It’s possible that you are scaling prematurely, but it’s become a catch all risk that bears more scrutiny. This conversation is condenses from a real email exchange with an entrepreneur
Q: How do I tell if I am scaling prematurely?
Entrepreneur: How do I tell if I am scaling prematurely? What metrics should I track to determine if an opportunity is worth pursuing?
SKMurphy: Are you able to attract paying customers?
Entrepreneur: I don’t know because I have been afraid to charge. I launched a side project as a free service that has attracted 3,000 users in my first year and 10,000 in the second.
SKMurphy: Have you talked to them to understand why they value the service and their perception of the benefits and the value it offers?
Entrepreneur: I’ve interviewed 25 people. Of these, 16 stated they’d be very disappointed if I pulled the plug on the service, and of these, 12 said they’ll still use the service if I charge a fee for it. I’m not sure if 25 people are significant enough, though.
SKMurphy: You should put a price on it and find out if they are willing to pay. Asking people if they are willing to pay does not engage the same evaluation process as making a real offer. Given that you have a working service with a lot of users, do you feel that you can explain to prospects the benefits of your service in terms that they understand so that some of them sign up, try it, and pay for it?
Entrepreneur: Yes. The value proposition I’m using came out of those interviews. Essentially, it saves a lot of time by making the whole process easier and allows them to save money (perhaps earn is the correct term because it’s related to tax refunds) in areas they hadn’t considered.
SKMurphy: OK, they should be willing to pay something and offer some testimonials. Are your users recommending the service to others?
Entrepreneur: They already do. Just the other day, a friend was recommending the service to the CEO of a large company here, and the other guy said he’d already used it after someone had recommended it. I was impressed, I have to admit.
SKMurphy: This is a very large positive.
Entrepreneur: I understand that, but I worry because I have read that a high percentage of startups fail because of premature scaling. I got an assessment from an incubator, and they told me in no uncertain terms that my “baby” is dysfunctional. This report has caused me a lot of doubts about whether I should invest more effort.
SKMurphy: There are no doubt many things wrong with your startup. If you fix some of them and become more successful, you will discover that more things need fixing: successful entrepreneurship is an ongoing self-improvement process. Focus on what your customers and prospects are telling you, and don’t waste any more time on online Tarot decks, magic 8 balls, crystal balls, phrenologists, or other fortune tellers.
Postscript: the entrepreneur was able to overcome his fear that he had failed. He put a price on the service and built a successful SaaS offering that he sold to another group about four years latewr that is still in operation today.
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