How to scale new companies

Torger Reve

It is not difficult to start a business. The hard thing is to make it grow. Torger Reve has developed a growth strategy for businesses in Norway.

LEADER'S TOOLBOX: Growth strategies for businesses 

Most business sectors in Norway already have enough innovation and entrepreneurship. What they lack is commercial results from all that innovation.

We focus too much on technological innovation based on traditional industry thinking and too little on commercial innovation that focuses on customers and service production.

The challenge is to get more new companies to succeed commercially.

The vast majority of us live by producing services, whereas the modern image of industry is certainly more like a robotic mechanical workshop with 3D printers. The most important effect of new technology – whether it be digitisation, machine learning or blockchain – is to change existing business models.

That means we need to understand demanding customers in new ways, deliver services of higher quality at lower costs and accept a higher rate of change.

Companies that are changing the world

Amazon and Alibaba are two companies that seem to be changing the world most right now. They are replacing traditional retail trade with digital trade with all functions integrated.

That is what made it so interesting to be present when the world largest salmon producer, Marine Harvest, signed a cooperation agreement with Alibaba for salmon distribution during the Norwegian royal couple's visit to China in the fall of 2018. We are talking about much greater market access than Norway has ever seen where traditional international salmon marketing is concerned.

Norway's challenge is to strengthen innovation in large companies and making the new innovative companies grow in scale. Or, to use terminology from the leading tech university in the world, MIT in Boston, "From start-ups to scale-ups".

This has been a major topic among business development researchers at BI the last couple of years, in our collaboration with some of the most important academic environments within innovation and entrepreneurship in the world at Berkeley, Boston and Beijing.

Getting Chinese businesses moving

The latest addition to BI's network for innovation and entrepreneurship is the BI-Tsinghua Centre for Innovation and Entrepreneurship (see the YouTube link), which opened during the same royal visit to China recently. The Norwegian Minister of Trade and Industry Torbjørn Røe Isaksen led the ribbon-cutting ceremony.

BI has entered the core of technological development in China, taking up residence at the technology park at Tsinghua University (China's answer to MIT). BI's mission is to accelerate innovation processes and find ways to scale new businesses.

As the Chinese so accurately put it: "Most innovations are technology-driven. You need to help us make innovations market-driven". After that, big venture capital funds will be ready to invest in these young growth companies. We expect to see new unicorns emerging.

What can Norway learn from what BI's researchers learned in Boston and Beijing?

A growth strategy for Norway

Innovation does not take place in isolation. It requires an active academic and industrial environment that takes a deep look at challenges and sets ambitious goals. It is not enough for new businesses to innovate. We also need to find out how to succeed during the commercialisation phase. This is when most young companies fail.

To succeed with commercialisation and growth, we need to create a dynamic interaction between five actors:

  • Entrepreneurs who drive commercial innovation.
  • Investors who contribute with venture capital and capital for growth.
  • Established companies that develop technologies and new solutions.
  • Universities and research environments that produce new knowledge and new technology.
  • Government policy instruments and framework conditions to promote innovation, business start-ups and scale-ups.

We call these interactions innovative ecosystems, a term which has been borrowed from biology.

How to create innovative ecosystems?

How can we build innovative ecosystems with the limited conditions one finds in a small country compared to the United States and China?

First, our universities and colleges have to play a much more active role than they do today. Universities such as MIT, Stanford and Tsinghua are research powerhouses and driving forces of strong, innovative ecosystems with dense accumulations of knowledge that interacts with business and industry.

Business and industry in this context means not only the large, established companies and their R & D departments. Building Start-up labs is equally important, such as those found at the University of Oslo. At the same time, we need to target research and innovation towards the main international business clusters as exemplified in the marine initiative at Marineholmen at the University of Bergen.

These are perhaps the two best examples of well-functioning innovative ecosystems in Norway today. The shortcomings are the weak connection to competent capital during the venture phase and the growth phase. This is often where commercial survival is tested: Can a company acquire sufficient growth capital and make it through death valley and into a customer-driven growth phase?

Young growth companies are changing business and industry

How important is government money? We need to use what we already have here, especially research funds that are earmarked for commercial and industrial ventures. We need similar funds during the commercial growth phase. The biggest weakness is that there are very few incentives to get private investors to invest in young growth companies. They would rather put their money into real estate and index funds, such as you and I do as private individuals.

The young growth companies are changing the business world, not the thousands of small businesses that will remain small and that are onlymarginally profitable.

New businesses that succeed today are born globals. That means they first and foremost need to succeed in demanding international markets. Many of these young businesses are frequently acquired by foreign companies. That is how the market economy works. The secret here is to sell one's business at such a high price that the company's founders and investors have sufficient capital to start new ventures. This is what we call serial entrepreneurship. And we need to keep cheering for those entrepreneurs and hoping for their success.

This informative article was written for BI Business Review and first published on 20 November 2018.

Published 22. November 2018

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