Research Warns Against Early Startup Scaling

Source: hbr.org

TL;DR

• Early Scaling Risks: Research on over 32,000 U.S. startups finds scaling within the first 12 months raises failure risk by 20-40%.
• Job Postings Data: Analysis of 6.3 million postings from 38,217 startups identifies first manager and salesperson hires as scaling markers.[[1]](https://sms.onlinelibrary.wiley.com/doi/10.1002/smj.3596)[[2]](https://www.linkedin.com/pulse/research-when-should-startups-scale-j-daniel-kim-lee-dr-thomas-h--cxqhe)
• Platform Caution: Two-sided platforms face heightened failure risk from early scaling; experimentation like A/B testing helps mitigate it.

The story at a glance

Harvard Business Review reports research by Wharton professors J. Daniel Kim and Saerom (Ronnie) Lee analyzing when startups should scale. The study uses job postings to measure scaling timing and links early expansion to higher failure rates. It is reported now to counter Silicon Valley's push for rapid "blitzscaling." The work builds on their earlier paper in the Strategic Management Journal.[[3]](https://hbr.org/2024/10/research-when-should-startups-scale)[[1]](https://sms.onlinelibrary.wiley.com/doi/10.1002/smj.3596)

Key points

• Study examines over 32,000 startups, often cited as around 38,000 U.S.-founded firms post-2010.
• Scaling defined by first postings for manager (to coordinate workforce) and salesperson (to grow customers).[[2]](https://www.linkedin.com/pulse/research-when-should-startups-scale-j-daniel-kim-lee-dr-thomas-h--cxqhe)
• Startups typically begin scaling about 4 years after founding, with wide variation.
• Early scaling in first 12 months boosts failure likelihood by 20-40%; no offsetting benefit like higher successful exits found.
• Risk especially high for two-sided platforms (e.g., marketplaces).
• Firms using A/B testing and experimentation see reduced negative effects from early scaling.
• Balances imitation risk (scale fast to block copies) against commitment risk (hard to pivot after resource lock-in).

Details and context

The research draws from Burning Glass Technologies job data (2010-2019) merged with Crunchbase for outcomes like closures, IPOs, acquisitions.[[1]](https://sms.onlinelibrary.wiley.com/doi/10.1002/smj.3596) Scaling commits resources to the core idea, making shifts costlier if product-market fit lacks.

Early scalers prioritize speed over validation, raising commitment risk that outweighs imitation protection.

Two-sided platforms struggle more as they balance user groups; average scaling delay allows testing.

No evidence early scaling aids exits; later scaling correlates with better survival odds.

Key quotes

"Scaling early, particularly within the first 12 months, significantly raises the risk of startup failure, especially for two-sided platforms." — J. Daniel Kim and Saerom (Ronnie) Lee, per HBR abstract.[[4]](https://mgmt.wharton.upenn.edu/profile/jdkim)

"Be cautious with early scaling and prioritize a culture of experimentation." — Research abstract summary.[[4]](https://mgmt.wharton.upenn.edu/profile/jdkim)

Why it matters

Rapid scaling pressure from investors and "blitzscaling" lore affects startup decisions across tech and beyond. Founders and teams gain data-driven caution: delay scaling until validation to cut failure odds by avoiding premature commitments. Watch if platforms adopt more A/B testing or if venture capital shifts from speed mandates.

FAQ

Q: How did researchers measure when startups scale?

A: They used 6.3 million job postings to spot first hires for managers and salespeople, marking the shift to growth focus. Data covered 38,217 U.S. startups from 2010-2019, matched with Crunchbase outcomes. This captures resource commitment without self-reported bias.[[1]](https://sms.onlinelibrary.wiley.com/doi/10.1002/smj.3596)

Q: Why is early scaling riskier for two-sided platforms?

A: Platforms must balance supply and demand sides, amplifying commitment errors if unproven. The study shows their failure rate jumps more from first-year scaling than other types. Experimentation lessens but does not eliminate the issue.

Q: Does early scaling offer any upsides like avoiding imitation?

A: Analyses found no countervailing benefit, such as higher acquisition or IPO rates. Commitment risk from locking in untested ideas outweighed any imitation protection. Survival improves with later scaling on average.

Q: When do most startups actually start scaling?

A: Firms begin around 4 years post-founding, though timing varies by industry, funding, and competition. Early movers (under 12 months) represent outliers with poor outcomes. Delaying aids product-market fit.