Growth Can Kill

Editors Note: This is another guest post from Danny Wong, co-founder of Blank Label, a custom dress shirts startup that has seen tremendous growth in under eight months since launch. We’re delighted to have him share his thoughts and experience on building startups here.

Most startups dream of the day when they see their traffic spikes, their user count increases exponentially, or their sales quadruple.

But when most startups hit that hockey stick growth curve, they usually aren’t ready to manage that growth. What most young entrepreneurs don’t know is that growth can kill.

Imagine you are fighting through your first six months since launch and you’ve been seeing mediocre growth, decent sales, and keep crossing your fingers for some miracle to happen. Then within hours, you see in real-time your cash-flow going crazy! Then within days, your total sales over the last six months have multiplied several-fold! You jump for joy, and then you hug the next five people you see and give your team a big high-five.

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Then reality hits… how are you going to manage all this growth?

If you were a social networking startup that grew from 1,000 users to 20,000 users, what would you do? The obvious answer would be to buy more server space and get ready for your increase in ad revenue, but there are a smörgåsbord of other problems, with not so simple answers, that come with unbelievable growth. That first 1,000 users were your early adopters, and they believed in you and your product. But those 19,000 new users are not quite the same as your first 1,000. They have different needs, and now you will have to make a huge effort to retain those new sign-ups and provide them with a service that really serves their greatest needs.

If you were a consumer products company, that sold 30 widgets a day and then started selling 300 widgets in an hour for 10 hours, how could you source the 3,000 widgets your customers have ordered and deliver that on time when your supplier was only used to maybe making 100 widgets a day, at maximum?

When you hit major growth, it is almost always a blessing, but if you don’t have all of your ducks in a row, it can be a major, major curse.

Something similar happened to my own startup, in which our business grew much too quickly and we weren’t ready for it. We quadrupled total sales over six months in one week after features in the NY Times, Consumerist, MSNBC and other media outlets. How could we go from making 10 products a day to a 100?

To manage the amazing growth we had, we began working with a new supplier now who can scale with us, and are getting on track with orders. We also tried to be as transparent as possible with our followers and visitors about what was going on with us so that they could be empathetic with us, early-stage entrepreneurs, and the growing pains of our growing startup. In addition to emailing and tweeting what was going on with us, we published two posts on our blog about what was going on.

As always, building a startup is very difficult, and everyone dreams for the day in which their growth multiplies. But there are things that you need to do to ensure that you can scale without hitting any big roadblocks or coming across any major issues:

Pay a premium for server space – If you are going to get 50x more traffic than you normally would, daily traffic which is several times larger than your last month’s total unique visitors, you are going to want to capitalize on all that opportunity to be had, even if the difference between premium server space and mediocre server space is a multiple of 5. If you normally get 1,000 unique visitors a day, and your current servers work just fine, but suddenly grow to 50,000 visitors a day, you are probably going to have server overload, which can cost you more than 50% of your traffic. Considering the fact that you will have lost out on the opportunity of having 25,000 visitors, it probably would have been wise to have paid a premium for web servers before you hit scale.

Make sure your third parties are ready to scale – Whoever you are working with, whether it be suppliers for your widget manufacturing or your shipping company who was used to pushing only 100 pieces of product a week, you have to make sure that the third parties you are working with can scale with you. If your suppliers can’t ensure that your widgets ordered during peak sales can be fulfilled in a timely matter, or that your boxes cannot be shipped more than 100 at a time, then you will have massive problems that are outside of your control. Also understand that it’s not that easy just to pick up and find another supplier to support the excess volume that your current supplier cannot manage.

Prep your team for growth and hire as needed – Understand your team’s capabilities and how much bandwidth they have so you can get a better sense of how much growth you are actually able to manage. Your small, lean team cannot do everything, and that’s a fact. Some things that many lean startups do forget that there are tons of efficiencies in hiring new support to help you manage the smaller tasks that provide little return and take up quite a bit of your time because it would free up more time for the core team members to focus on the things that matter the most for the business.

Anyone have interesting stories or experiences in hitting hyper growth? Any advice or thoughts for entrepreneurs looking to scale?

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