How to develop a scale-up strategy

Scaling is like sailing! It is about navigating a venture through a chosen course, while taking best advantage of the changing winds as they present themselves, realizing that the rudder works only when the momentum is real.

Most start-ups, being so pre-occupied with survival, resort to random agility and opportunistic tactics that prolong the venture’s financial runway but do not get them on a growth trajectory towards their vision. In contrast, scale-ups pursue a clear and compelling long-term vision and constantly adapt their short-term actions towards this vision. In other words, they are highly adaptive, but they remain on track. In this way, scale-ups also outsmart large corporates who mostly rely on mechanistic planning that is neither visionary nor adaptive.

But how to develop the scale-up strategy? Over the past 5 years, we have worked with around 400 scale-ups, which allowed us to gather big amounts of data on the scale-ups’ approach to strategy. In this memo, we attempt to synthesize our most important take-aways.

It all starts with a compelling vision

Strategy is the plan to realize the vision: what you want to achieve in the longer term. The majority of scale-ups pursue a clear and compelling vision, whereas the majority of stall-ups leave their future unknown. For stall-ups, “vision” remains at the level of bringing their current product on the market and attempt to sell a large volume of this.

So, what is a clear and compelling vision? 

Edwin Land, inventor of instant photography and founder and CEO of Polaroid, was a source of inspiration for Steve Jobs. He envisioned the future of photography 40 years ahead. Shot for Polaroid’s 1970 shareholders’ meeting, a video shows him walking through the new Polaroid factory under construction in Norwood and articulating his vision. The key insight from the video (which can be found on YouTube) is that visioning is combining technology foresight and detailed customer insight into a solution that does not yet exist.

A clear and compelling vision has three elements. First of all, it is rich: it describes a new-to-world situation that is futuristic, triggers the imagination and is based on what technology will bring. It is moving: it addresses a large urgent need, is impact-oriented making the world a better place and is inclusive. And It’s smart: it is tangible, realistic, and makes business sense, providing a healthy and scalable business model. Finally, it is ambitious, and it is personal. Meaning that it’s not some external forecast, but a vision that you personally, the founder and the team, will make happen.

A venture’s vision is a creative act based on a deep understanding of emerging technologies, cultural and social trends that will fundamentally impact our lives. The impact of these technologies and trends is translated into new-to-world solutions for real people with real lives, goals, and challenges.

Stage 1: Strategy diagnostic

Critical for strategy is an in-depth accumulation of insight and foresight. It starts with superior insight on the current strengths and vulnerabilities of the company. This is the result of a series of must-do analyses, which feature prominently in any serious Due Diligence:

• What are the needs of the customers? Is there an opportunity to delight?
• How does the venture’s product compare to various alternative propositions?
• How scalable is the business model? What is the cost-to-serve at different levels of sales volume?
• What is the company’s core competency and how strong and defendable is its competitive edge?
• What is the organization’s health and the strength of the leadership team?

Even more important is to develop foresight. After all, scale-ups move into an VUCA[1] world. Technology progress, customer adoption of novel products, regulatory changes, sociopolitical and economic events, competitor’s moves – all will impact the prospects of the ventures, and all are quite uncertain as to how they will unfold.

Scale-ups realize this and refrain from any point-forecasts. Instead, they engage in a more imaginative and creative process, trying to answer questions like the following:

• What future scenarios embrace the spectrum of market development, especially with regard to customer adoption of the innovative solution?
• What are trigger points for large scale market adoption? For example, what price points or functionality would be required to create a breakthrough?
• What could create a viral dynamic, a positive momentum that lifts the venture?
• How predictable is the competition? What triggers them, and how would they react, regardless or because of the scale-up’s actions?
• What are the major risks (technological, commercial, operational, legal)? What is the value-at-risk? What risk mitigation is possible?

[1] A volatile, uncertain, complex, ambiguous world

Stage 2: Strategy formulation – applying the “3 horizons” framework

Strategy formulation means identifying the strategic options available, selecting the best and translating these into a coherent plan, i.e., a sequence of steps (path) to achieve the overall vision. We found the “3 horizons framework” to be the most suitable tool for this.

The 3 horizons framework allows mapping strategic options across 3 different horizons of impact, time-to-impact and uncertainty of the actions.

• The first horizon focuses on activities that improve the current business “engine” immediately. It is about running the current business faster and more effectively. For a venture in the scale-up phase, this includes ramping up sales of the current product into the market segments it is already serving. And improving operational control and quality of delivery. For these activities, it should be clear what to do, and the probability of achieving the set goals should be high. Horizon 1 provides the underlying business momentum, market credibility and learning from ongoing customer interaction.
• The second horizon constitutes the so called “big bets”: significant moves that transform the current business, can create a major step up in the sales of the company and at the same time can “sink the ship” if executed wrongly. Examples include: change of business model, entry into a very large market (e.g., the US), introduction of a disruptive new product, joining forces with a large distribution partner or constructing a large-scale production plant. Horizon 2 is about being selective, taking typically one big bet per year, and starting with careful risk mitigation followed by concentrated, all-in action.
• The third horizon deals with the exploration of new ideas that do not exist in the market today. It’s about pure focus on research. The key idea is to create new options, by making small investments in low probability outcomes that if they come about provide major potential. Technology research entails co-creation, rapid prototyping and testing with customers. Market research entails doing pilots with customers from other segments.

In most cases a balance is required across the three horizons. Not having a horizon 1 is what the Dutch call “swimming on dry land”, that is a hypothetical case of venture building. No horizon 2 means being restricted in growth rate. And no horizon 3 means that the business ends up in a “red ocean” of copy-cat competition.

Timing also plays out differently for each horizon. The actions across the three horizons – sales growth, big bets, option creation – are all taken right here and now. But the time horizons at which these result in business growth are different; respectively next month, next year and a few years into the future.

Stage 3: Strategy in action-acting on the strategic options

Strategy is a creative and smart approach to the everchanging market conditions, not a mechanistic plan execution. With that in mind, scale-up entrepreneurs undertake strategic actions with the following characteristics:

1) Tailwind based: Scale-ups avoid pushing their product too early, when the market is not ready. They get their timing right, and catch market momentum, like a surfer riding the big wave.

2) Nurturing serendipity: Scale-ups are able to adapt their plans if an unforeseen opportunity emerges. The majority of scale-ups contribute their success to capturing good fortune to a large degree.

3) Open to feedback: Scale-ups realize any strategic plan is riddled with false assumptions. By keeping their eyes and ears open to feedback signals, they can adjust quickly.

4) Contributing to the ecosystem: Scale-ups ensure a win for others in the business ecosystem too, by being inclusive and promoting a larger cause. This makes the company’s position more robust, and reduces competitive pressure.

Research by ScaleUpNation.