Scaling Ideas into Success

Reviewer

Dr. Lourival Carmo Monaco Neto, Postdoctoral Research Associate

Article

Why It’s So Hard to Scale a Great Idea by John A. List

Journal

Harvard Business Review, May 2022

Summary

The concepts of innovation and disruption are not new. In his many articles and book such as “Innovators’ Dilemma”, “Innovators’ Solution” and “Seeing What’s Next”, the late Professor Clayton Christensen from the Harvard Business School discusses how critical sustaining innovations, and, more significantly, disruptive innovations are for markets and the companies in them. Further, the ideas that drive these innovations are the seeds that bring transformation and evolution to these industries.

While it is one thing to understand an underlying need and conceptualize a solution or even create a company (startup) to develop it, it is an entirely different exercise to scale this solution or idea to a broader and more diverse audience. Why do some products, companies and social programs thrive as they grow while others peter out? The author of the article, John List, points out five leading causes for this:

1. False Positives

A false positive occurs when something is perceived as the truth even though it isn’t. This may occur for many reasons, such as basing a conclusion on a sample that is too small or contains outliers, errors in data collection or statistical analysis, or data fabrication or alteration.

More and more companies are basing their decision-making processes on data, which may become a liability if this data is flawed. These companies must implement systems that ensure the data is correctly gathered, analyzed and utilized rather than confusing correlation with causation.

2.  Biased Representativeness of Population

When a startup begins testing its solution to a problem with potential customers, it must ensure the group responding to its surveys, customer discovery calls, focus groups, and so on are genuinely representative of the target segments this idea is intended to serve. This seems fairly intuitive, but it is not uncommon for companies to base entire campaigns on biased opinions from customer, influencer or manager experiences.

Understanding your target population and creating a representative sample (either by respondent selection or by weighting responses) becomes very important. Additionally, ensuring questions are asked correctly is fundamental as social bias, misunderstanding of what was asked and questions that are too broad or ambiguous may drive respondents to answer in ways that will not reflect how they truly behave or think.

3. Non-Negotiables That Can’t Grow or be Replicated

If your “non-negotiable” drivers of success can’t be replicated at scale, there is very little chance of your idea succeeding. For instance, if your company relies heavily upon one person’s talent, chances are this is not very scalable. This is one of several kinds of constraints that come with company growth. Some can be overcome with training, acquisitions, etc., and some, such as regulations, may not.

It is essential to attempt to foresee these kinds of barriers to growth early in the lifecycle of a venture in order to make it possible to create paths and strategies that mitigate or solve these problems.

4. Negative Spillovers

A spillover effect is an unintended (positive or negative) impact one event or outcome can have on another event or outcome. When designing an idea early on, you must anticipate negative spillovers and seek opportunities to engineer and benefit from positive ones.

5. The Cost Trap

Like any other venture, a startup company has fixed and variable costs. It will have some sort of upfront cost as well to create its products and services and establish itself as a company. After that, operational costs, or the cost of goods sold, will enter the equation. The idea here is to create a structure in which the margins created not only pay for the variable costs but also cover the upfront cost, finding ways to benefit from economies of scale. While this may sound very elementary, many companies fail to balance these equations.

What this means for Food and Agricultural Business

Last year marked the largest number of agri-food tech startup-related investments in our history. More than 3,100 deals involving 4,570 unique investors were made in this industry. This outstanding interest in the agri-food tech sector generated a whopping $51.7 billion in 2021, an 85% increase over 2020. 

These impressive numbers paint the picture of how many new companies are being created and how many resources are being poured into them. But without the proper path to scale, many of these ventures will lose their way, not only creating significant losses for their investors but also letting an excellent fundable idea die. This may lead to a slower path to the much-needed evolution of this value chain.

Although these five points seem very simple for companies intending to thrive in our industry, they are also fundamental for growth and many times overlooked, decreasing these companies’ chances of long-term success. It is part of our mission to help these companies find the correct problems to solve, develop adequate solutions and foster their growth into an advantaged competitive position.

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