Business Model Scaling through Experimentation: Growth Hacking in Digital Startups

An ever-growing number of startups is born every year, introducing innovative business models in new and established industries. However, only a limited number of them is able to scale and establish itself as a valid player in the market despite facing the resource constraints that are typical of startups, for which scaling translate into a significantly growth of their user base thanks to the scalability possibilities enabled by digital infrastructures. This phenomenon has called for novel approaches to grow in a sustainable way, while at the same time dealing with the strong resource constraints new ventures face. Several articles have analyzed the use of experimental approaches for startups to design and validate their business model despite their limited resource availability. Extant literature in business model innovation currently fails to investigate the methods and systems startups deploy when transitioning from their innovative and validated business model to a scalable one. However, practitioner literature has underlined the presence of a novel approach going under the name of “Growth Hacking” – to progress beyond a validated business model through continuous testing and experimentation. The aim of this study is to understand the way startups scale their business model, with particular focus on the approach they deploy to do so. This study leverages an exploratory multiple-case study on three Italian fintech startups which have been undergoing business model scaling leveraging Growth Hacking. The findings from the case study have then been supplemented by a series of interviews with a panel of experts in Growth Hacking, aimed at validating the interpretation of the findings. Our findings hint that, once reached a validated business model, startups adopt an experimental approach to business model scaling. In particular, startups use Growth Hacking to experiment in the way they acquire, activate, retain, and monetize customers. Consistently with extant theory, hypothesis building, iteration, and testing constitute the fundamental principles to conduct experiments aimed at growing and engaging the customer base. Furthermore, our findings illustrate the importance of specialization in the experimentation process for business model scaling, where marketing departments are those to carry out the experiments and serve an infrastructural role in gathering data from other departments, designing the experiments and translating their insights into actionable adjustments. This study provides insights for both theory and practice, building theory on the neglected phenomenon of business model scaling and Growth Hacking, while providing managers with guidelines to set up specialized marketing teams who can serve as the owners of the experimentation process for business model scaling.