Growth and Underinvestment: Aligning Performance and Resources

Abstract

Start-ups are confronted with a particularly wicked issue: when and by how much to build up production or service capacity. In its early stage, the priority of a start-up is customer and product development. Without a concrete product and a concrete customer, it’s risky to divert scarce financial and management resources to build up capacity. Yet, once the product or service is developed and customers want to buy it, then capacity needs to be in place to deliver. If capacity is insufficient to meet demand, this results in growing backlog or decreasing quality. Customer satisfaction deteriorates, resulting in shrinking demand. Leverage points help to prevent such a crisis.