen to your clients. Are they abandoning the product? If so, why? Is it getting impossible to upsell? Again, why?
Grab a seat on the VC committee. Help the startup, scaleup to secure funds. Is it easy to get funding? Are conditions for funding getting stringent? Are VCs demanding a higher rate of return?
I know, I know.
I have just bombarded you with a list of endless questions.
But the critical point is this.
It is not about the questions you get.
It is the ease of getting what you ask for.
- No questions asked = Smooth trajectory upwards
- A million questions asked = Trouble is brewing rapidly
- 5 clients lost to 1 gained = Better put on your running shoes
Positioning is preparation.
Trust me on this.
The Close
0 to 1 is every entrepreneur’s wet dream.
1 to 0 is everyone’s nightmare.
It is easy to be blinded by unfounded optimism. The global economy is like the ocean tide that lifts all boats. But no ocean tides rise all the time. We will suffer from an economic climate change.
Protecting ourselves from the downside matters.
And this is the real question.
Are you ready to bite the bullet when your scaleup turns into a scaledown overnight?
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