What do you think could be the reason for failure of a startup when they chose to
scaleup. It is not as obvious, let’s delve deeper!
Startup by definition is a business culminated from an idea to introduce a product or
service in the market. Possibly the target audience has been defined and the product or
service shows a promise of scalability and a profitable business.
Obviously all factored in – the market size and potential has been evaluated. The product
/ service has been through a series of validations for a foolproof launch. In some cases
the entrepreneur has even approached seed funding which re-validates the launch of
such a product /service, all replete with its USP. So then why did it fail?
The SCALEUP – the transformation journey
Most startups fail during & after their attempts at scaleup. This is despite having a robust
plan at the time of the startup. The challenges that founders face are enumerated below.
· Founders – Need a shift in mindset from a founder/owner to CEO. The CEO
spearheads the growth. He/Her cannot be involved in micromanagement. The CEO in his
new role needs to strategize and possibly be grounded enough to skill up for his new
role.
· No Strategy in place. A scale up is successful when there is a systematic and
methodical approach to scaleup. A phased out approach, with each phase signaling
success, to scale to the next level.
· Leadership – Talent needs to be sourced, for a fresh approach and those who have
proven experience should be hired to lead.
· Employees are ill-informed – they are not involved in project management. They are
not trained for newer roles. There is a lot of mis-communication leading to lack of
coordination, not aligned to the vision and discontentment and subsequently poor
outcomes.
· There is no data analysis to substantiate growth. Market trends, Market size and the
year on year projections. As critical Plan A is, stop loss is not veneered into the plan. No
Plan B in place.
· Clients , Business partners and other stakeholders start loosing confidence in the
business and its products / services. Founders start to loose their sheen.
· Financial management – Unbudgeted expenses, unplanned and expensive hires,
increase in staff and lack of data before taking the plunge leads to financial instability.
The Solution: Change Management & External Expertise
Scaling isn’t just about expansion—it’s about reinvention. Startups must embrace change
management and organizational development to survive the transition.
Startup founders are visionaries, but scaling requires expertise to get that cutting edge.
Founders, specially small businesses, MSME’s, more often than not struggle with:
✅ Letting go of control
✅ Implementing scalable processes
✅ Managing large teams
✅ Navigating organizational change
Founders please continue to be visionaries, but hire experts, delegate, to scale heights.
That’s the winning attitude!!
The Hidden Reasons startups Struggle to Scale
1. Premature Scaling—Expanding Before Market Validation
Many Indian startups mistake early traction for readiness to scale. They aggressively expand teams,
marketing budgets, and operations without ensuring sustainable demand.
Case Study: STAYZILLA
Stayzilla, once a promising budget hotel aggregator, raised $33.5 million in funding but
scaled too quickly without a clear revenue model. The company collapsed in 2017, unable to
sustain its operational costs.4
💡 Insight: Scaling should be data-driven, not emotionally driven. Founders must validate their
business model before expanding.
2. Lack of Scalable Systems & Processes
Startups thrive on flexibility, but when growth outpaces operations, chaos follows. Without
structured workflows, automation, and clear roles, scaling becomes a nightmare.
Case Study: DOODHWALA
Doodhwala, a milk delivery startup, expanded rapidly but failed to build a robust logistics
system. Operational inefficiencies led to customer dissatisfaction and financial losses, forcing
the company to shut down in 2019.
💡 Insight: Scaling requires strong operational foundations—not just ambition.
3. Leadership Bottlenecks—Founders Holding Back Growth
Many startup founders struggle to let go. They remain deeply involved in day-to-day operations,
making it impossible to implement scalable leadership structures.
Case Study: Housing.com
Housing.com’s founder, Rahul Yadav, was known for controversial leadership decisions. His
erratic management style led to investor distrust, and despite significant funding, the
company struggled to scale effectively.
💡 Insight: Founders must delegate and bring in external expertise to scale effectively.
4. Resistance to Change—Ignoring Organizational Development
Scaling isn’t just about growth—it’s about transformation. Many Indian startups fail because they
resist change, sticking to outdated processes and leadership styles.
Case Study: TinyOwl
TinyOwl, a food delivery startup, expanded aggressively but failed to adapt to market shifts.
Poor financial planning and rigid operational structures led to mass layoffs and eventual
shutdown in 2016.
💡 Insight: Scaling requires agility, adaptability, and a willingness to evolve.
The SUCCESS Stories of Startups
In the 1980’s digital payments were introduced in India with banks offering credit card services. In
2010 a company called PAYTM was started by Vijay Shekhar Sharma as a digital wallet. It went on to
become a giant fintech company offering payments, banking and financial services. PAYTM
revolutionised digital payments. It was a well-timed launch with the growing smartphones market.
Demonetization further boosted the very premise of PAYTM in the digital payments world.
Challenges faced by PAYTM
Stock market crash – huge losses in debut IPO, regulatory compliances, emerging of UPI simplifying
digital payments.
PAYTM – reinvented their strategy
PAYTM adopted the following measures
1. Shifted focus to profitability
2. Worked and strengthened compliance
3. Invested in technology to incorporate AI & extensively leverage data analytics
4. Expanded offline presence with soundboxes used by every retailer small or big for real-time
confirmation of payments.
Takeaway – Data driven, continuous adaptation to technology and leveraging IT. To be able to
recognize, pivot, reinvent and sustain through setbacks is what makes Paytm the revolutionary &
dominant force in the fintech world.
Founded by Vidit Aatrey & Sanjay Barnwal. Their first enterprise was Fashnear. A Swiggy-like model
for clothes. But the concept didn’t gain traction. They changed their focus and started MEESHO – an
acronym for “Meri Shop”. They leveraged Social media. Facebook, Whatsapp & Instagram. Meesho
created a space for re-sellers only. The platform was meant for individuals, especially for women to
start business without any upfront charges. The started on 3 key strategies
1. Re-seller without the need for holding inventory
2. Zero-commission – They do not charge the sellers any commission.
3. Expanded to Tier 2 – 3 cities where the larger operators had limited reach.
All 3 were unique to Meesho.
Meesho faced a high cash burn. High expenditure and small returns. Leading to unsustainable losses.
Again Meesho took corrective measures –
1. From social media to a B2C platform
2. They started a grocery section
Both these measures were unsuccessful. They went back to their original model focusing on
profitability and strengthening the logistics.
Meesho operates on social commerce model, allowing individuals to resell products via social media
rather than B2C sales, zero-commission and small town entrepreneurs.
Takeaway – Meesho focused on growth by mirroring competitors, but went back to their original
USP and focussing on affordability – thus leading to its success today.
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