Tuesday, December 18

Why Being Unscalable Is More Important In Startups Than People Think

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Startups shouldn’t necessarily commence their journey looking for a problem that needs to be solved. If founders want to make something easier, they need to be certain that it can be done at all. Many startup founders expect to see success simply because their business may streamline something and get new customers without needing to dramatically increase costs.

In reality, it can sometimes complicate things further if they aren’t familiar with what that particular type of business entails. For instance, many large fashion retailers open bricks and mortar stores before operating online and although some do it the other way around, it isn’t always best. Zara entered the Australian market in 2011 but it wasn’t until this year that shopping online became an option for Australian customers.

Even Australian startup Nimble who offer short-term loans online used an old-fashioned industry which they knew was profitable before developing technology and algorithms that determine if a loan should be issued.

As much as it is beneficial to stand out from the crowd, it can be best to look back at what is already working in manual, unscalable businesses before looking forward at what could work digitally.

Going digital isn’t the first step

Businesses need to operate manually before anything else. Only if and when they work is when they should be scaled. Startups don’t necessarily need to begin with technology as there will always be scope to improve internal processes and customer experience with digital methods.

People are less likely to invest in a business that hasn’t done it unscalable first. Investors want evidence that the right processes are intact and that if it is not scalable already, that it is capable and ready to scale. The biggest indicator of this is that the business or industry has been run successfully prior to attempting to scale.

The type of businesses and industries that need to be digitised are those that are old-school, ripe for innovation and need a different take, meaning that operating without being controlled on a digital platform is necessary first.

A great example is McDonald’s. For decades they’ve taken orders the traditional way – manually at the counter. But in 2017 they introduced a digital ordering platform and kiosks to reduce the time is takes to order a meal, meaning the process is more efficient and time can be better spent making the meal.

You need to know if there really is a market there in the first place before you create a product and expect a market to already exist upon launch. The best way to do this is to see if it works without scaling, without technology and even without too much funding.

This is one of the reasons that startups often fail.

Find out first-hand by starting as unscalable

Sometimes having no experience in an industry is great when starting a business. It can be an outsider’s perspective that is just what is needed to challenge the status quo.

A majority of the time, however, businesses are positioned for success if the founders already have experience in that industry. They will know the best way that it can be scaled and the best way to make a profit.

Those that are already in the industry will have contacts and customers before it launches and know whether or not it will make money in the long term.

You already have customers for when you launch your digital platform which dramatically reduces the risk of launching to crickets. This is why startup founders should not only look at industries that are operating manually, but try to operate a business within it themselves.

It’s also not just about the industry working in an unscalable format, but also the founders should be able to run it with little use of technology.  Grasping the core fundamentals of a business and what it entails without technology is necessary for a startup’s future success.

I like to work with founders who are already operating within the industry they are trying to disrupt. The chances of success are far higher as they know the intricacies of the industries, they have the contacts and they know the parts of the industry or value chain to target first.

Scaling too early is a known issue

Scalability and digitisation are not necessarily synonymous from the beginning. Prior to making a whole business exist digitally, scaling can be achieved gradually and can start with increasing customers and hiring more staff. Timing is key and when the right time comes and the business is still making profits, then digitisation can seriously be considered.

Research shows that premature scaling can lead to startups failing, but conversely startups that scale at the right time, with the right resources and with research, can experience phenomenal growth.

This proves that starting something as unscalable is the best way to yield results and see success.

Domenic Saporito is the Co-Founder of GADA Technology, which has built an enterprise grade technology stack to help get clients to market easier and faster.

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About Author

Paul Towers is a passionate supporter of the Australian startup ecosystem and the Founder of Startup Soda. Originally, Startup Soda was solely a newsletter that helped curate the best content from the Australian startup community, more recently however it has turned into a media platform with the aim of improving coverage of Australian Startups, Founders and VC's.

1 Comment

  1. Absolutely agree. We have seen a competitor fail for this very reason – not testing if the concept works in a day-to-day, bricks and mortar reality before accepting funding and looking to scale. Thanks Paul, glad to see our work validated by another person’s observations!

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