First-time entrepreneurs are often impatient and overconfident. With high hopes and a sense of optimism that hasn’t been tempered by failure (yet), their ambitions often reach towards the sky. They want their venture to be at the heart of every industry conversation; they can see themselves raking in profits that the most optimistic CFO wouldn’t have anticipated. From their kitchen table, they dream about moving into a sleek modern office and directing their growing team towards new and greater heights.
Of course, the entrepreneurial process rarely works out that way. Expecting — or even encouraging — rapid growth is one of the worst mistakes an up-and-coming founder can make when establishing their venture. According to a recent survey from StartupGenome, over 74% of new business failures are the result of premature scaling. In aiming too high, too soon, entrepreneurs inadvertently angle their businesses directly into the ground.
The statistics are startling, but they teach a valuable lesson. As useful as optimism can be when it comes to getting a business off the ground, misaligned expectations can distort your understanding of what success looks like for your business. Not every high-achieving venture needs to live in an upscale tower; for some, prosperity might make its home in a humble storefront.
I know this from experience.
My father didn’t exactly fit the young-and-brash stereotype for first-time entrepreneurs; he was a police officer who, after spending 18 years with the NYPD, decided to retire to a small town in Pennsylvania and open a pizza shop.
Now, Vennari’s doesn’t have the sleekness of a modern office or the media interest of a tech startup. It’s a small-town pizza shop with classic checkered floors and a wood-paneled counter at the front. Posters and family pictures lend a warmth to the space; when customers order a slice and sit down at one of the shop’s red booths, they know they can relax. My father’s venture isn’t anything other than what it purports itself to be: a quintessential small-town pizza shop. It’s a thriving business — but in those early days, success was far from guaranteed.
As a retired cop, my father had enough money to live comfortably, but he had little left over to start a restaurant from scratch. He trawled auctions for his equipment rather than industrial manufacturers, reasoning that he wouldn’t be able to break even if he bought everything new unless he opened to overwhelming success. My father was too practical to hope for — much less expect — that level of enthusiasm right off the bat, so he started small. Over time, he built up a devoted base of regulars and cultivated business growth by expanding his staff and operations. His measured, sustainable approach paid off: the business has now been running successfully for over three decades.
When I began Ashcroft Capital in 2015, I took a few cues from my father’s story. That might sound strange, given that Ashcroft is a multimillion private equity firm specializing in real estate and not a small-town restaurant, but I would argue that the lessons hold regardless of the industry or venture size. If you take small, strategic steps over the long term, you can chart a path for sustainable growth. If you don’t, the rampant growth that you were so excited to cultivate might topple your business.
Fast-Paced Growth Isn’t Always a Good Sign
There is a profound difference between growth for the sake of growth and scaling. When a company pursues growth for its own sake, they often expand without developing their processes and models to accommodate the new breadth. As business advisor Ron Carucci aptly describes the problem in an article for the Harvard Business Review, these businesses “grow past their capacity to sustain growth, failing to grow up despite getting bigger in size. Looking much like the teenage boy wearing his father’s suit, they haven’t quite grown into the size they achieve precisely because they confuse growth for scaling.”
My father understood this; he only ever hired the people he needed to keep the pizzeria up and running. When more customers came through the door, he enlisted more help — but he always based his staffing decisions on the growth he saw, rather than the growth he hoped to have.
Free Money is a Myth
When you start a business, it can be easy to rationalize spending money, especially if your investors are footing the bill. You need new personnel, new equipment, and bigger office space to spur growth now. It will all but pay for itself, you reason, when more customers come through the doors.
Here’s the problem — the money you’re spending doesn’t come for free. While investors can serve as invaluable sources of funding, industry connections, and venture advice, they do come with a few caveats.
Investors may personally want you to achieve your aspirations, but their professional interests may not always align with your hopes for the company. They may personally want you to meet your goals, but their professional priority is recouping their investment. If you spend too much upfront and your business doesn’t see the opening profits you were expecting, you may not be able to pay your investors back easily or immediately. Worse, because founders often cede some of their directional authority in exchange for an investor’s financial help and support, a flailing entrepreneur may find their company shifting direction to prioritize repayment over their original vision for growth.
New businesses need to be lean. You may not be able to frequent auctions for second-hand equipment like my father, but there are ways that you can cut costs, make low-risk use of investors, and protect yourself from unnecessary debt.
Growth Alone Isn’t a Marker for Success
One of the most significant mistakes a founder can make during a period of scaling would be to assume that they only had to replicate current processes on a greater scale. When you duplicate an imperfect process, its impact becomes more pronounced – but so too does its flaws. This leads to rampant inefficiencies; capacity dwindles relative to the burgeoning business, staffers become frustrated, and the company begins losing money at a fast clip.
You might be able to grow via replication — but you certainly won’t build capacity. To scale effectively, entrepreneurs need to develop their skills, talent pool, employee structures, and working processes well enough that they can meet consumer demand efficiently. Greater efficiency, in turn, allows for a better ratio between income and cost and creates sustainable growth.
Ambitions might keep you driven, but they won’t keep you afloat. In the end, it doesn’t matter if you run a Silicon Valley tech company or a small-town pizza shop; the question of whether your business measures in the thousands or billions is almost immaterial. If you want to find success — whatever that benchmark might look like to you — you need to take my father’s lessons. Achievement, he taught me, is a winding path walked in a series of small and measured steps.
When you’re building a business, it pays to take your time.