When is the right time for your scaleup to start additional lines of business?
Many startup founders start additional lines of business as soon as they have discovered product-market-fit in their first. In this chapter from Scaling Silicon Valley Style, Doug Miller and Roland Siebelink suggest that that might be too early. Scaleups can maintain more speed and agility when they first obtain product-market-dominance in niche #1, before duplicating their success into niches #2, #3, #4 and so on.
DOUG: Graduate scaleups are no longer really in the scaleup stage. They have graduated from it and are now incumbents.
ROLAND: That is right. When a scaleup has reached complete product-market-dominance, it is by definition an incumbent. We stop calling it a scaleup.
DOUG: What customers do graduate scaleups serve?
ROLAND: As market leaders, they serve customers all across the mainstream. Incumbents often focus on converting laggards. They are the only source of growth at this level of market maturity.
DOUG: What milestone have they reached and how much have they raised?
ROLAND: Graduate scaleups have reached product-market-dominance. The big long-term goal for any scaleup. That means their growth curve is starting to slow down. Most companies have launched an initial public offering before this stage. Or they have sold themselves to a large acquirer. Rare decacorns like Uber may continue to raise Series E, F, G, H and so on.
DOUG: What is the product status for graduate scaleups?
ROLAND: Graduate scaleups’ products are very mature. They include lots of solutions for edge cases accumulated over the years. If they sell software, they have also gone through several generations of developers. People dare not touch much of the code and the value proposition. So any further innovation is largely at the surface or with side projects.
DOUG: What, if anything, do graduate scaleups still need to learn? After all, they have graduated…
ROLAND: They have graduated from scaleup university, yes. But to keep growing, they need to keep adding other areas of growth to their portfolio. I call this “mastering duplication.”
DOUG: How big are graduate scaleups, in your mind?
ROLAND: Graduate scaleups employ thousands of people. They organize themselves in several autonomous business units that are autonomous. The corporate center focuses only on managing the portfolio of businesses: Acquiring key suppliers, competitors and future threats; Driving maximum synergies out of the diverse portfolio; Divesting businesses that are no longer key.
DOUG: Are we expecting graduate scaleups to make billions of dollars?
ROLAND: In revenue, yes. The lower limit is some $500M/year but I would expect that to still be growing fast. A real scaleup graduate makes at least $1B in revenue and there is no upper limit in our model.
Roland Siebelink regularly speaks and writes about leadership in fast-growing tech startups. You can find more of his insights, including free chapters of his book “Scaling Silicon Valley Style.”