The Missing Discipline Behind Failure to Scale

In 2018, Best Buy announced that it would enter the health market. It was an unexpected move for a consumer electronics retailer, but it was consistent with then-CEO Hubert Joly’s passionate advocacy for making Best Buy a company with a deep sense of purpose.1 Starting with a focus on helping the elderly to age safely at home, the company broadened the strategy to make Best Buy Health a provider that “enables care at home for everyone.”2 It was also a lucrative opportunity: Home health is forecast to be a $265 billion market by 2025.3

Over the next few years, Best Buy Health tested its key assumptions about the opportunity, seeking out the sweet spot that would allow it to build a new business to sit alongside the company’s existing retail franchise. By 2022, it was a $525 million business, projected to grow at a 35% to 45% compound annual growth rate through 2027. The initiative created a new growth vector for its parent company and gave it a measure of resilience in the turbulent consumer retail sector.

Best Buy succeeded where many companies fail. It moved through the three innovation disciplines required to build new businesses: ideation, incubation, and scaling. It came up with a new idea for solving the customer problem of aging safely at home, incubated it by running in-market experiments to test value propositions, and then scaled it to a revenue-generating business unit. This is a relatively rare accomplishment. Our research finds that while 80% of companies claim to ideate and incubate new ventures, only 16% of companies successfully scale them.4

A key contributor to this problem is the almost exclusive focus that companies place on the first two innovation disciplines. The ways and means of ideation and incubation — embodied in methodologies such as design thinking and lean startup, and disseminated by an army of trainers and consultants — are well known and readily available. However, when it comes to scaling, there are few methodologies to guide corporate decision-making.

Scaling is the missing innovation discipline. Indeed, when we assessed the innovation frameworks used by 15 large corporate incubation units, we found that only four mentioned scaling. For example, one large IT company’s incubation unit has a highly evolved process for ideation, validation, and incubation, but its framework stops at scaling.5 Scaling is considered outside the remit of such units: It becomes the kind of blind spot that author Douglas Adams characterized as “somebody else’s problem.”6 This leaves a critical gap in the ability of companies to build new businesses. After all, ideation and incubation generate value only when scaling succeeds.

To learn how to bridge this gap, we studied Best Buy and 30 other successful and unsuccessful corporate ventures. We found that most of the successful companies followed a similar approach to scaling new ventures that we call a scaling path. It requires a clarity of ambition; an understanding of the assets needed to access the customers, capabilities, and capacity required by the new business; and a willingness to use a variety of techniques to assemble those assets into a coherent strategy for attaining scale.7 Best Buy, for example, leveraged its existing assets — its stores, customers, and Geek Squad technical assistance team — and combined them with a $2.2 billion investment in acquisitions to scale its health business.

In this article, we offer five key lessons for building a scaling path that are drawn from both successful and unsuccessful corporate ventures.

1. Set an Ambition Equal to the Scale of Opportunity.

One of the marked differences between successful and unsuccessful corporate ventures is the scale of their ambition. In this regard, successful ventures are more like the best entrepreneurial startups, which adopt bold, long-term aspirations. As Stanford’s Amy Wilkinson found in her research on successful entrepreneurs, they “drive for the daylight,” making an imaginative leap to see what is possible and then working on what it will take to get there.8 Unsuccessful corporate ventures, on the other hand, are often defined by the strictures of the annual budget process; they ask, “What can we achieve within the plan horizon?” Starting a scaling path with a bold ambition helps to ensure that the venture scales to the size of the opportunity, not to the level of risk tolerance within the corporate culture.9

A bold ambition crystallizes the market opportunity that the new venture seeks to exploit. In the late 1990s, online legal information service LexisNexis had a small business serving mobile phone operators who needed to check the creditworthiness of new customers. Then, as new software that could link disparate data sets began to emerge, the company’s leaders realized that there was an opportunity to pioneer an entirely new market by enabling insurance, financial services, and other companies to use publicly available data to assess the risk of doing business with individual consumers. This ambition provided the foundation for creating a big data and analytics business that now has more than $2 billion in revenues.

2. Work Backward From the Ambition to Identify a Potential Path to Scale.

Once their ambition is clear, the leaders of successful corporate ventures hypothesize what it will take to deliver on it. They create a vision of a desirable end state and work backward to describe the specific actions they might take to achieve this vision. This is not a strategic plan in the traditional sense, as uncertainty remains too high for a new venture to commit to a definitive plan. More accurately, the path is a set of plausible strategic options for what assets will be needed to achieve the ambition.

At Best Buy Health, president Deborah DiSanzo worked backward from the company’s ambition to enable care at home for everyone. She focused on three areas for Best Buy, assembling “the Lego pieces of what it takes to start building a scalable business”: (1) wellness at home, with health and wellness products sold in stores and online; (2) aging at home, providing solutions for aging seniors, including mobile phones, medical alert devices, and its Caring Centers staffed by real people; and (3) care at home, offering quality care services in the home, including Current Health, an enterprise platform that strengthens the link between patients and their providers, Clinical Command Centers that provide first line of defense triage when medical concerns arise, and Geek Squad, which delivers technology to homes, sets it up, and teaches consumers how to use it.10

Typically, there are three kinds of assets needed to scale a new business venture: customers, capabilities, and capacity.

Customers: A new business unit needs a customer base, sales channels, and sales teams to attain market reach and generate revenue. Decisions about go-to-market assets and their configurations are based on data developed during the incubation phase, which should have validated that the new venture is addressing a problem that customers are willing to pay to solve and that the solution is preferable to available alternatives. In addition, the organization will need to learn how customers want to buy and what will influence their decision to buy.

Best Buy Health’s home health monitoring services seemed to offer desirable benefits to patients, care providers, and payers. Patients were eager to leave hospitals and other care facilities as quickly as possible. Health payers and providers were keen to free up bed space and reduce the risk of hospital-acquired infections.

However, there were challenges, too. Past experiences had left providers and payers nervous about the idea of retailers entering the health care market. Patients had to let equipment installers enter their homes, and they had to learn how to use the new devices while experiencing the stress of having just been discharged from the hospital. Best Buy needed customer assets that would help it overcome these adoption challenges.

Capabilities: New ventures often arise from a new technology or product capability. The ability to wield these capabilities in a limited manner is core to both the initial conception of the venture and to running the experiments used to validate the business model in the incubation phase, but it is rarely sufficient to scale the venture. To successfully scale a venture, the leadership team needs to ask itself what capabilities are needed to deliver its offering’s full value.

The answer to this question could be an existing niche capability that needs to be extended across the organization, or it could be an as-yet missing capability that is needed to execute the business model at scale. For instance, although LexisNexis was already aggregating public records data for sale to its existing legal customers, it needed to link this information with proprietary data sets owned by others to extend its risk analytics solution to insurance companies. To execute the business model at Best Buy Health, the Geek Squad needed to have empathy skills in addition to technical skills to install health monitoring equipment in the homes of people who had just returned from hospital stays.

Capacities: To manage a business operating at increasing volumes, new ventures need to develop capacity in terms of fulfillment, logistics, manufacturing, customer service, call centers, and so on. This is a critical point for a venture, because it must expand from operating in experimental mode with a few highly engaged test customers to addressing the total market opportunity with many customers it does not know. Thus, the scaling path must anticipate the major stress points that are looming ahead, such as meeting customer demand, processing customer returns, and supporting solution implementations.

To achieve this, the leadership team has to identify which capacities will be needed in order to scale and prioritize them based on when they will be needed. Deloitte, for instance, was able to meet the demands of its new crowdsource talent unit, Pixel, during its pilot phase. But its leaders realized that satisfying client demand at scale would be critical to its success.11

Adding capacity is a double-edged sword: Moving too slowly can choke off growth during the drive to scale, but moving too quickly can sink the venture by investing too far ahead of market development. Venture leaders should keep in mind that the scaling path is not a preset plan. Rather, it is a set of hypotheses about what assets are needed to scale that must be continually validated with data.

3. Think Through Options for Acquiring Needed Assets.

Venture leaders can follow four main approaches to obtaining the assets needed in the new venture and assembling its scaling path. Each presents different benefits and trade-offs.

Leverage: There is a clear advantage to leveraging the assets already available within the company: It enables the new venture to scale faster than entrepreneurial startups.12 The claim that Best Buy staked in the health care market rests in part on the Geek Squad. Best Buy Health was able to leverage the brand’s existing trusted access to people’s homes to persuade several hospital systems to enter into partnerships.

It can be hard for new ventures to negotiate access to existing assets if the business units that control them are more focused on short-term results than on growing new ventures. Deloitte, for example, had to neutralize resistance from its client relationship partners, who were the key sales channel for Pixel, by using a combination of social pressure and financial incentives.13 At Best Buy Health, DiSanzo estimates that she spends half of her time contributing to the larger corporate strategic, talent, and innovation agenda. She does so to build the internal social capital needed to support scaling at the company.14

Build: Early in the life of a venture, the assets needed for market differentiation are often built by R&D and technical teams. As the venture scales, however, leaders must shift their attention to building the assets that enable market adoption. German engineering firm Bosch has built a sizable franchise for its electric drive system, which can be easily integrated into the frames of road, mountain, and leisure bikes. But the company’s efforts at building a network of bike retailers has been as instrumental in the business’s success as its core technology. Initially, the retailers were unfamiliar with the new technology and resistant to selling it. To overcome that barrier, Bosch built a customer service capability and provided training, a self-service web portal, and an in-store diagnostics kit that won over thousands of small bike shops.15

Acquire: When a new venture lacks assets in the core business and building them is too costly or time consuming, acquiring them from an established or startup company is a logical route for getting to scale. Best Buy Health made a number of acquisitions to obtain assets needed to connect health care payers, providers, and customers. For instance, it acquired GreatCall, a subscription service for the elderly for emergency medical assistance activated via mobile phones and other connected devices; and Critical Signals Technology, which added partnerships with 1,500 health care payers.

Although acquisition-led strategies may satisfy a desire for immediate results, there is consensus that corporate acquisitions, on average, fail and that the value of write-offs exceeds gains by a wide margin.16 LexisNexis provides a counterexample. The acquisitions of Seisint and, several years later, ChoicePoint made the company’s public records assets more valuable, enabling it to leap over startup competitors to become a leader in risk analytics.

Partner: In the era of platforms and ecosystems, the leaders of successful corporate ventures are increasingly gaining access to assets through partnerships. These mutually beneficial relationships can be formed more rapidly and have lower risks than buying assets.

Because Bosch lacked the capacity to service the thousands of independent bike shops that were selling e-bikes with its drive systems, it entered a partnership with a component manufacturer, Magura, and used Magura’s existing distribution network to deliver diagnostic kits and spare parts to retailers.

As the four asset-sourcing options described above suggest, no one option is always right for corporate ventures. Rather, what differentiates the successful ventures from the unsuccessful ones is the ability to combine these approaches to construct an economical and timely scaling path.

4. Adapt the Team and Organization to Support Scaling.

As with entrepreneurial startups, the organizational needs of corporate ventures change as they embark on the path to scale. In fact, we found that leadership teams, as well as the position of the venture in the corporate structure, often change as the new venture seeks scale, because the primary strategic thrust changes so fundamentally from the ideation and incubation phases of innovation.

During scaling, the new venture’s workforce tends to grow rapidly as the venture is called upon to execute an expanding scope of activities, such as supply chain management, distribution, and customer service. Meanwhile, the focus on rapid learning during incubation, in which leaders try to avoid overcommitting to a single product concept or value proposition, gives way to a focus on operational rigor and repeatability.

These new demands often require a different leadership profile — one that emphasizes operational capabilities. One study of high-tech startups found that the ability of the company to adapt to these new requirements was one of the key predictors of whether it would grow to $1 billion in revenue.17 The problem, as research conducted by Dutch psychologist Peter Robertson demonstrated, is that founding teams can get stuck in the early phases of growth and fail to scale because they lack sufficient strategic diversity.18 Robertson’s prescription to “always change a winning team” is one that was followed by Best Buy Health. In 2020, DiSanzo was hired to run Best Buy Health and brought additional industry capabilities to her team, including a chief technology officer, new sales leaders, and an additional board of directors with health care experience.

The positioning of new ventures within the corporate structure also may need to change as scaling begins. LexisNexis Risk Solutions started in a business unit two layers down from the CEO before moving up to the group level. At Deloitte, Pixel followed the opposite path: It started at the corporate level and was later moved into a business unit to scale (while remaining a separate unit). This enabled the venture to more easily align with the client-facing partners needed to sell its services to the firm’s customers.

5. Anticipate and Prepare for Trigger Points.

Scaling paths sensitize leaders to the decisions they need to make to convert a promising new venture into a high-growth business. However, not all of the steps on the path are equal; some are qualitatively different and can accelerate the progress to scale. These trigger-point decisions are typically moments of no return, where the strategic stakes or level of investment required is significantly higher than for less potent decisions. Amazon calls these decisions “one-way doors” because they entail commitments that are difficult, if not impossible, to reverse.

LexisNexis’s leaders knew that the acquisition of ChoicePoint, an insurance industry data company, would be a trigger point for scaling the business.19 This was not only because of the price it paid — at $1 billion, it was the largest deal the company had yet made — but also its strategic value. They knew it would be a launch point into the insurance industry and give the company the ability to offer breakthrough products, such as one that would automate the collection of customers’ data when they applied for new automotive coverage. Similarly, Best Buy’s acquisition of Current Health was a trigger point in that it provided the remote care management platform that connected the health devices in customers’ homes to care providers. The acquisition showed providers that Best Buy could leverage its consumer reach to drive the adoption of in-home health technologies.20

Non-trigger-point decisions are ones from which an organization can withdraw at little or no cost. They offer new ventures the opportunity to learn about a potential step on the scaling path and adapt their strategies accordingly. Best Buy’s approach to over-the-counter hearing aids is a good example. Best Buy piloted hearing devices internally with a small subset of employees. Then, in October 2022, following the ruling by the U.S. Food and Drug Administration, the company launched a selection of nearly 20 hearing devices online as well as a smaller set from Best Buy stores. Along with the devices, the company launched an online hearing assessment to help consumers identify their level of hearing loss and help determine which device is best for them.21 Best Buy made a wise scaling choice: a low-risk partnership, a captive audience to generate feedback, and limited exposure in a small number of stores.

Trigger points are qualitatively different because of the scale of commitment involved, the number of customers to be served, the amount of capital to be deployed, or the liabilities involved. Identifying these factors in advance by being explicit about the scaling path can help the leaders of new ventures anticipate trigger points and prepare themselves — and their stakeholders — for the major commitments they require.

This is a key to scaling success. A frequent complaint of corporate innovation leaders is top management’s reluctance to invest in new ventures: In our research, it was the No. 1 barrier, cited by 60% of companies. However, we learned from our interviews that this reluctance often stems from top leaders being surprised by the scale of the commitments they are being asked to make. The decision to invest significant capital to back a new business is totally different from a much larger acquisition in the core business, where there is data, competence, and a track record. When leaders of new ventures highlight potential trigger points in advance, it gives top leaders the time they need to understand and grant big asks.

---

Scaling paths are reasonably simple to use: They require only a clarity of ambition and an understanding of the assets needed to access the customers, capabilities, and capacity that can transform an idea into a full-fledged business. While most leaders of new ventures already talk about what it will take to reach scale, the concept of a scaling path provides them with a language and structure to elevate the discussion. A scaling path embodies the missing third discipline in corporate innovation. Leaders of new ventures can use it to learn and iterate as they go, adding new options and eliminating those that become dead ends. Scaling is both art and science, and with the help of a scaling path, it can be managed with the same level of discipline and success that we have come to expect of ideation and incubation.