Why Some Hot Companies Crash While Others Thrive
As featured on Huffington Post
“Move fast and break things” was Facebook’s old internal motto until Mark Zuckerberg opted for something less catchy: “Move fast with stable infrastructure.” While the new slogan didn’t have the same ring to it, it heralded a more mature era for Facebook, where stability and functionality mattered just as much as rapid growth.
Startups that experience red-hot growth only to crash and burn offer valuable lessons for entrepreneurs: If you grow too big too quickly, you’ll eventually have trouble maintaining sustainability, fostering innovation and living up to expectations. As you scale your business, the last thing you want to do is to move too fast and break too many things along the way.
LendingClub isn’t just one of the largest fintech companies; they’re also a pioneer in their space. In 2014, they raised $1 billion in the largest technology IPO in the United States. But LendingClub has experienced a slew of problems this year : difficulty attracting investors, a scandal over doctored loan applications, and the ousting of CEO Renaud Laplanche. The loan applications were altered to make them more appealing to investors, but this incident could have been prevented with strong oversight and strict implementation of regulations. When growing your startup, make sure there are checks and balances before you attempt to scale. Regulations exist for a good reason, and circumventing them is never a good business strategy.
Theranos promised to revolutionize medical testing with a simple, needle-free device that required only a few drops of blood, rather than an entire vial. By the summer of 2014, its founders had raised over $400 million from investors, valuing the company at $9 billion, but in 2015, an independent federal review found multiple deficiencies in the company’s flagship product. Wunderkind CEO Elizabeth Holmes saw her personal net worth drop from $4.5 billion to nothing in a matter of hours. It’s possible that the company caved to pressure to “spin hype into startup gold” and over-promised on what they could deliver. The lesson for business owners is clear: don’t rush to enter the market until your product or service has been double and triple checked for quality.
It’s easy to forget, but MySpace at its peak was a fast-growing, exciting, and even cool social network before it became a punchline. Its success attracted the attention of News Corp, which bought MySpace for $580 million in 2005. But in two short years, MySpace failed to adapt to the social media landscape it helped create , developing a slew of dysfunctional features that only confused and alienated its core user base. The company was also under pressure to focus on increasing its advertising revenues, rather than innovating and making consumers happy. A successful startup needs to evolve in response to customer needs and industry trends – not dig in its heels and assume people will stick around out of loyalty. Facebook was able to lure people away because it developed a much better product, one that users actually enjoyed using.
On the flipside, tech behemoths like Google and Amazon cracked the code of sustainable growth.
Before googling became a verb we use every day, people conducted their searches on Alta Vista and Yahoo. But Google’s advanced algorithm and simple, user-friendly homepage won the battle of the search engines. The company’s stratospheric rise was not without bumps in the road (Google+ springs to mind), but its rapid expansion beyond Internet search and into email, online advertising, mobile phone operating systems and even virtual reality, was strategic and methodical. Not bad for a company that started in a garage. It’s unlikely that someone will be able to replicate this level of success, but Google’s focus on customers’ needs is worth emulating — every product or service must be linked to a problem or challenge that will make their lives easier.
When Jeff Bezos launched Amazon, his mantra was, “Get big fast.” But he knew that scaling without regard for sustainability wouldn’t work. Amazon is now the world’s largest retailer, but back in 1995 it only sold books, and didn’t expand to include CDs and DVDs until 1998. Year by year, Amazon added more products and services: toys and electronics in 1999, cloud computing services in 2002, jewelry in 2003, shoes in 2004, and so on. Thanks to steady and strategic growth, Amazon celebrated its 20th birthday last year with market capitalization of over $245 billion . Two decades may seem like a long time, but given what Bezos achieved in those years, Amazon grew very fast – and it did so at the right moments. As an entrepreneur, you shouldn’t be afraid to take your business to the next level when it makes sense to do so.
Ultimately, growing your business shouldn’t be a race to the top that leaves you exhausted. Rather, it’s a steady climb where you put one foot firmly in front of the other, and allow yourself the space to change course if you need to.