Business Today

Why scaling up is tough

Pradeep Gupta        Print Edition: May 29, 2011

Scaling up, or taking a start-up to the next level, is one of the biggest challenges for entrepreneurs. The first hurdle that can hold them back is complacency. When they begin, many entrepreneurs have fire in their bellies that drives them to innovate, aspire and take risks, but as they reach a certain level of success, this fire often dies out. The business fails to move to the next level. It is, therefore, essential for them to rekindle the fire if they want to rise further.

A number of start-ups are also unable to make the transition because of differences between partners who initiated them. Partners are usually people with much in common, who developed strong bonds while at a campus together, or at an earlier workplace where they were employees. Yet, once the business reaches a certain level, there is often a diversion of goals.

Cybermedia chairman Pradeep Gupta
Cybermedia chairman Pradeep Gupta
One partner may want to sell the business and keep the cash, another may want to remain at the same level, while a third may want to grow. It is essential for partners in a start-up to have congruity of purpose. Another bottleneck is absence of delegation. When a company starts, the entrepreneur behind it often performs multiple roles, from chairman to caretaker. He takes a wide range of decisions from technical ones to marketing, from production to administration. His team too depends on the entrepreneur for every kind of decision. At a later stage, this hampers growth. The entrepreneur soon finds his knowledge inadequate to tackle challenges, or faces time management problems, which hold back the company.

To achieve genuine delegation of responsibility, a second rung of leadership has to be created and empowered. Till this is done, businesses cannot scale up. Entrepreneurs often feel that by delegating they are giving up control. In reality, they are helping the business to bloom.

There are three more challenges. When a small number of people are involved, as is usually the case with start-ups, they all share the same vision, beliefs and goals. But once a company starts growing, a proper system needs to be worked out so that everyone working for it remains on the same page. Defining a clear vision and mission becomes very important, but this is often not done.

There is also the pitfall of execution. In entrepreneurial companies, much work gets done without being formally recorded. Inherently, a small group shares more information and has greater clarity about the company's plans than the rest. But as the company grows, such informality has to be replaced by processes, technology and internal communication.

Resources - both money and people - present their own challenges. Entrepreneurs often bootstrap their companies and use the same philosophy for scaling up. This needs to change. Execution plans must be adequately funded for people to execute and deliver as expected. The key to scaling up is to scale up the organisation's capabilities. Once this is done, the scaling up in terms of performance, revenue and profitability will automatically follow.

The author is the chairman of Cybermedia, a speciality media house

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