the startup journey: scaling a new venture

MASTER

THE STARTUP JOURNEY: SCALING A NEW VENTURE

Done by:Elena ZagrebaSeptember 24th, 2015

Experts : Philipp BubenzerMarcus Schneider

Introduction Problem and preliminary literature review

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Most startups fail (Cader & Leatherman, 2011; Nobel, 2011; Roberts & Eesley, 2009)

Prior research concentrated

on :

Reasons for startup failures Predictors of new venture

performance

(early stages of development of a startup)

Research Gap

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Scaling process :• In the academic literature : poor understanding

• On practice : more advanced understanding :

Figure 1. The Startup Journey by Troiano (2015).

Research Gap

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Blank and Ries:

(Marmer et al., 2011).

Paucity in the literature :• Lack of understanding• High number of failures

New ventures performance on practice :Scaling is the most difficult phase.70% of startups scale prematurely.

74% of growing internet ventures fail during scaling.(Marmer et al. 2011)

«Startups are temporary organizationsdesigned to scale

into large companies»

Research Question and Objectives

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Research Gap : Lack of understanding of the scaling process.

Research Question : How do new ventures successfully scale their businesses?

Research Objectives : Definition of scaling Ways of scaling Measurements of success Framework for successful scaling

Research Process : Theory development

Scope of the Study

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Scope :

• New ventures at their late stages of development (ready service on the market approved by first customers).• High technology companies (online platforms and applications).• Geographically : North America• For-profit companies only

Literature review

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• Measurements of performance• Startups lifecycle by Blank (2007)

Scaling is a transformation of a new venture to an established profitable company.

Figure 2. Customer Development model by Blank (2007).

• Understanding from social entrepreneurship (scaling up) – more developed than in business

• Scaling in other disciplines (eg., informatics)

Literature review

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Knowledge around scaling in business :• Beginning of volume production and creation of an operating business

(Gaibraith, 1982)

• One of the strategies for fast growth. Serving mass market at a low cost (Von Crogh & Cusumano, 2001)

• Economies of scale (Bhide, 2000)

• Crossing the Chasm (Moore, 1991)

Figure 3. Technology Adoption Lifecycle adapted from Moore (1991).

• The Startup Genome Report (Marmer et al., 2011)

TheChasm

Innovators Early Early Late Laggards Adopters Majority Majority

Intended outcome

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Figure 4. Expected outcome of the research.

Scaling performance

Success factor 1

Success factor 2

Success factor 3

...

Success factor n

Intended outcome

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Theoretical contribution :

• Better understanding of the scaling process.• Basis for future research (development and testing).• Introduction to the business schools’ programs.

Managerial contribution :

• Better understanding of the scaling process (multidimensionality).• Using the framework in elaboration of the scaling strategy.• Guiding new ventures towards repeatable and scalable business models.• Decrease the number of failures during scaling.

Methodology

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Figure 5. Research methodology framework.

• In-depth Interviews

• Archival Data

• Grounded Theory Approach

• Case Study Method

Theoretical Sampling & Methods

Data Collection

Data Analysis (coding)

Theory Saturation

Theory Building

Analysis

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Defining scaling :• Coding • Cross-case comparison• HypothesisMeasurements used by startups at the scaling stage :• Coding (categories and their properties)• Cross-case comparison• HypothesisInvestigation of scaling success factors:• Multi-level cross-case analysis• Memo method• Coding : 1st-order categories• Cross-case comparison and coding by company size• Coding : refining to the 2nd-order categories and their properties• Hypothesis

Results

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Scaling a New Venture Framework

Figure 6. Emerged framework of successful scaling.

Successful

scaling

QuantitativelyRevenue & Ratios

(predictable)

QualitativelyProduct (approved)

Process (repeatable) 

ResourcesSales

StrategyProductTiming

MeasurementsCosts

CustomersMarket

Partners

Internal Factors

External Factors

Results

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Developed definition of scaling :

Scaling is a multidimensional process

that transforms a new venture

to an established, sustainable, and profitable

company

by developing standard, repeatable, effective,

and efficient internal processes.

Conclusions and Discussions

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Findings vs Existing Knowledge :• Measurements of success• Factors contributing to success• Aspects of the scaling phenomenon

Limitations :• Not applicable to manufacturing companies.• May not represent other geographical zones.• Weaknesses of the research design : − availability of the data,− interpretations by participants (potential data biases),− voluminous data and results,− lack of simplicity.• Retrospective study : unknown future of the participants

(success or failure?).

Conclusions and Discussions

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Opportunities for future research :

• Studies including the same sample

• Longitudinal studies using the developed framework vs other strategies

• Testing framework :

prospective quantitative studies measuring the correlation between

variables

BONUS

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• Talking to Venture Capitalists :

Scaling is a challenging, cash-burning phase.

Investments are much greater

than at the early stages of development.

High risk of failure, devastating consequences.

Failure for new ventures and for their investors.

Understanding of the scaling process and a right strategy are crucial to raise

the capital.

Thank you!

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For your attention.For contribution to my work.

QUESTIONS?