Three Mistakes Made in scaling Up New Ventures

Most organizations feel that the job is done when they have successfully prototyped the first product or the initial service and are now selling to the first outlet or set of users. They’ve defined success as developing something customers want.

But reality is much different. The journey has just begun. Many fledgling companies and many ventures within established companies fail to capitalize on successful prototypes because they make one strategic error: they do not understand scale-up. In this post Robert Moore looks at three common mistakes in the transition from promising start-up to full scale venture.

Charles Baden-Fuller and Ian MacMillan recently wrote for the Harvard Business Review blog on a topic that is very important to every one of the businesses here at Villgro.  From Coir Atlas which provides bamboo/jute alternatives for the wood separators used in steel transportation to a rural BPO called Desicrew, all of the Villgro Incubatees have or will realize a need to shift their customers and products if they are going to scale.

In just this last month I have seen each of these issues in many of the Indian social businesses.  While this article talks about the difficulty in scaling correctly in general it is vital that the social enterprise sector think about these concepts early on especially because the social goals they want to meet makes this transition to scale even more complex.

The three basic concepts introduced by Baden-Fuller and MacMillan are

1. Realize your customers are not the same as users
2. Recognize that first users are not the same as scaling users
3. Anticipate that first products are not the same as scaling products

While it is easy to see the user of your product as the customer it is also important to look for other revenue streams that might not be the end user.  If you take Wonder Grass for an example, their goal is to sell their affordable housing product to both the village end user and to other organizations that will provide the houses to the end users.  If Wonder Grass solely relied on the ability for the villagers to buy their product then it would take much longer to grow to scale.

The authors’ second and third points are where complexity develops in the social enterprise sector.  Many social businesses have a particular customer or user in mind when starting the business because of the social benefit they hope to create.  When starting small it might be easy to reach your intended user but growing to scale can involve issues with unmanageable distribution channels or even being tempted to focus on a more accessible user who isn’t as bad off and won’t provide as much of a social benefit.  Another complexity of this space is that normally the transition from your first to your scaling products would indicate an increase in revenue potential but in the social enterprise space sometimes it means taking a cut in the ultimate earning potential your company can make, especially if that transition involves trading financial return for a social one.

In this sector there are a lot of companies who have taken many years to figure out who their scaling user or what their scaling product and the only reason they are still in business is because they have been supported by the entrepreneur’s previous successes or been given grants to address the social need they are trying to impact.  The rest of these social enterprises however do not have the luxury of wasting time and if they aren’t careful will find themselves with customers, users, or a product that does not scale.  If they take these ideas of scale into account now the issue of scale will be much easier to accomplish and they will be able to successfully take their impact to the next level.