Science-based ventures, that is ventures that are trying to commercialize scientific breakthroughs, are crucial drivers of innovation and growth. Yet, many of these ventures fail to deliver on their promise. They fail to scale up and become successful mainstream companies, even when they possess unique technological capabilities and highly skilled employees. Why is that? In my new study, published in Journal of Management Studies, I show that science-based ventures may experience that their organizational identity fragments – that they lose sense of purpose and who they are- during their scaling journey.

Why are organizational identities important and why would ventures change them?

Organizational identity is the organization’s sense of who they are as an organization and what its purpose is. When the organizational identity is clear, employees and managers have a ‘guiding star’ they can use to make decisions and solve issues that occur when different units have to work together. Therefore, a clear organizational identity can be a treasured competitive advantage for companies. Yet, for science-based ventures (SBVs) it can be difficult to sustain a clear identity. When they are formed, SBVs are usually closely aligned to universities, they are pursuing scientific breakthroughs after all, and they usually receive government funding for basic research. This informs their organizational identity, embedding them in a ‘scientific logic’ valuing scientific novelty, scientific freedom in choosing projects and producing value for society at large.

However, when SBVs have made scientific breakthroughs and would like to reach a mainstream market, turn a profit and scale up, they usually encounter stakeholders holding a ‘commercial logic’, valuing efficiency, market growth and profits over scientific novelty. These stakeholders are usually investors, but also customers in the case of B2B SBVs. To accommodate these stakeholders, SBVs usually need to hire people who fit the commercial logic, such as people who have worked in large corporations and who has key skills needed to succeed in the commercial market. Furthermore, SBVs must signal that they understand that they have to make money and follow the ‘rules’ of the commercial market. Hence, the SBVs identity, the “who they are”, has to be adapted, to better send this signal.

Why science-based ventures struggle to adapt their identity

In my study, where I followed an SBV in the photonics industry that was commercializing its technology and growing, I find that adapting the organizational identity is difficult for two reasons. First, I find that when the venture first adopted the commercial logic in form of new hires from large corporations and the introduction of lean management, there was a ‘honeymoon’ phase. The new hires fixed bugs in operations, and incumbents felt that they got a breath of fresh ideas and that things became a bit more orderly. Hence, management felt the change had been a success. However, this “honeymoon” phase did not last. Soon, the newcomers started challenging the scientific-oriented incumbents and they tried to drastically alter the company to be more commercial. This scared the incumbents, who felt that the venture’s purpose and their core beliefs were threatened. Yet, because of the delay, this feeling appeared over time. It sneaked and settled in. And it was not addressed in time. Second, I find that there are swings back and forth between which logic should dominate the company. It is not that the venture moved in one direction towards being more commercial and standardized. Science-oriented incumbents reconceptualized science as the venture’s core competitive advantage, and referred to customers and investors that demanded that the venture stayed ahead of the curve on its technology. Hence, there are swings back and forth regarding what direction the venture should go. As one manager noted: are we a scientifically oriented development company or a commercially oriented manufacturing company?

In sum, I find that ventures may struggle to adapt their identity because problems occur over time, not immediately when changing, and because there are swings back and forth regarding which direction the venture should go, creating instability and doubt.

How can managers avoid that the organizational identity comes apart when scaling?

It is difficult to grow a company and managers have a lot of things on their minds, such as how to find product market fit and how to attract investors. Yet, I believe that the issue of maintaining a coherent organizational identity may be underappreciated. There are good reasons for that. Often both scholars and practitioners see the organizational identity as something enduring. In particular, founders often imbue their venture with an identity, which they then may take for granted.

The first learning from my study is thus simple. It is critical for managers of ventures to have a strategy for how to adapt the organizational identity. They cannot treat it as taken for granted. Nor are they likely able to maintain the original identity. The changes that ventures face when scaling are likely too great for things to stay the same.

 Second, an element that caused instability in my case was the lack of clear and consistent product-market fit. The venture in question shifted in what they core saw as their core market more than once, primarily due to market dynamics. These shifts affected the organizational identity. At some points, the venture was engaging with markets demanding radical development, and at other times they would deal with markets where stakeholders demanded more stability and dependent quality. Hence, a learning I gained from my study was the importance of decoupling the product and market from the organizational identity. It is well known that ventures often must pivot and change markets, but if they let markets and products define them, they cannot do that.

Ultimately, my study highlights that ventures’ organizational identity are fragile during scale-up. Similar to teenagers growing up, young organizations are impressionable to external influences as they mature. Therefore, managers have an important role in guiding this transition.