Startups advised to avoid negative blitzscaling

Solid foundations are essential for sustainable growth in tech startups.

The success of tech giants has popularised blitzscaling, a high-risk approach that prioritises speed over efficiency. However, this strategy isn't suitable for every startup, according to Arun Pai, Principal at Monk's Hill Ventures.

"Firstly, I think a startup can only have a sustainable growth strategy if it's built on a solid foundation that entails the right people, the right culture, and the right solution that truly solves the problem," Pai said. 

Establishing this foundation is crucial before scaling. The next step involves creating a growth flywheel, which includes acquiring customers, retaining them, and incorporating a viral element to customer growth. "Ensuring that, thanks to the foundation of your day one culture, coupled with capital, you can acquire even more customers," he adds. 

Pai highlighted the common mistakes startups make when attempting to scale sustainably. Startups often suffer from a weak foundation due to poor resource management and lack of customer focus. Negative blitzscaling, which involves ignoring unit economics, underestimating market uncertainties, and over-relying on external capital, exacerbates these issues. 

"Flush with a lot of external capital, you think you can continue to grow your way out of trouble, and that's when the problems start," Pai warned. Citing Warren Buffett, he adds, "Only when the tide goes out, you know who is swimming naked, and sadly, a lot of participants in the startup ecosystem were."

Negative blitzscaling has influenced startup ecosystems globally, often with detrimental effects. It occurs when easy capital availability, such as during zero interest rate policy eras, leads founders to grow at all costs without solid business foundations. 

"The sole reason for the startup's existence is not value creation, but instead valuation building," Pai said. This has led to failures across various markets, such as WeWork in the prop tech space and Byju's in the EdTech sector, both experiencing dramatic declines after initial high valuations.