Challenging the ‘Growth at all Costs’ Startup Model 

You don’t hear it as much in 2024 but “growth at all costs” was common advice for entrepreneurs in as you did 2013-2022 (and 1996 to 2001). Here are our reasons by we don’t recommend it for bootstrappers.

Challenging the ‘Growth at all Costs’ Startup Model

In the world of startups, the mantra of “grow at all costs” is often proposed as a guiding principle for startups. Sometimes, it’s phrased as “get big fast,”  “move fast and break things,” or “Blitzscaling.” Regardless of the catch phrase, exalting growth above all is an approach we strongly advise against at SKMurphy, Inc. It’s equivalent to “going all in” on a single bet. You rarely have a plan that does not benefit from thoughtful experimentation, exploration, and iteration.   I think startups should follow a more sustainable and deliberate growth strategy.

The Pitfalls of ‘Growth at All Costs’

The ‘growth at all costs’ mindset can lead startups to pursue unsustainable strategies, such as offering free products to gain market share quickly. While this approach might boost market penetration, it often neglects the need for a scalable and profitable business model, jeopardizing long-term success. We are old-fashioned at SKMurphy and define the customer as someone who pays you. Initially, they may pay with their attention and later with data about their problems or needs before they pay cash. But there must be a quid pro quo, an exchange of value, to ensure you are on the right track.

An aggressive growth strategy that relies on something other than an exchange of value can create internal tensions within your team company, fostering doubts and fears about the viability of your business model. If you are not creating satisfied paying customers, you can get distracted from your core mission and values,  undermining the company’s foundational goals and long-term sustainability.

Sustainable Growth Strategies

Bootstrappers should focus on sustainable growth by prioritizing:

1. Customer Attention – are you talking about problems that attract interest from target customers? You can start with content that addresses the same problem your product or service will as another way to assess customer interest.
2. Customer data or more detailed information about problems and needs–are you having conversations with customers where you are learning more about their needs and they are interested in your solution?
3. Revenue: are early customers willing to pay something for what you offer? As a rule of thumb, you can capture between 10% and 40% of the hard dollar savings you deliver.
4. Break-even profitability on costs: This includes what it takes to operate your business, does not include your living expenses, and assumes you are working another job to make ends meet.
5. Ramen profitability–Paul Graham’s term for a startup’s cash flow covering basic costs and minimal living expenses.
6. Profitable with opportunity costs are included: you can make what you would make in a ‘regular job” and pay competitive salaries. Competitive can take into account employee considerations of work-life flexibility you offer and options or other benefits.

I like Clayton Christensen’s advice to be “impatient for revenue but patient for profit.” This approach involves generating revenue early to validate our business model while being patient in achieving profitability. By focusing on these strategies, startups can aim to create a sustainable and viable business that grows steadily over time.

Some Tips for a Low Cost Start

1. Make promises and keep them to cofounders, partners, contractors, employees, customers, and suppliers. Be thoughtful when making commitments; if you cannot meet them, let the other person know as early as possible. Everything you need becomes much more expensive when you are viewed as unreliable–or worse, a liar.
2. Think about ways to barter your expertise for what you need.
3. Call in favors; don’t buy what you can borrow. Note: You have to do favors and be helpful first to call in favors. Help other startups by sharing information relevant to their objectives. Introduce people who are likely to benefit from a conversation,
4. Don’t buy new things that you can find used or recycled. This is true for hardware components (used for building prototypes), office furniture, lab equipment, trade show booths, and other items that lose value once they leave the store.
5. Don’t buy what you can lease. This even applies to venture-backed startups when they have not reduced critical risks. The documentary “Something Ventured: Make Money and Change the World for the Better” shared a story from the early days of Genentech when H&Q encouraged them to lease a lab before they were confident their approach would work.
6. Go Ugly Early  (Early if Not Elegant). You must satisfy your customers’ core needs, but early adopters will forgive missing pieces if the product meets critical needs they cannot satisfy.

Lowering your cost basis enables lower cost experimentation and higher profits, in particular making the difference between  operating at a loss and a basic break-even level or even ramen profitability. Frugality is a good habit to develop.

Building Trust and Expertise

Building trust and expertise requires time and patience. Startups should prioritize understanding customer needs and creating tailored solutions, which fosters trust and credibility. Entrepreneurs must weigh the opportunity cost of their efforts, recognizing that demonstrating value through actual case studies and testimonials is a gradual process that cannot be rushed or faked.

Craftsmanship vs. Scale

You don’t have to aim to become a billion-dollar enterprise; many entrepreneurs choose to focus on serving niche markets or customer segments they are passionate about. This approach emphasizes craftsmanship over rapid scale, offering fulfillment and sustainability. Effective delegation is vital to scaling while preserving a business’s core values. By leveraging the strengths of the founding team and addressing weaknesses through strategic hiring or partnerships, startups can achieve growth without compromising their original vision or quality. This balance allows for both meaningful impact and business expansion.

In conclusion: startups must focus on sustainable growth, building trust, and understanding their market. By doing so, they can create a viable business model that aligns with their mission and values rather than pursuing growth at any cost.

Related Blog Posts

• • Doing Less With Less
  • Austin Kleon’s “Keep Going” Offers Practical Advice on Perseverance
    “Move Fast and Break Things presuppose that the cosmic purpose of human beings is vandalism. Things are already a mess out there. What we need are fewer vandals and more cleanup crews. We need art that tidies. Art that mends. Art that repairs. Let’s find some better slogans. Maybe we could look to medicine: First, Do No Harm. Or maybe we could lift the language from signs you see in parks: Leave Things Better Than You Found Them. It’d be a start.”
  • Something Ventured: Make Money and Change the World for the Better
  • Few Against Many Requires Focus and Perseverance
  • Paul Tyma on “The Old Man’s Business Model”
    In what Tyma calls a “trade-off of investment up-front versus brute-force hope,”  the “old man” makes an investment up front instead of hoping a quick and dirty approach may work.
  • Arun Kumar: 9 Lessons Learned Bootstrapping Kerika
    (2) If a feature is really important, it’s not free. (9) You can fail by misfortune, but are unlikely to succeed by chance.
  • Michael Arrington’s “Twice Shy” One Year Later (2008)

Two from Harvard Business Review

• HBR Podcast (2024) Interview with Gary Pisano on Rethinking Growth at All Costs “You don’t want growth to kill the company. I’ve seen too many organizations where growth, in and of itself, is what damages the very things that made the company special, and actually contributed to its initial growth.”
• HBR interview Reid Hoffman on “Blizscaling” (2016):  In the fall of 2015, Hoffman began teaching a computer science class called “Technology-Enabled Blitzscaling” at Stanford University. Hoffman defines blitzscaling as ‘what you do when you need to grow really, really quickly. It’s the science and art of rapidly building out a company to serve a large and usually global market, with the goal of becoming the first mover at scale.”

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