Sunday, September 4, 2011

What startup is best for you?


How to motivate students to create a startups? What are the types of startups? I am putting together the program for the Entrepreneurs Club these days and these are some of the questions I want to discuss.

The university students are in the best period of their life to experiment, turn their dreams to something useful. The entrepreneurial path is offering lot of different opportunities. The most ambitious is the high-tech path: pursuing PhD program, inventing new, disruptive technology and turning it to a startup. Contrary to scientific research, some students may start a small business in their hometown.  Some may chose to work alone or in a small group and make enough money to have a comfortable life. The top aspiration is to go for the big thing, creating a scalable business addressing millions of customers worldwide. Let’s look at different types of startups in more detail.

One person makes the smallest startup. Typical example is Tonda Hildebrand who calls himself a micropreneur. He wrote and sells an enhanced Finder version for Mac. He has thousands and thousands customers around the world. As a micropreneur, thou you are the only person in the company who needs to do all what the business requires. You need to be a very strong personality to not lose motivation and focus, and to overcame all difficulties. You can focus on what makes you happy, where you are best and outsource the rest. You will be very independent in time, location etc. On the other hand you’ll be vulnerable, if you find and develop an application addressing large customers cloud, the competition will kill you rather quickly.

Typical startup has two or three people at the very beginning. Many of the startups die, some survive but do not grow, and they become small companies with few staff members.  They may choose working on a single product. If they manage to find a niche market and customers, they may create a successful business. As long as the number of customers is of no commercial interest to large companies they may create a sustainable income. In eClub we had a presentation of the Fakturoid team falling in to this category. The danger is very similar to micropreneurs, the variety of products is narrow and the single core product can become part of larger companies portfolio or the whole business model may die. The right niche market may generate a good stream of revenue to have a comfortable life, therefore: lifestyle companies. Some small companies managed to address considerable number of customers with their very successful products, for example 37signals.

What is the majority of IT companies in the Czech Republic? According to the Czech ICT Alliance 98% of companies have less than 20 people. My estimation is that these numbers will be similar in many other countries. These companies are focusing on web pages authoring, administration, IT integration etc. Mostly they provide custom development or services in a small, local scale. They are very important for the national economy, but they do not have the ambition to work worldwide or grow. They can be classified as small business startups.

The real startup is mostly associated with a high grows, technology oriented company. We all know the top startups: Google. Yahoo, SalesForce etc. They are very successful in introducing new disruptive technology. They have found great business model, grew to a large company and developed additional lines of innovative products. An idea for a great scalable business can emerge anywhere in the world, but it is not easy to find the right people and the right ecosystem to scale. This is the reason why most of the large technological startups are coming from Silicon Valley. It is the reservoir of the best programmers, engineers but also top IT managers, visionary, lawyer, venture capitalists, marketers, sales people… Even the most successful Czech IT startup entrepreneur Roman Stanek moved his Gooddata operations to Silicon Valley.

Researcher or scientists like a high-tech startup developing a disruptive technology based on technological break through and new algorithms. Turning the results of their several years long research to a business may lead to significant competitive advantage. The formation of such startup is a very intricate process since people of science typically do not have commercial but scientific targets. The success metric is the number of scientific articles not revenue or number of customers. Startup is the best setup to commercialize new IT scientific ideas. The typical goal of scientific startup is to prove the technology, show the growing revenue and sell the company.

Beside of missing non-profit or open source startups and a very special kind of startups winning government tenders, the list is complete. Most of the students will start their entrepreneurial activities without knowing in what category they will end up, but from the point of view of what we do in eClub it is not important. The goal is to make students active, teach them the practical steps how to create a product and how to find customers. I will be delighted, if as a result of eClub, we will see a new company in any of the above categories.

Do not stay aside, communicate, be active, and join us.

3 comments:

  1. I like the article and the examples of Czech companies in each category.

    What I would argue is the term “disruptive technology”. Startups that poses a threat to incumbent companies are usually disrupting their business models, the technology itself is initially often underperforming, but customers value some other features of the product.
    It is somewhat counterintuitive and not really a thing the “PhD. startups” would be willing to do. Fakturoid, provided they wanted to, would seem more of a “disruptor” for this very reason (seem, because I don’t know the relevant numbers for accounting software business in the CZ).

    The whole issue has been summarized by Clayton Christensen in his terrific book The Innovator’s Dilemma - one of the very few books on startups/innovation based on thorough research.

    I’m looking forward to the next two semesters and working on my diploma thesis. I'll try to get in touch soon :)

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  2. Its really informative!
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