Scaling a fast-growing corporate startup or venture always has its challenges.

Fierce competition, countless options and traps, unexpected crises, funding concerns, managing stakeholder expectations and dreams, new technology developments, changing rules of ecosystems, operational challenges, changing laws, and much more can make a scaleup lose track quickly, plateau, get messy or decline.

Scaling up is the transition from a fully validated innovation concept that has been set up for success to a sizable, profitable business that runs on the efficiency/predictability paradigm of an established company.

From this point, it can further grow with proven methods such as product and process management, account and business development, and sophisticated financial controlling.

All transitions in innovation management are challenging – from foresight to strategy, from strategy to defining meaningful ideas, from meaningful ideas to validation, and from validation to scale. But scaling up is the most challenging one for two reasons.

Firstly, in scaling up, the inherent conflict between the performance-oriented, risk-averse “Efficiency/Predictability Paradigm” of the core business and the “Agility Paradigm” of innovation becomes apparent.

Secondly, since the scaleup needs to do so many things, in so many areas, in such a short time, when it builds a sizeable, profitable business in a few years, it is easy to lose control. Succeeding in Scaling-Up needs good navigation instruments.

The Lean Scaleup framework provides a guide for navigating the decisive aspects:

  • Making the market
  • Industrializing the product
  • Growing the organization
  • Establishing a culture of growth

This article looks into the first of these aspects.

The Right Mindset

Success in winning new markets begins with the right mindset. Excellent scaleups see customers as human beings and not just as functional objects called users. With this mindset, they pay careful attention to the data trail their customers leave. Data is not only numbers; data is the customer’s voice.

Any piece of data is a record of an action or event, which in most cases reflects a decision made by a human being. Hence, data is an indirect way of the customers telling what they like and do not like. If the scaleup can recreate the sequence of events leading up to that decision from the data trail, it can learn from it and improve scalability.

Measurement and data are essential elements of the scaleup’s growth culture. They help in mastering the market- and sales-related issues that scaleups often face.

Chasms, Beachheads, and Bowling Alleys

When it comes to market success, assuming that a scaleup was “worthy of being scaled” and “ready to be scaled,” what is the difference between successful scaleups and unsuccessful ones?

All scaleups that we analyzed segmented their Serviceable Available Markets and defined a priority market. This factor is not a differentiator. The big difference seems to be what comes after the primary market.

Less successful scaleups did not say no to new customers from non-validated markets and got distracted. Successful scaleups executed the validated growth strategy that they developed pre-Scaling.

One group of the successful scaleups that we analyzed was able to “cross the chasm” and reach mainstream customers in the large market with a superior, comprehensive solution. Mainstream customers expect a mature, “full product” comprising technical integrations and services that support implementation, onboarding, and roll-out. Successful scaleups in this group excelled in making a move to an adequate go-to market approach – engaging, for instance, Value Added Resellers or building affiliate programs. In this group, the market and tech teams work together well, and the tech team does remarkable things in feature work and growth work.

We also found a second group of successful scaleups. They made their market by building a sequence of market successes. Scaleups from this group had a well-defined and validated growth strategy with a clear view of which markets to win after the first one. In their growth strategy, each subsequent market leveraged the previous one’s technology and customers.

Because these markets were related, reference customers from one market were familiar – and thus credible – to customers from the next one. The successful scaleups from this group executed their growth strategy ruthlessly and said no to markets outside the validated scope. We also found that in this group’s scaleups, tech and market teams collaborate very well, but differently: tech teams excel in product/market-fit expansion work.

Geoffrey Moore coined the phrase “beachhead and bowling alley” for the second group. The beachhead is the initial market, and the bowling alley the markets that come next. Ideally, later-stage markets fall like the bowling pins after a carefully crafted throw. The Apple Macintosh computer is an excellent example of the “bowling alley.” Apple sold it first to in-house graphics departments as a desktop publishing solution, then to marketing executives for business presentations, and then later into the professional prepress and publishing market.

Working Together With Sales Units

When there is a solid collaboration model in place, a scaleup can leverage corporate assets for an unfair advantage in the market and accelerate the journey. Two important corporate assets are the operative business units’ sales force and access to its customer base.

The core business’ salespeople know their customers and have earned their respect and trust. They understand how they need to influence the customer journey so that customers buy. So, in theory, there is a tremendous tailwind for the scaleup. However, in practice, it is hard for scaleups to align with the core business’s sales units. The deeper reason is that these salespeople work in the core business’s performance-oriented, risk-averse “Efficiency/Predictability Paradigm,” whereas the scaleup works under the incompatible “Agility Paradigm”.

Professional salespeople are among the most rational people that I have met in my career. They are conscious about time because, to them, time is money. They are clear on where they should spend the last working hour of the week to close one more deal. They are also very efficient: they know their products, the sales story, how to engage the buying center, how to handle objections, and how to move the potential client through the sales funnel. They focus ruthlessly on short-term goals – the monthly or quarterly numbers. Additionally, they define their value partly by being an expert, trusted advisor, and “single point of contact” in their customers’ eyes.

The innovation, i.e., the product that the scaleup would like to sell through the sales force, does not fit at all into this efficient, well-oiled, and fast-turning sales machine:

  • Often, the innovation requires extensive explanation.
  • Typically, the product builds on technologies (Artificial Intelligence, Internet-Of-Things, Blockchain, etc.) that the salespeople are not familiar with.
  • When selling these products, the salespeople meet an unfamiliar buying center (including, for instance, the customer’s Chief Digital Officer).
  • And finally, the salesperson might not have the expertise to answer all questions and handle all objections, which challenges their expert image.

However, two approaches seem to work in aligning the sales units of the scaleup and Core. The first one plays out at the operational level. It builds on active and intensive collaboration of the scaleup’s salespeople and few selected salespeople from the operative units. Together, they win new customers and make the product “sellable” for the sales machine. Typically, this intensive collaboration requires physical co-location.

In most companies, this approach will not be sufficient because it does not change the management system that salespeople are operating in. In most companies, the scaleup cannot align with the core business’s sales force unless the system is adjusted. Adjusting the system is not a methodology issue – it requires dual leadership and adjusting the culture/collaboration.

There are two levers to adjusting the system: sponsorship from top sales managers and the salespeople’s goals and KPIs.

The head of sales and the scaleup’s executive sponsor should define sales goals that ensure selling the established products and additionally the innovation – for instance, by over-incentivizing selling the new product.

These goals need to be relevant and tangible. Setting the goals in terms of revenues is rarely tangible since there are too many unknowns (e.g., the size of the initial sales and the duration until a follow-on sales). Tangible goals are expressed in customers, e.g., “win 25 customers from a pre-defined market segment.”

For sure, the scaleup needs dedicated sales resources that run exclusively with theCore’s sales units to make this approach work. Touching base only now and then will not lead to success.

 

This is an excerpt from the new book Lean Scaleup - A proven framework for building new businesses from innovation, co-authored by Frank Mattes and innovation leaders from 20+ companies. You can get your copy of the book here. Frank Mattes is an expert in corporate business-building, advisor to Corporate Innovation and Corporate Venturing, and author of two books on taking corporate innovation ideas to scale.

During our upcoming Innov8rs Connect on Venture Building & Scaling, Frank will co-host a session addressing a major issue when it comes to scaling corporate startups. In most cases, there's no productive collaboration between the core business and the innovation unit. In a discussion with Sören Lauinger, formerly head of B. Braun’s business model lab “werk 39” and now VP in a corporate role for “Innovation and Interfaces” they will share examples and insights about how to align scaleups with corporate sales and other corporate functions. Check here for the event agenda and to apply to join.