Entrepreneurs are modern day monks : Doing More With Less
- Mental attachment of the founders towards the project creates a problem.Research discovered that attributes such as passion, vision and determination more often lead to failure than success.When entrepreneurs invest countless work hours,money and reputation into their project ,passion and determination can easily become dogmatism. Falling in love with one’s product and ignoring honest customer feedback is the reason why most startups fail.There should be a beneficial balance between being confident about what you know and while at the same time distrusting your knowledge enough to stay eager to learn more.
Personality of the founders:
"Nearly every mistake I have made is picking the wrong people, not the wrong idea."-Arthur rock
- Therefore,choosing co-founders or hiring employees for a small firm should ideally focus on both work skills and personal traits. In terms of education,a heterogenous team with different backgrounds would be preferred over a team of members with the same background.
Timing of Realization
42% of the failure of startup’s were accorded to time.Ex: Z.com,You Tube.
42% of the failure of startup’s were accorded to time.Ex: Z.com,You Tube.
- Being the `first mover' can give entrepreneurs a decisive advantage. On the other hand, it is risky and not always favorable to be early in a new market niche (Grant/Sandberg 2016: 26).There is no value in being the first when someone else is a stronger competitor. Sometimes it is even more profitable to be the `last mover', learning from others' mistakes and making the latest great development in one particular market.
- While early entrants still have the opportunity to choose their preferred niche. Latecomers may have to leave an overcrowded market.
- Big companies as well as small startups ventures large amounts of money in emerging technologies.When deciding on path breaking technologies it is worth looking at the “Hype curve”.
- The value of understanding how this cycle works, is to sharpen the consciousness regarding the right timing. It is also vital to know, that certain technologies could make a sudden comeback after a phase of low public attention.
- Most recent startup companies focus on technology and at the same time neglect the importance of human talent.
- A large random sample of startup companies in the UK showed the correlation between success and financial capital to be "spurious"; human capital on the other hand is the real determinant for the startup's survival.
- “Premature scaling” is a phenomenon among startup businesses ,they seem to do everything right,but they fail because they move into unknown territory.They are expanding long before they know what their customers want and how they can be reached.
- The creation of entrepreneurial communities leads to an increased number of founders and individuals engaging in startup companies, universities and other educational institutions organize mentor programs, where real-life entrepreneurs engage as role models and provide helpful insights to students.
- So-called "clusters of innovation" (COI), such as Silicon Valley, are exceptional in terms of collective capital, talent and expertise, with numerous businesses and experts that support and accelerate innovative development (Engel 2015: 37). This kind of resourceful and success-driven ecosystem consists of many components, which act interdependently and create a prosperous startup landscape when combined.
- Universities efficiently build a connection between entrepreneurs and corporations through the commercialization of research. One of the leading examples is Stanford Research Park, in which more than 150 companies settled down, including Hewlett-Packard,Ford and Tesla
- A key component for an ideal COI is easy access to capital. Therefore, the support of Venture Capital firms and investors is a necessity, especially for innovative startups in need for early stage investments. Sometimes financial institutions and Government initiatives or policies can also help to improve the situation.
- The more startup companies come to life, the more will employees inside the COI adapt to specific demands. Professions such as accountants, lawyers or investment bankers will provide their services and in many cases even offer flexible payments, e.g. a small stake in the company instead of a salary. This in turn increases the involvement of experienced professionals with startups and creates the common goal of the venture's success.
Bank Loans:
- Since banks rather provide money to someone who will securely pay it back in time and with interest, instead of granting loans to those who "really need them" (Prasad 2009: 91), startup companies may only be able to receive capital under tough requirements or with high interest rates.
- Family members or friends will usually make the investment decision purely based on their assessment of the entrepreneur they know as a person (Liu 2015: 8). Thus this source of money is often called "family, friends and fools".However, having a personal relationship with an investor can lead to additional challenges and conflicts; accepting capital from family and friends is generally not recommended.
Crowdfunding
- Through one of the ca.2,000 online platforms (Ferriss 2016: 295), such as Kickstarter or Indiegogo, crowdfunding is an effective alternative to traditional investment sources.
- Apart from the monetary benefits, crowdfunding is also an excellent way for the startup to evaluate its business idea at virtually no risk. Through direct customer feedback, companies receive valuable information about necessary product improvements, price points, market validation and marketing efficacy .
- Initiatives of non-profit organizations and governments often provide grants, loans or other financing plans that support the startup landscape in a given region.Government funding programs can have great effects on small businesses.
- Business Angels are private investors who invest their own money. They normally receive a percentage of equity in return and hope to make a financial profit by selling their shares at the right time in the future
- In order to reduce this risk, angel investors often get involved in the business venture to a high extent. In some cases this will happen through leadership, mentoring or coaching. Other times it might be through doing operational tasks, changing the organizational structure of the company, or intensive monitoring
- Traditional funding sources are too risk averse to invest in a startup, entrepreneurs often turn to venture capital firms (Gompers/Lerner 2001: 145). These firms, depending on the sum of investment, will have a high involvement in the company and therefore be more likely to provide capital even if the venture seems risky.
- Since they have limited hard information on the company, they often rely on soft information, Including trust towards the founders (Bottazzi et al. 2016: 2315). By assessing observable characteristics (e.g. social behavior of the founders), they are able to draw conclusions about unobservable characteristics (e.g. performance structure of the startup company) and then come to their investment decision (Hoenig/Henkel 2015: 1050). In contrast to common belief, growth is not among the criteria based on which investors select a startup for investment.
- A VC investor does not only provide funds, he can also be a valuable source of insights and experiences. Investors with greater involvement in the company achieve higher returns on their investment (Ragozzino/Blevins 2016: 1010), which ultimately leads to the venture being more successful. The empirical study of Gompers/Lerner (2001: 165) reveals that venture capital funding correlates positively with innovation and is on average three to four times more efficient in generating patents than traditional corporate R&D.
- Startup businesses with venture capital also tend to replace the company's founder with an external CEO. Some VCs, particularly in Silicon Valley, often ask the company to relocate to their area to have more control.
- Sramana Mitra, serial entrepreneur at Silicon Valley and founder of the global accelerator program One Million by One Million, came to the conclusion that venture capital funding simply is not for everyone. While businesses with enormous growth rates, huge market opportunities and an available market size of billions of dollars may profit from VC, the majority of startups will not.
Startup Incubators and Accelerators
- Since first-time entrepreneurs and early-stage founders in most cases are not aware of their resource gaps or lack of business knowledge, they will join an incubator most likely because of financial capital and be hesitant to fully engage in the benefits of the incubation process.
- Startup accelerators work similar to incubators. The main difference is their strict schedule.In comparison to an incubator program, accelerators often give startups the opportunity to redefine their idea and concept.
- When hiring employees or co-founders, the lack of capital will rather attract people who are willing to take a risk and believe in your vision for the company. At the same time, bootstrapping means that founders will own the entire business without having to depend on investors.
"The fact is that the amount of money startups raise in their seed and Series A rounds is
inversely correlated with success." (Fred Wilson)
- For a typical innovative startup, the ideal way of funding would be to start on no budget and solely live on the company's achievements (e.g. customers who pay in advance). As soon as the business model is proven and supported by high growth rates, the acquisition of capital will help to scale the venture (Hahn 2014: 21 and 30). Collecting money prior to the development of a final product may lead to a loss of focus and to a step in the wrong direction. (Stagars 2015: 120).
- On a spiritual side: As world renowned spiritual leader Mata Amritanandayi Devi says both Ravana and Kubera were wealthy, one’s wealth led to his destruction other to realization.Be a Kubera guys. As she always states "Only a zero can be a hero".
Educational Institutions
- Universities are able to provide tremendous networking and can further synergy opportunities, can establish partnerships to connect science and research with real-life businesses. However, the majority of universities makes no use of their resource potential; they instead try to educate the entrepreneurial community by offering business plan competitions or workshops (Stagars 2015: 6-9). A possible reason for this lacking sense of bringing business and research together might be that universities are too distanced from the market.
- Universities keep focusing more on the employability of their students than on supporting them in developing business ideas.
- One interesting type of partnership between universities and startups is a spin-off, where university research develops a technological innovation and ultimately sets up a company to bring their idea to the market. While being a separate entity, the USO connects business and research resources.
- Although the attention for university spin-offs has recently increased, financial funding for high-technology business ventures remains an issue.
- For many potential startup founders, one of the first barriers of entry to the market is bureaucracy hurdles. Regulatory factors can either stimulate or obstruct entrepreneurs to start a new venture.
- Lack of transparency and overregulation are considered hindering blocks for the entrepreneurs.Therefore, levels of efficiency for bureaucratic procedures can differ by large margins, even within the same country
- One of the very first decisions a startup company has to make is about who to sell their product or service
- Customer value propositions have proven themselves to be a useful tool; taking the customer's perspective can offer great insight (Wouters/Kirchberger 2015: 64). Only by truly connecting to customers and creating an interdependency, vendors are able to assess customer problems and needs, which allows them to gain a competitive advantage
- Apart from that, it is crucial for startup ventures to possess profound knowledge of their market. For instance, there is a relatively high number of early adopters in the US, which makes it easier for innovative companies to sell a new technology. In a country such as Germany, with most potential customers being risk averse, it is undoubtedly more difficult to bring new ideas to the market.
- An investment in infrastructure improves people's connectivity and therefore benefits the startup community.An enhanced connectivity facilitates interaction among entrepreneurs and triggers the flow of ideas and knowledge
- The rather new but rapidly growing (Muñoz/Cohen 2016: 72) urban entrepreneurship is highly dependent on a developed infrastructure and a sign for a viable startup community.Urban entrepreneurs offer solutions for insufficient provision of governmental services or goods to private citizens or the public. Two of the most famous examples are Uber (providing taxi services) and Airbnb (providing accommodation), both of which aim to improve civic life and the sharing of available resources within a city.
- Tim Boyle, CEO of Columbia Sportswear, is one of many business owners from the state of Oregon who decided against moving his company because of the "love of place" factor.
- Settling down outside of typical startup hotspots usually means missing out on entrepreneurial community, lifestyle (Baldwin 2014: 5) and opportunities to acquire venture capital (Himmelspach 2009: 17). In exchange, startups in smaller cities have less competition,the cost of doing business is low and they might even be able to receive government funding for the creation of new jobs (Tozzi 2009: 19).
- As for various entrepreneurs who claim this to be of high importance for their business as well as for themselves, the value of a certain lifestyle or sentimentality towards a specific region has to be considered subjective and therefore depends solely on the founder's character and attitude.
Brickspaces
Founders should be honest with themselves and not too stubborn.As for Brickspaces, there has not been a month where processes or responsibilities have not changed because they are in a constant process of learning.
Calumia
When Calumia was founded, the small budget did not allow them to make hasty decisions,
which can also be an advantage.Furthermore, it is a good choice to bring your product to the market early on, see whether people like it or not, and then customize it to one's customers' needs.
Goedle
For someone interested in building a business around artificial intelligence, he would suggest to take a realistic approach. The media often communicates a misconception of the true capabilities of AI. If a problem cannot be solved manually, checking for small parts of the process to automatize and then going step-by-step would be the best way to find a potentially good business idea.
Even the best team could not produce something successful that customers liked.
Barion
Translating terms and conditions from Hungarian to English is quite expensive, whereas originally drafting them in English would have been enough for them to be valid in other European countries.
Miscellaneous Learnings
- Implementing clear rules and hierarchies can be invaluable in case founders have arguments.Founders have to take legal work and papers seriously and rely on attorneys to codify it.
- Wishful thinking,is another reason for failure.
- If a team is not functioning well together,building the product and keep pushing is not going to fix it.
- It is important to know when to shut down the business.Instead of continuously pushing forward or making more changes,sometimes the better solution is to start over with a new team. When there is to much infighting inside the company ,there is not enough energy left for executing the project.
- Hiring employees in key positions early on would have been a smart choice for long term planning.At that time the organization was not confident and hired short-term interns.Bringing people on and off the team takes a lot of energy and at the same time causes the business to lose knowledge.Investing time and effort in recruitment can be of high long term value for the company.
- Finding a balance between sheer passion and questioning one’s own knowledge seems to be the most promising method.
- It is recommended that businesses with multiple potential revenue streams be developed, as it was found that initial reliance on a single major revenue stream could be catastrophic.
- In order to shift this perspective, the Indian education system needs to foster imaginative thinking, liberal arts exploration, experiential learning, and empathetic design that brings students closer to societal problems.
References and Citations
1. Which Factors Determine the Success or Failure of Startup Companies? A Startup Ecosystem Analysis of Hungary, Germany and the US
