Do some startups fail because they try to scale too quickly?

Yes. Many that try.

If you scale a model that doesn’t work you are basically this VC joke.

You can’t scale on crappy unit economics. Every time you mention scale you have to mention unit economics.

The basic premise for international expansion is ‘nail it and scale it’. It is not figure it out whilst scaling.

Failure from scaling means they scale with crappy unit economics. = fecked

Startup Genome Report states that 70% of startups fail on the grounds of premature scaling.

They address the characteristics of premature scaling

Example:

From: Angel investing guide to startup investing –

The upside is you get recruited by Y-com.

Premature scaling is a huge cause of failure. Unless you have access to a pool of capital (eg. Rocket Internet) you are screwed.

Fab got goaded into expanding to Europe by Rocket and killed themselves as their model didn’t work.

Airbnb on the other hand takes scaling seriously and obsesses about hiring for culture (My mate was a continent head).

Look, startups don’t fail, they run out of cash.

When you expand you multiply your burn by a factor. It takes time for each new region to get near some kind of profit contribution. It’s a super negative cost curve. You need to understand your economics and ability to raise for them.

I never encourage startups to scale before they are ready. Better to dominate their home market and prove they can do it then show they can do ONE market well as expansion case. Then do B/C round to do multiple and multiply.

Redmart in Singapore told investors at (I forget, B or C) that they were raising for regional expansion. They used all cash on SG. Then went back to raise for the same plan. Investors said FU and they ‘exited’ to Lazada in firesale despite what I have heard was great execution (I know Roger etc and they did great execution but messed up raising message).

Really… nail it… then scale it. Don’t dick about this. You will kill yourself.

Big example. Delivery Hero. Niklas figured out green field was hard and acquisitions were cheap. Ended up buying companies and killing green field execution.

Scaling is hard.