Scaling and the “Leaky Bucket” Principle: Don’t Rush When Your Startup Isn’t Ready

By Hieu Do – Business Analyst, SOSP Consulting Group

Adapted from an article by Hoàng Thị Kim Dung (Genesia Ventures)

“After speaking with many early-stage startup founders, it became clear that most of them want to raise capital for one reason — to scale, to grow fast, expand aggressively, and ‘capture the market’,” said Ms. Dung.

In the early days of working in venture capital, this seemed like the best answer to hear. “Scale” is a word that excites both founders and investors, because it signals potential for massive growth. But the reality is, not every startup is ready to scale. Rushing into fundraising and expansion too early can shorten a startup’s life. According to Startup Genome’s report surveying more than 3,200 startups globally, over 70% failed due to premature scaling — in other words, scaling before being “ripe.”

From the perspective of an early-stage investor, scaling too early is a major risk. The “Leaky Bucket” principle illustrates this well, highlighting how startups that scale before readiness often lose customers just as quickly as they acquire them, pouring water into a basket with holes. So what is scale really, what happens when it’s rushed, and what should startups prepare before stepping into growth?

What Is the True Definition of Scale?

Scale is often understood as expanding business size, gaining more users, and increasing revenue by adding resources such as finance, people, and technology.

But this definition is only part of the story. Many equate scale with growth alone, without considering the cost efficiency behind that growth.

Ideally, scaling means: revenue grows as the business expands, without requiring significant additional resources.

This is easier for certain business models than others. For example, Zoom — a SaaS model — can serve 1, 1,000, or even 10 million users without proportionally increasing resources. In contrast, e-commerce platforms like Amazon or Tiki must coordinate with suppliers, warehouses, and logistics. Scaling them involves operational complexity, requiring optimization through standardization and automation to keep costs under control while increasing revenue.

The “Leaky Bucket” Principle

The leaky bucket is a metaphor for startups that rush to scale before being ready. It represents the inability to retain customers — people try the product once, pay once, and leave.

In Vietnam, many startups fall into this trap: chasing top-line revenue growth by burning money on user acquisition, but neglecting to improve the core product to ensure sustainable, long-term retention.

Typical examples include:

• Spending heavily on ads and media campaigns when the product is still underdeveloped or misaligned with user needs. This drives a large first wave of customers, but like diners disappointed at a restaurant, they never return. Worse, the startup becomes addicted to paid acquisition — relying on it endlessly for one-time users.

• Expanding into multiple product lines too early. Instead of focusing on one mature product, the startup spreads thin across many half-baked products, never extracting full value from any of them. The result is constant chasing of new users, creating the illusion of growth but no depth.

• Failing to standardize and optimize operations before scaling. Serving 100 customers is manageable, but scaling to 100,000 without strong processes breaks customer experience. Service quality becomes inconsistent, users churn, and costs outweigh returns.

In each case, the “leaky bucket” drains the value of growth efforts. The startup spends resources but cannot retain or monetize customers effectively.

What Must a Startup Prepare Before It Is “Ripe” for Scaling?

Based on the real definition of scale, the formula can be written as:

Scale-Up = Product-Market Fit + Profitable Growth Model + Scalable Operation

This means a startup must achieve product-market fit (PMF), design a growth model that is profitable, and build scalable operations.

Product-Market Fit (PMF):

• Customers discover and use the product organically, not solely through paid ads.

• Sign-up and conversion rates are high, from free trials to paid usage.

• Retention is strong, with consistent DAU, WAU, or MAU.

• Churn is low, while NPS is high, meaning customers are willing to recommend the product.

The degree of PMF differs across industries and markets, but in all cases, startups must listen to users and continuously refine the product. True PMF happens when users act like co-founders — actively giving feedback to shape the product toward their needs.

Profitable Growth Model:

Once PMF is achieved, startups must ensure unit economics are positive: Customer Acquisition Cost (CAC) is lower than Lifetime Value (LTV). Diversification of acquisition channels (community-building, SEO, content) reduces dependence on expensive ads. To grow LTV, startups must keep customers longer and encourage them to adopt more products or services.

Scalable Operations:

Finally, operations must be prepared for growth. Hiring accelerates during scaling, but rushed recruitment can bring misaligned people who lack training. Processes must be standardized to maintain consistent service quality even as volume grows. Without this preparation, scaling will amplify chaos instead of growth.

Scaling with the Right Foundation

Scaling is essential for startups to grow. Venture capitalists support it, but only when founders are ready. Investors like those at Genesia Ventures walk alongside startups, helping them prepare by strengthening teams, building partnerships, and refining products before the growth phase.

Startup is a long journey. Scaling is not just about speed, but about building sustainable value. Founders must prepare carefully, and investors must support patiently, so that scaling becomes not just expansion — but progress toward long-term impact.

(Credit: Vietcetera)

At SOSP Consulting Group, we believe scale should be built on operational readiness, not urgency. If your startup is preparing for growth and wants to avoid “the leaky bucket trap,” our team can help strengthen your operational backbone — before you hit the gas.

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