When Startups Spread Their Wings

Successful new companies must eventually face the chrysalis effect: a difficult metamorphosis into a mature company.

- Juliette Powell

In 2013, Jawbone, a leading maker of wearable activity-monitoring devices, acquired a startup called BodyMedia, reportedly for more than US$100 million. The leaders of the two companies shared a grand ambition: They dreamed of scaling up to become a multibillion-dollar wearables company, selling devices that collected not just health and fitness data but any data related to driving safety, travel, and the gamut of human experience, physical and emotional.

They knew that this was a long-term goal; devices of that scope would need hundreds of millions of dollars more in investment. But they were convinced that the newly combined company would outpace its competitors, including some of the largest companies in high tech.

“As one of the first consolidations of experience, technologies, and IP, the merger with Jawbone was a statement,” recalls John (“Ivo”) Stivoric, who had been a BodyMedia cofounder and chief technology officer and then became VP of Jawbone’s research and development. “It was a show of force in the face of giants like Apple, Google, Microsoft, Samsung, even Amazon.”

And indeed, the newly merged enterprise expanded quickly. Yet as the company grew, its momentum slowed. “In the early days,” recalls Stivoric, “our team developed a track record for disruptive innovation — repeatedly. People would say we couldn’t do something technologically, and we would go ahead and do it, as well as proving our solutions clinically. But over time, we got less and less nimble in taking risks.”

This pattern is prevalent among startups. As they mature, they shelve their breakthrough innovations and move toward incremental releases such as feature updates. This problem is generally attributed to lags in market demand for new products. It takes time for the relatively small number of early adopters to expand into a broad base of customers.