The first step in restoring growth momentum in a scaleup company is to focus the energy. Focus on the one product-market that the company has the biggest chance of dominating.
This focus is not self-explanatory. Most scaleups have entered five to ten markets, but have only obtained a weak position in any single one of them. This dissipates growth momentum, energy and traction.
Restoring growth potential to a scaleup is all about rebuilding market power. Leadership needs to focus on building one big, defensible stronghold. This means divesting from all other areas, except those that vitally protect the primary franchise.
Hedging is for Established Enterprises
Many CEOs and scaleup executives are reluctance to place all their eggs in one basket. They would prefer to be active in several markets at the same time. This allows them to the hedge future growth potential and feel less exposed to risk. This mindset is especially common with executives that have come from large companies.
In large established enterprises, hedging is the name of the game. Unlike in scaleups, the strong franchise at the basis of all cashflow is already given. Most management attention goes to market and product expansion.
The established enterprise needs to be present everywhere. Whether for growth potential or to prevent others from building up new strongholds. But you can only find success in so many markets in parallel with a vast number of people at your disposal. As we said before, the technology may scale, but the go-to-market doesn’t. So only giant enterprises like Oracle, Microsoft, SalesForce and IBM can afford to be present in many different markets. And manage a portfolio of several business units that each have their own peculiar go-to-market and products.
For Scaleups, Hedging is Too Risky
Trying to mimic this hedging structure in a scaleup company is folly. Geoffrey Moore explained that in a scaleup company, hedging is far riskier than putting all your eggs in one basket. This is because a scaleup’s speed and agility are the only ways it can compete with large enterprises. Speed and agility are a direct function of how simple the decision structures are. The more complexity it embraces, the faster it will lose its competitive advantage. Different go-to-markets, channels, products, geographies etc. etc. all add to this complexity.
So the more the scaleup tries to mimic a large enterprise, the faster it will lose. After all, every scaleup still has factors fewer people than the large competitors in their field. Some founders will challenge this with the superstar quality of their hires. But these superstars are unlikely to thrive when their work adopts as much complexity and bureaucracy as corporates have.
Taking the First Steps to Focusing
So what is a scaleup founder to do? The first step is for the executive team to commit to focusing on one stronghold. That means stepping away from the hedging strategy. And from all the sales or product “tries” that have taken the company into new territories.
It means defining the core purpose of the scaleup company. The core customer that it wants to serve. And the core value proposition the scaleup will compete with. How to do that will be the subject of the next post.