Started in 2013, Shyp was geared towards shipping items globally. An individual customer only had to tap on their smartphone to initiate the entire process from pickup to international delivery. The firm saw good growth during its initial months. For its expansion, the management raised $62 million along with a $50 million investment led by potential investor John Doerr. Well, CEO Kevin Gibbon wanted to expand the firm at all costs. Slowly, the customer base of Shyp started diminishing despite the brand continuing to expand due to capital raised. Low customer base, decreasing sales figures, and climbing investments eventually locked the company out. Now, Shyp is presented as a case study under the heading “premature scaling failure”. As strongly as we sympathize, we too showed you this example to figure out what went wrong.
Premature scaling is a fatal mistake that claims nearly 92% of businesses as its victim. If we closely observe the case above, there are a few reasons why a firm doing too well had to face the sudden demise. In this example, over strategizing of investment and no attention to re-adjusting customer strategy failed Gibbon. For the 70% of companies that succumb before their maturity, many other factors contributed to the failure.
We will closely observe the most common decisions that kill a startup company. These reasons become weak in front of changing trade scenarios, rising competition, and new entrants in the market. They fail to synchronize with the product, marketing, hiring, and capital raising.
How Premature Scaling Kills a Start-Up?
First comes the product, where a firm fails to recognize its potential. A company always tries to sell the USP of its product to customers. But they fail to recognize the target market and incur high costs over it. They move ahead with designing a product without analyzing whether it would work or not. Many companies make this mistake when they face stagnation. Just for the sake of going on, they introduce a new product line without any SWOT analysis. Hence, when one invests heavily into a product without making the market ready for it, it becomes a failed formula.
When a newly founded firm lacks marketing, the product remains unsold. Many develop a marketing team post the introduction phase of a firm’s life cycle. However, to drive sales, it is crucial to communicate with customers about the arrival of new products. The market is flooded with ‘n’ different products and services which already satisfy customer wants. And to generate a need, a marketing team should be the first one in action. Miss out on hiring marketing experts, and you would miss out on defining the best communication channel and customer approach strategies.
Overhiring is another issue. Sometimes, firms hire experts who aren’t needed at that point. They recruit with an idea to initiate excellence in every process, but this backfires most of the time. These experts consult big players in the market who carry massive investment ideas. And when a similar plan is put forward before these start-ups they follow it blindly. And this results in unnecessary cost debits. In addition, experts are hired into the firm with a high salary. Such overstaffing results in kiosks and creates a liability.
Funding raised for an unneeded expansion never adds value. In the above case of Shyp, fundraising simply wasn’t the need of the hour. And when a firm gets an influx of cash, it becomes a liability. Unwanted investment may increase the capital or even aid marketing, but it can never create profits on its own. These ventures go for rapid expansion without establishing a customer base as a priority. Investment is simply the added pressure on the firm and not the magic wand that can list a firm in Forbes.
The options we discussed so far, are generally the default options for a firm to explore when it thinks about expansion. But to ensure that the firm expands without carrying many risks, the brand acquisition is the way to go. While choosing a brand that is prime for acquisition, understanding its values and checking how synchronized it is with the brand buyer is the first step. Once the values match and the acquisition goes through, then the real transformation begins that evolves into a win-win situation for both, the buyer and the seller.
One needs to choose their procurer wisely; after all, they can either make or break the product. Moving ahead, we will be taking you through some successful strategies followed by the e-tailers that create phenomenal scaling. We will be looking at what you require for a successful business expansion.
Start-Ups and Players: When They Scale-Up Together
Identify needs and target
After the acquisition, the first step to scale-up will be the need assessment of the firm. To access the new market, the acquirer analyzes the current demand and customers’ needs. Remember when Google launched its smart glasses in 2013? Google Glass was launched and it enabled a user to experience high-tech features through its glasses. But this resulted in blank fires as customers never found any need to purchase it. This product line of Google failed miserably.
Not every company struggles to establish a customer base. Once two businesses align their goals together in an acquisition, the communications and strategies work in sync. However, while scaling up alone, startups often create a mess when they overestimate their product idea and never create a definite plan for the product according to its target customers. Because they fail to identify a need in the market, they suffer losses similar to Google. On the other hand, businesses aligned through acquisition, plan product development according to customer demand and needs. Once a firm plans the product, it approaches the target markets to sell it. The outcome naturally tilts toward success as the entire operation exudes a deliberate plan steered towards a monitored execution. These steps are performed by research and development, product designing, and marketing teams during acquisitions.
Addressing IT concerns and product development requirements are the key areas where a firm needs to focus. Here, technology plays a vital role in streamlining the process of fixing glitches and providing technical assistance. With the help of infrastructure and cloud services, enterprises accelerate the process of digitalization. Through AI-powered solutions, companies can address their requirements effectively. One example is applications developed which control the entire customer support process of a firm. They not only address customer queries but also collect, validate and analyze the data. As a result, compatible technology upgrades a firm.
For retailers in e-commerce, the presence of smart technology translates to profit. Today, digital and offline businesses need tools for effective data processing, automated virtual assistants, chatbots, and compatible shopping applications. Fortunately, retailers can back these with robust technology to support their needs. The technology solutions not only assist in competitor analysis but also enable real-time dashboards. Here, through customized insights, one can check sales metrics.
Another solution is cloud-native services. Here applications are built which can support the delivery model of a firm and boost sales. These are the benefits one can get during expansion. Post product launch, the contribution of technology is a never-ending task. As high-tech solutions can make a huge difference, a new company should avoid investing in them solely. The acquisition model is a preferred option. An acquirer with advanced technology is similar to icing on the cake.
Distribution Network and Multi-Channel Retailing
While aiming to ratchet up, it is necessary to expand the market and distribution network. For an e-tailer, this road is not an easy one. One needs to have complete knowledge of distribution channels, networks, and an apt strategy for product listing. We would go to the various options available in the market where product listings are available. This technique of multi-channel retailing is efficient and profitable. Within less time, products reach out to a large audience. Naturally, this will increase the chances of sales. Product listings on Amazon, Walmart, Shopify, eBay, and wish.com are the most preferred platforms by smart acquirers. These marketplaces are not only reputed but fast-growing.
D2C stores are another way through which a hike can bring in sales. Seasoned acquirers will enable their acquired brand with a web store and eliminate the extra cost of any intermediary during scaleups. As a start-up, all you need is a good potential acquirer to set up a dynamic website and listing of your products. A proper track of listings, sales through technology also smoothens the process of inventory management.
A professional can make use of these toolkits with success. Today, acquisitions ensure desired scaling. A startup only needs the right provider to achieve this. These solutions can only be successfully executed by a team with experience in business transformations. Similarly, our skilled professionals know how to handle these complex tasks. At Ergode, we acquire start-ups and relieve them of the stress of managing their venture. Our experts take control by implementing technology, marketing, and business solutions to achieve the future you envisioned. If you intend to explore how we can transform your brand, contact us today.