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CMA Final · Entrepreneurship and Startup · Scalability, Scaling up and Stabilisation of Sustainable Business

Aarav Foods Pvt Ltd has grown sales 3x in a year by hiring many new staff and opening outlets, but its quality complaints and cash burn have both risen sharply. Which statement best describes the main danger the founders now face?

The main danger is premature scaling. The firm expanded staff and outlets faster than its systems, processes and proven demand could support, which shows up as falling quality and heavy cash burn. It is not stabilisation, because growth is still strong.

  1. APremature scaling, where expansion outpaces systems, processes and product-market fitCorrect
  2. BUnder-capitalisation caused by too few customers
  3. CStabilisation, where growth has stopped entirely
  4. DProduct obsolescence caused by lack of any competitors

Explanation

Rapid expansion with rising complaints and cash burn signals that operations and processes were not ready, which is premature scaling. Growth has not stopped, so stabilisation is wrong, and the problem is not a lack of customers.

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