What is the Dentsu Inc. Growth Design Method for scaling startups?

This series introduces the services and case studies of Dentsu Inc. Growth Design Unit (DGDU), a "360-degree business support service" that leverages Dentsu Inc.'s cultivated communication and marketing expertise to drive startup business growth.

In this first installment, I, Keita Ito, the Unit Promotion Leader, will explain the background behind DGDU's establishment and the services it provides.

<Table of Contents>
▼Investing in "People" with Skills, Not Just Capital
▼The 'Dentsu Inc. Growth Design Method™' Contributing to Startup Business Growth
▼Efficiency Through Guild-Style Units: Assigning Optimal Team Members Based on Expertise

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Investing in "People" with Skills, Not Just Capital

Currently, numerous startups are emerging, and investment activity supporting them is also growing significantly. In fact, in 2018, 1,426 startups raised approximately ¥388 billion in funding.

However, even after raising funds, many report challenges like "business operations faltering due to excessive hiring" or "failure to achieve planned growth."

For a business to grow, it needs to cycle through a pattern: in the launch phase, skilled "people" build the "product" (the business) and secure "money" (funding); in the expansion phase, it cycles around securing "money" based on the "people" and evolving the "product."

However, startups often lack sufficient "people," "things," and "money." In particular, a shortage in the quantity and quality of the "people" driving the business is frequently a weak point.

Therefore, DGDU supports startup growth by investing in "people" possessing skills (see diagram below) that can address the specific assets lacking at each growth phase.

Specifically, experts who have accumulated knowledge and know-how through solutions such as mentoring services for startups (※1), acceleration programs (※2), and growth hacking projects (※3), building on Dentsu Inc.'s legacy communication business, provide 360-degree support for the diverse challenges faced by startup companies.

※1 Mentoring Service
A method of supporting the growth of individuals and teams. A mentor provides guidance and support based on advice to help individuals and businesses develop the necessary elements for growth.

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※2 Acceleration Program
An initiative that recruits startups with outstanding technology, products, or business ideas and accelerates their business growth through various forms of support.

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※3 Growth Hack Project
An initiative to improve apps and services through business design, KPI/KGI design, providing optimal tools and resources suited to operations, and analyzing and implementing detailed tactics like A/B testing.

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In other words, DGDU invests in startups not with capital, but with "people."

We established DGDU believing that investing in skilled people can eliminate missed growth opportunities caused by the absence of experienced specialists within startups.

DGDU primarily targets seed, early, and mid-stage startups.

We believe it can be particularly useful in the following scenarios.

CASE 1. Seed Phase Example
After founding a company, the business itself will experience negative cash flow (the Valley of Death) until achieving PMF (Product Market Fit) for the service. However, the time required to escape the Valley of Death and climb the J-curve is unpredictable. Consequently, the organization may prioritize short-term profits, failing to establish a medium-to-long-term business plan.

CASE 2: Early Stage Example
When raising funds, the business plan demanded by venture capitalists or corporate investors, along with management metrics like ERP (Enterprise Resource Planning) and LTV (Lifetime Value), are not in place, leading to a significant gap between the actual business reality and the company's valuation.

CASE3. Middle Phase Example
After achieving significant success in a Series B round (fundraising aimed at establishing the business), the path to an exit (IPO or M&A) remains unclear, and a growth strategy aligned with future goals cannot be fully articulated.

Developing the 'Dentsu Inc. Growth Design Method™' to contribute to startup business growth

The purpose of DGDU is to support the business growth of startups and establish ongoing partnerships. Therefore, if we believe a requested project has low potential to contribute to the startup's business growth, we propose prioritizing other actions instead.

As an advertising agency, Dentsu Inc. often receives communication strategy consultations for DGDU. However, we believe there is something more important to consider before communication.

That is achieving PMF (Product Market Fit: the state where a product that solves a problem is provided and accepted by the market). Therefore, we prioritize first outlining a growth strategy, including monetization, through market-in based development rather than product-out.

To address this, DGDU developed the 'Dentsu Inc. Growth Design Method™.' We support startups by targeting not just the communication domain, but also the product domain—areas that cannot be solved by communication alone.

The Dentsu Inc. Growth Design Method™ has the following characteristics:

・Proposing business model revisions
For example, we often receive requests from vertical (specialized) media startups asking, "Our ad space revenue isn't growing. How can we make ads sell?" Based on my own experience, unless you're a platform player, business growth rarely scales proportionally with user growth. Therefore, in most cases, increased users ≠ increased ad revenue ≠ increased company value.

This is because specialized vertical media, while offering deep expertise in specific fields, have a limited user base compared to platforms. This makes monetization through impression-based ad networks difficult, and since direct advertising inventory is also finite, few such media succeed in monetizing beyond a certain scale.

When consulting with startups experiencing growth slowdown, we often start by re-examining "whose problem" the service solves (Product-Solution Fit, PSF) and then assess the user acceptance of a service product capable of resolving that problem (Product-Market Fit, PMF).

This is because once PSF and PMF are achieved and the service contributes to user satisfaction, we believe there is room to build a multifaceted monetization strategy that involves users, not just traditional pure advertising from clients.

・Supporting Discontinuous Business Growth Goals
Recently, more companies are exploring business diversification to achieve discontinuous growth. A common failure story we hear involves "investing in trending business opportunities, launching new ventures, but failing to achieve PMF, leading to repeated cycles of launching and shutting down."

The diagram below illustrates one example of a growth strategy for media companies.

First, establish individual KPIs for each phase to be achieved in the business plan (blue sections in the figure below). Build a solid foundation step by step: content business, media advertising business, and formation optimization.

Then, once the revenue base stabilizes, diversify into growth initiatives (such as media premiumization) and cross-selling (adjacent businesses leveraging proprietary brand assets, like Brand Studios or D2C Inc.).

・Compensation Structure Aligned for Co-Creation Initiatives
To enable the 'Dentsu Inc. Growth Design Method™,' our compensation system is based on 'Performance-Linked Revenue Share (RS)' and 'Stock Options (SO)'.

As shown in the diagram below, we establish shared metrics for business income/expenses, unit economics, and SG&A costs before formulating the business plan. While we conduct periodic evaluations of business growth, we believe that using RS and SO rather than a fixed fee better aligns perspectives on profit targets and fosters commitment to growth.

Furthermore, when considering business investments, including advertising investments, we can set target ROI together based on the current management situation and discuss the validity of the investment plan from the same perspective.

Efficiency through guild-style units, assigning optimal team members based on expertise

DGDU operates with a structure that brings together various professionals from both inside and outside Dentsu Inc., equipped with the functional expertise necessary for startup support.

Within the unit, as shown in the diagram below, members with the following functional roles are assigned and form project teams tailored to each business model and challenge: Venture Architect, Business Designer, Finance Advisor, BizDev, Marketing Professional, Creative Director, Copywriter, and Communication Designer.

For example, for a startup providing a Customer Generated Community (CGC) service (a community where consumers themselves take the lead in creating content using the internet), due to its unique nature, a compact team of four members is primarily engaged: "Business Designer" and "Marketing Professional" to build acceptance, and "Business Designer" and "Venture Architect" to develop the monetization model.

This compact structure enables us to support business growth with speed and efficiency.

Furthermore, we listen to the diverse challenges startups face at each phase, identify potential problem points, and resolve them. To support the growth of all businesses, we are building further collaborative frameworks both within and outside the Dentsu Group to drive projects forward.

Since we often get asked, "What exactly does DGDU support for startups?", we've provided an overview of the unit itself.

Moving forward, DGDU representatives will introduce methods developed jointly with external partners and showcase case studies utilizing the Dentsu Inc. Growth Design Method™.

If you are a startup founder or a corporate business development professional interested in the Dentsu Inc. Growth Design Unit, please feel free to contact us.

Contact: dgdu@dentsu.co.jp