What are the risks of scaling too quickly?
Short Answer:
As Intel’s Andy Grove stated, “more companies die from indigestion than starvation.” Scaling too quickly generally risks decreasing gross margins and over-inflated payroll costs. Firms tend to hire too quickly to keep up with demand, bringing in less than A-player talent; and spinning up processes that are sloppy, increasing customer and employee dissatisfaction. This tends to hurt your reputation with all stakeholders – employees, customers, and shareholders. Steady, controlled growth is preferred where processes for hiring and execution can keep up with the revenue growth and healthy margins can be maintained. A key metric to monitor is total gross margin dollars divided by total payroll. You want this ratio increasing not decreasing.
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