Higher, bigger, faster

Ankit Misra is the co-owner of an integrated creative agency in Hyderabad which provides design, content and social media support to clients spanning different sectors. Of late, Misra and his core team have been aggressively signing on new clients. From around six clients in the hospitality and IT sectors, they now have over 15.

But this rapid-fire expansion has proven to be more of a headache since he hasn't been able to find talented resources to take on the newer responsibilities. He desperately needs graphic designers and writers to engage effectively with clients and chart out monthly-plans that can help clients enhance their brand image. But since the budget is tight, Misra can only afford to have freshers or those with less than two years of experience. And this has caused a lot of turmoil with his existing team being overburdened with work, leading to a drop in the quality of the output, with two clients having already discontinued his services.

Now Misra's case brings the classic question- is rapid expansion the need of the hour for start-ups? Last month, OYO Hotels and Homes became the second-largest hotel group in China, a mere 18 months after entering that market.

But is the OYO expansion story worth emulating by start-ups? Not exactly, feel experts.

"No one can complain about capturing market share – slow or fast. It tends to attract positive attention from customers, talent and investment. But it also masks many problems that a start-up might encounter because of this rapid pace of growth,'' says Nirupa Jaishankar, director, Brigade Real Estate Accelerator Programme (REAP).

A report by Kauffman Foundation and Inc magazine states that two-thirds of some of the fastest growing companies had shrunk in size, gone off business or had been cheaply sold recently. According to the Start-up Genome report, about 74% of start-ups globally fail as they are not prepared to scale up, or scale up prematurely.

"Rapid scale-up should happen only once the start-up has figured out a sustainable model," says Pratul Gupta, co-founder, Grexter Living, a co-living start-up.

Experts say the first step is to determine if the venture is scalable or not.

According to Yash Kotak, co-founder and director, Boheco Life, even if a start-up has an exceptional product, it is not necessary that this product is the reason why the business would grow.

"Scale-up is in direct correlation with the market size and market sentiments. If market adaptability of the solution is good, then you are ready to scale up. One negative example of the same would be, say, Snap Spectacles. The product is good, but market adaptability is low, hence scale-up has been a problem for them. But for OYO, market adaptability was high," says Harsh Shah, co-founder, Fynd.

Scale-ups create excess dependency on funding. "If you need a huge amount of resources to scale-up, it is better to not scale up rapidly. Scale-ups make start-ups go overboard with building, spending and hiring, and the timing is the key here," says Kotak.

Jaishankar says a rapid scale-up can distract start-ups from their core strengths and intent. "The ability to identify and onboard talent to keep pace with growth becomes a serious constraint. A great team beyond the founding team is critical for success. The agility of a smaller start-up can also be a casualty of rapid growth, decision-making could take longer, and there is the danger of dropping the ball on optimal customer experience. Scaling up a start-up requires a related scale-up of the organisation, an exercise that is fraught with cultural pitfalls when undertaken in an unnaturally short timespan," says Jaishankar.

Start-ups are adopting a more prudent approach. Arunprasad Durairaj, CEO and co-founder, Flinto Learning Solutions says they are doubling across 20 states with an expected 10x growth. "Internationally, we expanded to Qatar and spent the first three months in understanding the market requirements and now have scaled to over 30 preschools there."

Gupta says Grexter Living will grow from having 5,000 beds by 2019 to about one lakh beds in the next five years.