Dylan Salisbury’s weblog

Third post in a series on applying Balanced Scorecard concepts to start-up companies.

As noted in (Burgelman & Siegel, 2007), many start-ups can be categorized as being founded either on technology innovation or on an unmet market opportunity.

What are relevant measures for the internal business perspective? If the company was founded on technology innovation, management must be sure that innovative lead is maintained to support a sustainable competitive advantage. This might be measured in terms of raw technological and research progress such as patent filings and development of prototypes. It may also be defined in terms of having a substantial portion of the leading researchers in a niche field employed by the company.

If the company was founded on unmet market opportunity, this perspective may be served by a traditional BSC approach of identifying the core business processes necessary to meet customer needs.

For the customer perspective, both types of ventures are characterized by entry into emerging customer markets. Accordingly, acquiring initial customers or growing the customer base may have more strategic importance than increasing the satisfaction of early adopters. Additionally, appropriate metrics for customer satisfaction may not be well known because customers are still learning about the product or technology.

In many ventures, a focus on satisfaction of existing customers may not be adequate, so the company may consider the question “how do likely customers view the company’s and its products?” This may lead to a heavy focus on deep understanding of market segments and scrutiny of which prospects are targeted by sales and marketing activities.

(Burgelman & Siegel, 2007) identify a trap that ventures can fall into if the internal process goals are simply defined by customer acquisition. Company leadership may react to failure by choosing a more immediately promising customer segment even if this sharply changes the company strategy. The risk is that the “venture team will move from one grandiose but vague vision to another, or it will continue to focus on a set of feasible but fairly limited and unconnected milestones along a road that leads to nowhere”

To avoid this drift of strategy, ventures are encouraged to define a Minimum Winning Goal (MWG). An appropriate initial MWG will achieve some sustainable advantage and achievable in a 12- to 18- month time frame, enough to hold leadership accountable without placing too much limitation on the company to react to changes in its target markets. According the authors, an appropriate first goal will be “limited enough to be vigorously pursued with the company’s available financial and human resources, but big enough to provide a solid foundation for defining the MWG for the next 2 to 3 years.” (Burgelman & Siegel, 2007, p. 11)

Consumer-oriented businesses often need a critical mass of customers in order for the expected “network effect” of the company’s services to create value for the entire customer base. The clearest examples of this are media companies developing social networking products. For these companies, it may be appropriate to use metrics such as total number of customers and activity per customer, because the risk of poorly defined customer goals will not be as significant as in other companies. Such companies may find that utilization of effective networks of customers is key to maintaining an edge over competitors (Voelpel, Leibold, Eckhoff, & Davenport, July 2005).

References in this post

Burgelman, R. A., & Siegel, R. (2007, Spring). Defining the Minimum Winning Game in High-Technology Ventures. California Management Review, 6-26.

Voelpel, S. C., Leibold, M., Eckhoff, R. A., & Davenport, T. H. (July 2005). The Tyranny of the Balanced Scorecard in the Innovation Economy. 4th International Critical Management Studies Conference, Intellectual Capital Stream. Cambridge, U.K.