I read an interesting article this morning about the most common reason why startups fail. It wasn't what I would have guessed...but looking back, I once made the same mistake myself, and it was pretty expensive.

Joanna Glasner wrote:

Researchers found that certain factors "“ such age and gender of founders, location, and previous entrepreneurial experience "“ have little bearing on a startup's likelihood of failure. The most consistent predictor of failure, rather, was a startup's propensity to engage in premature scaling.

...

For example, a startup may overspend too early on customer acquisition, hire too many employees, or focus too much on engineering at the expense of customer development. It can also raise too much money too early...

It's easy to imagine lots of internet marketers falling into this trap. You buy someone's how-to course which recommends a particular activity -- outsourcing, social media, or whatever -- and focus on that to extremes without getting your foundation in place first.

Assuming the training is good, you may end up succeeding at one part of your business. But if the rest of the business isn't ready, winning the battle can lead to losing the war.

Maybe you drive a bunch of traffic before you've got a good product to sell, so all your efforts are wasted. Maybe you've got a good product and a bunch of traffic, but your sales letter is horrible. Again, a huge amount of waste. Maybe you've got great traffic, product and sales letter, but you haven't set up online payment processing, and your target market doesn't like mailing checks. Oops.

The first thing you need is to know what components you'll need to set your business on a solid foundation.

Reader Comment:
Laurent said:
Right, I personnaly knew a little company which this issue... They were 4 or 5 people working there. Then their CEO started to think he could become rich quickly with a huge client : he hired a dozen employees at a time, most of them were very young,...
(join the conversation below)

My own worst scaling mistake was signing up for heavy duty web hosting for a business I thought would succeed right out of the gate. I think it cost $175 a month, and I signed up for a one year contract in order to get the first month free. Then, I didn't realize that the contract would auto-renew for an entire year (I figured it would switch to month-to-month). So after putting off switching till a month or two after the year mark, I ended up paying for two years. Ugh.

I won't go into the reasons why the business didn't grow like I'd expected. But it didn't. And I ended up wasting a lot of money on that hosting account, paying for processing capacity and bandwidth that didn't get used.

In retrospect, I wish I'd known about Rackspace Cloud Hosting, because it enables you to resize your hosting account on the fly, with just a few minutes interruption, and the prices are very competitive. (That's where I'm putting my new sites these days...and I'll be migrating all my sites there when I have the time.)

One last point before I wrap up. Don't let the fear of scaling one part of your business too fast paralyze you and keep you from doing anything. Doing nothing probably wasn't even considered in the study, because it's just too obvious. If you don't even try to start up, can you be called a "startup"?

Better to get started a little off kilter than to never get started at all. Just do your best to get your foundation in place. And then don't ignore things that you know are important just because they're difficult, aren't as fun, or aren't emphasized by the training information you're studying.