Startups: a new technological business model
In the entrepreneurship world, the term startup is increasingly used to refer to emerging companies, usually linked to tech companies that arise after the implementation of an innovative idea leveraged in the use of new technologies.
That is why startups continue to have an exponential growth -practically unstoppable- due to the innovative component that characterizes them.
For Steve Blank, a startup is a temporary organization in search of a scalable and replicable business model. However, this definition contrasts with the ideas of Nelson (2015), who points out that there is no concept associated with its meaning, but the different conceptions require elements in common in each of them, emphasizing on their scalability, approach, philosophy and the market to which they are focused. On his part, Román (2016) states that a startup is a company in its initial stage, based on its literal translation, which is “set in motion.” This author points to an important differentiation, where not all startups are created by entrepreneurs and not all start-ups by entrepreneurs are startups; this is where a key element comes into play: innovation. Companies recognized internationally -among them Google, Twitter, and Facebook- began their trajectory as startups, the reason why they have become a model to follow by many organizations that take their first steps in the world of software development and technology management. When talking about Startups, we must refer to the Lean Startup method proposed by Ries (2011), which is based on a cyclical process in three phases: defining the idea, implementing it in the market, and measuring the customer’s reaction to discover what it really wants. This is possible through the development of the minimum viable product (MVP), in the shortest possible time, and then incrementally improving the characteristics of the product following the market demands. This method, part of the “Release Often Release Early” philosophy, Such is the boom caused by the startups that, at the moment, the majority of the companies that are in its initial phase define themselves as startups, without really knowing what this concept implies. From this initiative, several questions arise, one of the most common being how to know when we are before the presence of a startup? There are many characteristics that define them, however, there are differentiating elements that allow us to know what it is, aspects that are of great relevance when talking about entrepreneurship. These elements include:
Technological component marking
Lower development costs framed in real-time feedback for the correction of errors, where the inclusion of new functionalities does not incur major expenses, an aspect that represents an advantage in a market that is in constant expansion.
Henshaw-Plath, recognized for being one of the founders of Twitter, supports the Lean Startup method proposed by Ries, identifying as part of this model a series of key “verbs” that define startups: build, test, learn and validate. These phases follow an iterative model, an anti-methodology that contrasts with the linear processes framed in the traditional methodology. This author suggests to the entrepreneurs to analyze the needs of the environment and adapt them to achieve a product in line with market expectations, rather than imitate existing ideas. This initiative is supported by Paniagua (2015), who says that “in the market, you will have a much better idea of how to solve your project than what could be proposed in Silicon Valley.
Scalable business model
Constant communication with the customer
Adaptability to change
It is precisely the last element, its adaptability, that gives it a series of associated benefits, which make startups as attractive to investors as to their current and potential customers.
As we all know, the tech business is constantly changing, and these companies are characterized by their broad ability to adapt to these changes; this is why they are based on a structure of associated minimum costs that grow exponentially as the product or service offered acquires greater demand in the market, allowing, in turn, a greater and better communication with its customers or users.
The aforementioned gives startups a much faster growth than conventional companies since it allows a much faster recovery of the investment made. In this sense, it is very important to hold events that strengthen the community of entrepreneurs, creating opportunities for organizational growth and become meeting points for potential partners and investors, which drive business scalability.
When talking about startups, there is a perfect relationship between three components that are essential: TEnology-Innovation-Scalability. For the purposes of this post, we will call it the TEINES relationship.
Technology is present in all the innovative solutions that characterize companies today. Precisely the need for growth, to generate results according to the market, and to keep in constant development, requires a tech platform that is in line with these requirements, where startups are no exception.
Creating unique, differentiated and, therefore, innovative products is the main objective of startups. However, this is a challenge, given the demand that companies in the market that add every day to the growing universe of startups, an aspect that in many ways conditions their survival. To innovate we must be informed, always in the constant search for new needs, whose response is represented by the technological implementation of novel responses to changes.
One of the keywords of startups is scalability. The idea is to generate the products developed on a large scale, without incurring in the increase of production costs. The secret is in the adaptability of the product so that with a few changes it can solve multiple users’ needs. This gives you a potentially unlimited scale.
Why startups fail
Reason 1: Market Problems
A major reason why companies fail is that they run into the problem of their being little or no market for the product that they have built. Here are some common symptoms:
- There is not a compelling enough value proposition, or compelling event, to cause the buyer to commit to purchasing.
- The market timing is wrong. You could be ahead of your market by a few years, and they are not ready for your particular solution at this stage.
- The market size of people that have pain, and have funds is not large enough
Reason 2: Business Model Failure
A common cause of failure in the startup world is that entrepreneurs are too optimistic about how easy it will be to acquire customers. They assume that because they will build an exciting web site, product, or service, customers will beat a path to their door. That may happen with the first few customers. Still, after that, it rapidly becomes an expensive task to attract and win customers. In many cases, the cost of acquiring the customer (CAC) is higher than the lifetime value of that customer (LTV).
Reason 3: Poor Management Team
An incredibly common problem that causes startups to fail is a weak management team. A good management team will be smart enough to avoid Reasons 2, 4, and 5. Weak management teams make mistakes in multiple areas:
- They are often weak on strategy, building a product that no-one wants to buy as they failed to do enough work to validate the ideas before and during development. This can carry through to poorly thought through go-to-market strategies.
- They are usually poor at execution, which leads to issues with the product not getting built correctly or on time, and the go-to-market execution will be poorly implemented.
- They will build weak teams below them. There is a well-proven saying: A players hire A players, and B players only get to hire C players (because B players don’t want to work for other B players). So the rest of the company will end up as weak, and poor execution will be rampant.
Reason 4: Running out of Cash
A fourth major reason that startups fail is because they ran out of cash. A vital job of the CEO is to understand how much cash is left and whether that will carry the company to a milestone that can lead to successful financing, or cash flow positive.
Reason 5: Product Problems
Another reason that companies fail is because they fail to develop a product that meets the market need. This can either be due to simple execution. Or it can be a far more strategic problem, which is a failure to achieve Product/Market fit.
Most of the time, the first product that a startup brings to the market won’t meet the market need. In the best cases, it will take a few revisions to get the product/market fit right. In the worst cases, the product will be way off base, and a complete re-think is required. If this happens, it is a clear indication of a team that didn’t do the work to get out and validate their ideas with customers before and during development.
Ideas represent the raw material to create a startup, as they go hand in hand with innovation. However, this process is not so simple, there are theories that establish that at least 60 ideas are needed to result in an innovation, the quality of said ideas to get new products as a result being important. The human being has an innate ability to create; you just need an original idea to take the first step in the world of startups.
Once we have taken this step and we have a winning idea, we must prepare ourselves to identify the relevant aspects, as well as the tools with which we have to channel it and put it into execution, with technology being the perfect ally to give continuity to this process. From this point, what remains is to evaluate the viability of the idea to get to work.
Although there are many elements that play an important role in the development of a startup, among which stand out the technological platform, analytical capacity, as well as the implementation of techniques that stimulate entrepreneurship, such as the co-build , a point in favor of guaranteeing the scalability of a startup is the creative capacity of those who integrate it, that is to say, the capacity to create and change, where leaders are, in themselves, co-creators of the startup. Only creative organizations can develop creative individuals.
Tech startup companies
One of the main problems that entrepreneurs have in the current economy is the high risk that comes implicitly with investing in an entrepreneurship; this fact has implications both for investors and new entrepreneurs who wish to make the leap in the world of entrepreneurship. So how do you take the lowest possible risk when creating a startup? Starting from this premise, the methodology of Lean Startup proposed by Ries arises. This methodology, when used correctly, minimizes the risks implicit in the creation of a startup, in a process framed in build, measure and learn, to generate innovation. This is possible by giving due importance to great ideas and great visionaries. Eric Ries learned from his failure, using a different approach to minimize risk in a replicable way, recognizing, in the first instance, that anyone can be an entrepreneur. Next, it frames the enterprise in a specific type of administration, with its particular characteristics, highlighting as part of them the accounting innovation. Each of these elements ratifies the fact that the enterprise gives replicable results with a low associated risk, provided that the correct methodology is applied, the Lean Startup being one of them. Entrepreneurship and, consequently, the creation of startups, are essential for economic growth and development, bringing, as a result, a society aware of the risks involved in this activity, but with the incentive necessary to implement a great idea.