The Hidden Cost of Scaling Up Your Startup

Dr. Laurence T. Spring has served as an educator for 30 years, including 15 as a superintendent. He is a consultant to organizations and schools, specializing in change management and equity issues. He writes about the obstacles that prevent effective change management and how organizations can overcome them.

You’ve made it! Congratulations on your startup success. Business is booming, revenue is beating predictions and demand is exceeding your ability to produce. Your team is feeling overworked and is desperately asking for you to hire more people to help alleviate the increased workload.

Being in a position of needing to add scale to your business and having the financial means to do it is a significant achievement. Every executive accounts for the dollars associated with adding staff and the commensurate benefits. You probably have budget numbers that anticipate salaries and health insurance for new staff positions projected several years out in various scenarios of growth. In an ideal scenario, scaling up differs from simple growth in that your increase in revenue grows exponentially, while your increase in resources grows in a more limited, linear manner.

However, many organizations struggle to account for the hidden cost of scaling up. Too many executives are surprised that adding staff typically has the opposite of the intended effect — at least, at first. Adding “help” for your overworked staff will suppress productivity and efficiency for a period of time, as new people learn their new roles and existing staff add training and mentoring to their already full workloads. This is the paradox of a growing company: Everyone wants more people in their department, but no one feels like they can stop what they’re doing to train the new people and can feel even more overwhelmed when asked to.

Luckily, there are several things you can do to minimize the cost of scaling up and mitigate the pain that your staff feel as it’s happening.

How to minimize the cost of scaling up

First, accept and communicate to your team that a performance dip is anticipated and expected with any significant staffing changes, even when the changes are additions to the workforce. By communicating the anticipation of a performance dip, you temper any criticism from investors, help staff understand that personnel additions come with some additional effort and protect your own mindset. If you are not prepared for a performance dip after sinking a significant share of revenue into growth, you can hit an emotional low that can be debilitating.

Don’t forget the increases in infrastructure that will come with dramatic increases in customers or users. Migrating to new servers, upgrading bandwidth and changing to more robust tools for the customer pipeline can all add up quickly and create frustration. These growing pains are things that all successful companies go through, but it is best to be realistic about the cost of these steps as well as your ability to manage the changes.

One key element to startup success often gets overlooked when scaling up: a personalized customer experience. When your base is small and your team is tiny, your customers get a high degree of attention and satisfaction. It is not unusual for a customer with a bad experience to get an apology from the CEO. Going to scale almost always means replacing human interactions with more efficient automated interactions. Knowing which interactions can be turned over to automation while doing the least damage to the customer experience is critical.

Lastly, it is important to recognize that the biggest source of energy drain in these situations comes in the form of new team members trying to learn the tacit knowledge needed to be effective in their new roles and to fit into their new organization. Oftentimes, in the race to grow, or just survive, organizations don’t take necessary time to write down and document this information. Making tacit knowledge explicit will dramatically reduce the amount of time it takes for a new member to become a productive part of the team and to feel part of the culture. These documentations can be as simple as ensuring process steps are written out for tasks or as conceptual as spelling out the organization’s stated values.

Stability in staffing is positively correlated to organizational efficacy. You can estimate your stability through a simple sum of squares formula: Divide the square of the number of people that are in the same position they were in last year by the square of the total number of positions in your organization. If the result of this simplified math is less than .80, you might want to take some steps to slow your expansion.

Expanding too quickly can not only result in exasperated staff and frustrated investors — it can also result in catastrophic failure. The landscape is littered with startups that were doing great and attempted to expand too quickly, driving themselves into debt or losing the quality that made them special.

As you plan your expansion, be sure to take all the costs into account and remember that while expanding rapidly to meet your newfound demand can feel exciting, taking a beat to plan a more methodical expansion can ensure that you and your company are around for several more rounds of expansion.