Five reasons why startups fail to scale-up [the talent perspective]

Startup businesses can fail for a number of reasons. Some simply fail because there is not a sufficient product/market fit. Some run out of cash. And then there is the challenge of rivals just out-competing them.

You can find lists of reasons across the internet. However, other than business models simply not being viable or their being no market need, the reason is simple. It’s talent.

We’ve worked with many high-growth, tech-led startups who have scaled-up and learnt a lot.

Leaning on their experiences we’ve brought together the most common reasons start-ups fail to scale-up to make sure they aren’t repeated.

Let’s break down the top five.

Spending too much (or too little!) on hiring.

When startups fail because of running out of cash, we can say with a certain amount of authority that a large percentage of that will have been spent on talent.

Now, that doesn’t mean that it shouldn’t be a focus for you (obviously) but so many start-ups only think about salaries and recruitment fees, missing the bigger picture.

You need to be thinking about your True Cost of Hiring.

Understanding this is complicated. It includes the recruitment fee, retention, time invested, opportunity cost and quality of hire. It’s too much to explore in full now but consider this:

For every bad hire that either leaves or you have to replace, you’re doubling your recruitment fee and wasting months of time. 6 months to be exact, per hire, according to Beth Haggerty in Forbes.

That alone is reason enough to put hiring at the top of your agenda. It takes a bit of time but getting your head around the true cost of hiring will set you up well for your scale-up journey.

Don’t needlessly spend money but also don’t skimp on your most important investment, people.

For more on the true cost of hiring watch our CEO Simon talk about it here.

We’ll also be writing more on the topic soon.

Not building the right team.

Or more specifically, not understanding what you need to hire.

To illustrate how important it is to hire the right team take a nose at this article from Inc. that looks at the finances of social media tech startup Buffer. They found a whopping 69% of their monthly spend was on salaries.

The uncomfortable truth is startups do not spend enough time building their talent strategy into their wider plan. When they do, they are often still unable to forecast hiring needs accurately or define roles in line with the market for available talent.

Imagine making decisions on how to invest 69% of your own money based on something you don’t understand. 😱

Many startups ‘think’ that they can scale through sheer will. That’s probably true to a point but there are likely to be mistakes. Expensive ones. Ones that in hindsight that could have been avoided if you moved from ‘thinking’ something is achievable to ‘knowing’ it is.

Whether you’re bringing in a CTO, your first HR hire or building team of marketeers, you need to understand first why you’re doing so and plan backwards from there.

Bringing in talent expertise allows startups to mitigate some of the risks in hiring.

If you put in place the right checks and balances on your talent strategy, you can validate your ability to hire (and hold onto!) the people required to hit your goals.

Be sure the profile of person you want to hire exists before spending 6 months trying to hire them. Be sure the opportunity your offering is actually exciting to the people you need to hire rather than waste time interviewing people just to have them reject an offer at the end of the process.

Startups that only deal with the here-and-now when it comes to recruitment will never scale as quickly and successfully as the businesses that plan for the future.

Hire for the business you what you want to be. Not just the business you are today.

Not spending enough money on your employer brand.

Employer brand is about more than attraction. Arguably, it plays a more important role in retention.

Most startups know what they stand for at the beginning. As a company grows that message can get lost, it may be mis-aligned and then causes retention levels to fall through the floor. This then means that True Cost of Hiring that we spoke about in reason #1 starts to rise sharply.

According to LinkedIn, investment in employer brand has shown a significant impact on metrics such as: cost-to-hire (50% reduction), greater access to talent (50% increase in applicants), shorter time-to-hire (1-2x faster) and an improved quality of hire (28% reduction in turnover).

We also see it in the data of the clients that we work with. Ask us about it and we’ll show you.

Taking the time to build and establish an employer brand is not a one-off project. It’s starts internally - ideally from a well-defined employer value proposition (EVP) – and requires regular attention and ongoing investment. But it will pay dividends.

Some may say that is a waste of time in the early days but the successful startups who go on to scale understand that their people define their employer brand and it grows with them.

You can’t force it, you need to cultivate it. You can’t fake it, you need to live it.

Rewarding the wrong behaviours.

In technology-led businesses especially, people are put on a pedestal when they fix problems. They are held in high regard for being “sorter-outers”. They become ‘indispensable‘ and entire teams rely on their availability to get things done.

In a startup this can be suicide. You reward this person and others follow. The focus becomes the individual rather than the team and thus the business suffers. No longer are the team (and thus business) objectives the most important, it’s being seen as ‘that person’.

Performance management is therefore essential.

By identifying behaviours that have a multiplier effect on a team’s ability to deliver you can reward that behaviour early and encourage it in everyone else. The result is you scale faster and know the key traits to look for when making future hires.

As a startup grows, it is worth putting the strategy and targets in place that allow you to incentivise the output that helps you along your journey.

Lack of accountability.

Let’s for a moment imagine that your start-up has ticked all four boxes that we’ve already outlined. That’s all well and good but who is it that you need to look to if things slip or go off course?

The founder? The CTO? Your talent partner? 👀

Your startup will evolve. It will, hopefully, scale but somebody needs to be held accountable. Not just for milestones when it comes to product and service development or financial and investment targets. But also, for your talent acquisition strategies, your people ops and your employer branding efforts.

You may need to pivot, but you’ll always need people in place – whether internally or externally - who you can rely on to drive success and ensure that your start up doesn’t fail to scale-up.

For obvious reasons, we have focused on why startups fail to scale up from a talent and recruitment perspective. We haven’t done that to try and shoehorn our services into something relevant.

All of us at Talent Point are driven by our experiences, and more importantly, data. The reasons we have outlined above are based on thousands of conversations and experience working with dozens of technology-led startups.

We feel that we’re in one of the best positions in the market to understand the impact ineffective (or non-existent) talent planning can have on your ambitions to grow.

And we don’t like to see brilliant companies not fulfil their potential.

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Now, you may agree with all we’ve said, or you may not. Either way, if you’re starting your startup journey and are looking to scale rapidly over the next 12 to 24 months and would like to partner up with somebody who can help you avoid any potential roadblocks to growth, we’d love to hear from you.

Reach out to our CEO Simon here.

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