“What got you Here, may not get you there”
After numerous pivots, sleepless nights and uncertainty, you’ve survived the chaos and crushing ambiguity of start-up life and managed to develop a unique tech idea or already patented an offering for customer. You are bootstraping your venture through project consulting while further developing your new product before scaling up. But the same strategy that got you through the initial start-up stage, is not working anymore. Still wondering why?
Tech companies face different challenges when it comes to scaling up and coping with risks at various stages.
Recode in 2016 provided the following definition which we think are to the point:
- A startup is on the quest to find product-market fit, developing and iterating its product or service, experimenting with customer segmentation and working toward a positive contribution margin.
- A scaleup, on the other hand, has already validated its product in a market, and has proven that the unit economics are sustainable.
When a Venture is exiting the startup phase, it generally needs to choose:
- In-house Scale up – Develop and test the product in-house. Upon successful development and validation, set up production unit and selling through own channels.
- Outsourcing a function of the business – Letting an external partner handle the function, for eg. Marketing or HR or production, to get expertise in the field.
- Licensing – Licensing a well-developed technology to another company / person and charging a royalty fees on the Net profits or revenue-share-agreement obtained through implementation.
Key factors guiding your scaleup strategy
Plans for scaling up must consider a broad range of factors and balance what is desirable with what is feasible. Following are some of the factors to consider:
- Barriers to entry – in some industries, regulation, certification, scale of production, brand reputation or distribution can be formidable barriers to a new Product entrant; in such case a Licensing strategy could be preferred
- Time-to-Market – Depending on the stage of startup, competition and strength of IP, licensing can be a fast track route to get your product in the market faster.
- Integration risk – while you might have validated a first lab prototype, some residual technology risk might remain from the integration of your solution into existing products; a high integration risk threshold would favour a licensing strategy to OEM
- Team capabilities – Available expertise and experience of your team will confirm the capabilities to produce inhouse or with partners; this allows you to focus on your core strengths, avoid the challenge to develop expertise across the board.
- Access to capital and Return on Investment – Licensing requires much less investment and time as compared to in-house development. The access to adequate capital is often a key driver in strategy decision.
- Location and cluster – your geographical ease of access to specialised capabilities, processes, talent and know-how can play a decisive role in your scaleup
How to implement your scaleup strategy
Once you have chosen a strategy based on above factors, below are some key steps to consider on your path to implementation.
- Research the environment and current situation – Assessment of external environment is critical to know your market, know the bigger picture and the challenges you might face.
- Build a plan based on the idea and selected strategy – Assess you core competencies, adopt your business plan in line with the selected strategy and capabilities of your team, set KPI’s and a clear roadmap for the future.
- Outsource what is non-strategic to optimize leverage – find the right partners, for non- essential activities and focus on leveraging on key capabilities. Scaling up is not only about leveraging internal capabilities but also outside resources.
- Strengthen your team to support core capability – Recruit more people to strengthen special know-how and broaden the Management skillset of the team.
- Leverage your network to build collaborations – Network plays a key role in building the trust with the partners for your idea. Leverage your existing network to find the right partner with required competencies to scale up your idea.
- Monitor and Evaluate the results – regularly review KPI’s to evaluate the success of your strategy and take corrective actions as necessary
A plan, no matter how strategic, is only a plan. The success of scaling up depends on actual implementation but also the ability to react to changing market conditions.