5 Tips for Preparing to Scale Your Startup

Founders often feel pressure to scale too soon—especially after bringing in capital from investors. This pressure can come from anywhere: ambitious goals, aggressive investor timelines, or simply an entrepreneur’s own urgency to make it big. But according to Carter Cast, a clinical professor of strategy at the Kellogg School, scaling prematurely is one of the surest ways to destroy value in an otherwise promising business.

“Founders take money from investors, and the investors say, ‘go, go, go,’” says Cast. The result? “Founders start looking for ways to achieve hypergrowth without really asking themselves: Are we really ready to grow? Do we actually have product–market fit? Do we have the right team to double the business? Do our business metrics—around customer growth and retention, operational execution, profit margin—indicate that we are ready to grow, or are we trying to artificially push it?”

Cast offers advice for founders as they assess whether their company is truly ready to scale. He also includes a handy “pre-flight checklist” of ten questions for entrepreneurs to consider when they are planning to grow their businesses.

1. Align your team, investors, and board

Before you hit the gas on scaling your startup, your team—and your investors—need to know where you’re headed. Cast sees this situation all too frequently: a founder starts pushing to expand without a clearly defined destination.

“I’ve seen founders or early-stage CEOs seek aggressive growth without defining the goal of that growth,” Cast says. “This can leave their board or investors asking, “What’s our mission? What are we trying to accomplish here?””

The first step for the company is to develop a clear, compelling mission and then to lay out a growth plan and build consensus for it among the leadership team, the board, and investors.

“You identify the hill you want to take and the game plan to get there. Then you get your board and investors behind the plan so you all believe that aggressive scaling is the right path to pursue,” Cast says.

This means you have to go beyond a vague desire for expansion to articulate a growth plan with specific goals, clear initiatives, financial requirements, and a shared commitment. Without that, dissent is inevitable.

Cast recalls a startup founder of an e-commerce business who wanted to triple the business by building a new distribution center to support his growth agenda. One of the company’s venture capital investors pushed back, worried that the new distribution center would require another round of fundraising, which would dilute their existing ownership.

This founder had a tough time aligning the board around his growth agenda because different board members wanted different things from the business, Cast says.

“You can get misalignments like this on a board. Some investors may want to grow. Others may want to exit,” Cast says. In this particular case, the solution may be to buy out the dissenting investor and replace them with another who is aligned with the growth agenda.

“There must be alignment by the board on the growth agenda, or you’ll run into significant problems,” Cast says.

2. Ensure your product–market fit is crystal clear

Startups need to create a rigorous, honest assessment of their product–market fit. Without it, scaling just burns cash.

“This is the motherlode, the big kahuna,” Cast says. “If you don’t have product–market fit, the effort you spend to scale the business amounts to pouring money down the drain.”

For Cast, product–market fit comes down to three essentials: there’s a clear and pressing customer need, the market is large and primed for growth, and the product outperforms competitors in a way that actually matters to customers.

Often, founders make the mistake of settling for two out of three of these essentials. But Cast is blunt: “Some people think if there’s a clear need, you have product–market fit. But you also have to be in a market that’s attractive, where you have identified a ‘white space’ where you can grow. And you have to have a product that is better than your reference competitors in an area that customers care about, or else customers won’t switch.”

Cast advises founders to avoid two common product–market fit pitfalls: your startup identifies a “sort of need” that is not compelling or urgent enough to lead customers to change their existing purchase behavior; or your startup enters into a market too late, only to find you are competing in a “red ocean” that’s been chummed for sharks.

3. Map your growth strategy

Any startup can tell you how it has grown to date. But mapping how it will grow in the future is a lot more difficult.

“Many startups haven’t thought about how and where they’re going to spend incremental funding to get the product in the customer’s hands going forward,” Cast says.

That growth plan must be specific and measured—whether it includes entering new geographies, targeting a new customer segment, adding a new distribution channel, or some combination of the three.

“For example, if you have two retail stores that are doing well in three urban neighborhoods in Chicago, and you identify six other markets that fit the same market characteristics of the successful stores,” Cast says, “that is the beginning of a viable go-to-market growth strategy.”

But a growth strategy is only viable if the underlying unit-level economics make sense as the company grows. Mapping that growth strategy with a clear understanding of product profitability prepares companies to account for how those unit-level economics change as the company expands into new markets. For example, selling a product into Canada might involve tariffs or higher shipping costs that reduce profit margins. If the margin profile still supports growth, then scaling could make sense. If not, it is a warning sign.

4. Assemble an experienced team

Too often, companies planning to scale don’t realize the extent to which they will need to build new capabilities and bring in functional experts to manage the growth.

“They may think they’re ready to scale but don’t realize they’ll need additional talent in very specific areas of expertise to drive that growth,” Cast says. “For example, the CEO may need to invest in upgrading their selling capabilities or bringing in operational expertise.”

In some cases, the person who is not ready to scale, not ready to operate at a higher level, might be the founder. While this may be an uncomfortable blow to the founder’s ego, putting experienced people into critical roles is paramount.

“Sometimes a founder may be better off playing a specific role that they’re good at, and then bring in a leader who has experience in scaling companies,” he says. “There are situations where the founder becomes the chief customer officer, but a chief operating officer is brought in to run the day-to-day operations.”

Cast advises assessing the team across critical functions: product, operations, sales, marketing, and finance. If leaders in those functions are not ready, they will be exposed when the company attempts to scale.

“As you scale, it becomes more apparent where you’re weak, where you’re unstable,” he says.

5. Pressure-test the business

Before you scale, make sure your business can handle the weight.

“Scaling without having a good idea of what will break operationally will just amplify your losses,” Cast says. “For example, adding customers really fast can denigrate your service quality and along with that, your reputation.”

Can your logistics, staffing, equipment, and support systems survive a 50 percent spike in demand? Will your suppliers be able to keep up with the demand? What happens if you outgrow your existing facilities? Can you create a series of smaller tests—in a specific market or with a specific product line—to better understand the pressure points?

In the early years, RxBAR, a protein bar company, experienced rapid growth that exposed a major supply-chain constraint: the company ran out of dates, a core ingredient, and had to scramble to find new suppliers to keep up with demand.

“They basically bought all the dates they could,” Cast says. “They had to go find new sources of supply.”

On the financial side, before the company starts scaling, it needs enough working capital to fund expansion—people, product, equipment—as well as contingency planning for what might go wrong.

Throughout the rollout of the growth phase, the company also needs to maintain tight control of the burn rate and cash flow. Because expansion can accelerate how much money is being spent. This makes having a detailed and accurate read on both how you are going to keep the burn under control and how many weeks or months you have left before you run out of cash imperative to the success of the growth strategy.

“Before a founder or CEO decides to hit ‘go’ and step on the gas to scale, they’d be well served to do a clear-headed risk assessment,” Cast says. “Ask if they doubled the business, which areas would break, which areas would be at risk, and how and where can they plan ahead to mitigate risk?”