Uncharted Territory: How Do We Scale Corporate Ventures?

Janet Bumpas has led the innovation cycle enough times to know that it takes a unique mix of product, leadership and market conditions to scale any startup.

In conversation with Andy Cars, she outlines what it takes to successfully bring a startup or product through one of its most critical (and vulnerable) phases: the scaling phase..

You must be this tall to ride

The innovation cycle can be a bumpy ride, but scaling is a rollercoaster. Follow Janet’s criteria for knowing when it’s time to scale.

1. You have product/market fit
Before you decide to scale, you need to have clearly identified paying customers who are delighted with your product.

2. You have a large, growing and profitable market that is a strategic fit for your company
The product you want to scale needs to be strategically aligned and relevant to the organization you’re working within.

3. You have a business model that works
Prior to scaling, make sure you have a steady plan with expectations of a positive growth margin once you reach a steady state. If a positive growth margin isn’t possible in the short term, you must demonstrate that it will exist once economies of scale kick in.

4. Your team is able to repeatedly build, produce and deliver the product
You must have the engine in place to efficiently manufacture a reliable product that can be effectively sold and delivered to customers.

5. Your organization is organizational maturity
You must have a solid team and CEO in place. Make sure you know – and keep tracking – the metrics that will be driving your business.

6. You have traction
Your product must already have traction in the funnel from acquisition to referral.

Keep creativity going

One of Silicon Valley’s dirty secret is that when a startup makes it, the first thing a VC will often do is replace the creative entrepreneurial founder with a seasoned executive who can scale it. In the pre-startup phase that early startup mogul who thinks big and experiments is necessary, but a steady experienced leader is later needed to create organizational structure and hire the right people.

With more capital chasing startups, educated founders, and a rapidly compressing innovation cycle, that’s changed a fair bit in the past ten years. It’s no longer effective to put a senior executive solely in charge when you’ll need to evolve and upgrade your product in two years or less. This necessitates keeping that early startup energy – and future-thinking creative team – on board.

One solution many companies are now pursuing is the duo: a Steve Jobs and a Tim Cook, a Mark Zuckerberg and a Sheryl Sandburg, a Larry and Sergei paired with an Eric Schmidt.

Challenges to scaling

To survive and scale, successful product teams and startups cross what are known as the two valleys of death. Half of all startups fail to cross the first valley: finding product market fit. Of those that survive the first valley of death, less than 0.5% are able to convey impact and cross the second: scaling.

Valley 1: Product/market fit
Developing a loyal and happy paying customer base

Valley 2: Scaling
Expanding from a local team to a distributed business entity
Leadership from a founder to a CEO
Growing from first revenue to ongoing, recurring revenue

“You get to that tipping point. Once you start to scale you need different skills.”

Two ways to scale a startup:

1. Silicon Valley style: Build a market by growth hacking, rapid experimentation across many channels to identify the best growth opportunities.

2. Expansion: Move your products into new regions or verticals, which require solid strategies for adapting to different markets.

Satisfied customers

Sean Ellis from Dropbox learns about product/market fit by asking customers “How would you feel if you could no longer use this product?” If more than 60 percent say they would be unsatisfied, you have a clear fit.

Research your industry

Out of 114 entrepreneurs Janet surveyed, respondents fell into two groups: companies that were scaling and those that were static. What she learned: startups in an industry with a net profit margin of 20 percent or higher were significantly more likely to be scaling.