The scale-up phase in nascent companies plays a pivotal role in the entrepreneurial landscape. It is the stage where companies transition from promising start-ups to sustainable, high-growth ventures. One view suggests that successful scaling is a function of external constraints, such as unlocking demand and reaching Product-Market Fit (PMF). Another view emphasizes internal constraints, advocating the need to pace organizational scaling to realize learning. Using novel customer-level data for Software-as-a-Service (SaaS) start-ups, we study the interplay between the speed of new customer acquisition and its customer retention capability. We investigate whether successful scale-ups achieve sustainable competitive advantage whereby they not only acquire new customers but also retain them. The evidence reveals that ventures rapidly acquiring customers also exhibit heightened retention rates. This finding is consistent with the dominance of external product-market considerations over internal organizational constraints in this context. We further explore the effect of (i) an external (adverse) shock to product-market demand (i.e., the introduction of the General Data Protection Regulation (GDPR) in the European Union); and (ii) an internal feature (relaxing) the organizational constraints (i.e., usage of data-driven tools helping the entrepreneurial organization to learn at scale). Overall, the findings provide rich insights into a key debate in entrepreneurship practice and literature about the optimal approach to scaling.
