It is Easy to Create Startups, Isn’t it?

    Editor’s Note: This is a sponsored post for the DNA Engine Blog by Oskari Lehtonen of KoppiCatch.

    When you read the Finnish press and governmental sources you might get to think that it is just a matter of decision to become a successful startup entrepreneur. So just by making the decision your startup will suddenly flourish and become successful.

    I have a quite broad experience of working amongst startups as investor, entrepreneur and also as a researcher. I have conducted few profitable exits as an entrepreneur but I have also failed miserably. As an investor the story is similar. I have written my PhD about growth entrepreneurship and venture capital. Still, I cannot say which company will succeed and which will fail. However, I will try to present a few components that successful entrepreneurs should consider while developing their ventures.

    When you read the points that I have listed here below, keep in mind that I have specifically concentrated on startups that are in their infancy and should have a turnover between 0-3meur.  I would also like to emphasize that the points that I make are not developed by myself entirely but are key issues that we discuss daily with my partners in KoppiCatch while we evaluate startups and their success potential.

    It is the entrepreneurs that matter
    Obviously the business innovation is important but more often the business is not ready at first time and a lot of modification and reiteration is needed before the business really starts to grow and becomes successful. This requires a lot from the entrepreneurs. There is a saying that supports this: Venture capitalists prefer A-class entrepreneurs and B-class businesses over A-class businesses and B-class entrepreneurs.

    The venture solves the real problem
    The problem that the venture solves needs to be concretive and real. Quite often I encounter business plans (or one pagers preferably) that describe businesses that might work if group A, group B and group C would change their behavior. How likely it is that this would happen? If the new business idea is, let’s say 30% better than the existing way of doing things, I don’t think that it will work. I think that the new business needs to be at least 50% better, so that people would be willing to change their behavior. This issue is even more important in Finland, than for example in U.S., due to the small size of the market. I believe that in U.S. it could be possible to do profitable business by creating a lost & found service for missing cats but in Finland that is obviously impossible (and no, even when tempted, I did not google missing cat services while I wrote this).

    I believe that startup´s biggest challenge is not funding, marketing, internationalization, R&D, partner network or recruiting. It is, as you guessed, credibility. I think that entrepreneurs need to fight day after day to convince huge amounts of people and stakeholders that their venture is worth taking seriously. And by succeeding in this, the other functions mentioned above will be solved by themselves. The methods to improve credibility vary, but you could, for example, put a lot of effort into your website design, try to get some partners or reference customers on board, try to get some positive PR about your venture or present a credible plan or illustration how you will do business.

    When we evaluate and discuss a venture at KoppiCatch, we want to understand its position within the ecosystem or business ecosystem – whether the venture is a subcontractor, independent player that provides some key contributions to the other players and so forth. It is essential that entrepreneurs are able to position themselves correctly and that they are wise enough to see how the particular business ecosystem will develop in 2-5 years’ time span and what will be the venture’s position in the future.

    What interests (technology, turnover, or business segment & customers)
    Not always, but quite often entrepreneurs develop their startups due to the reason that they want to conduct a profitable exit. This usually means that a bigger company is willing to buy the startup. If you read venture capital literature, IPO is also mentioned as an exit method but it is nowadays relatively rare that a startup or growth company conducts a stock listing. In order for a startup to become an interesting acquisition target for the bigger firms, it is commonly the technology, the business segment or the customers that interests the buyer. In some cases also the turnover that the startup creates will attract the buyer but not that often in the case of startups. For startups it is good to understand and critically evaluate what might interest the buyers in one particular venture and make sure that this particular part of the business is as strong as possible.

    The list that I have written above could be much longer. We could discuss funding, scalability, IPR-protection, marketing & sales, but let’s leave it here. I think that I have made it clear – it is not that easy to develop a startup, it is actually one of the most challenging professions that I can imagine.

    About DNA Engine

    DNA Engine is a blog driven by innovations, startups and DNA’s continuous search for leading-edge partnerships. They enjoy seeing companies which are continuously coming up with new innovative products and services that shape their way of using technology. They blog about their own insights on mobile handset ecosystems, innovation-driving companies and ICT phenomena, but also invite interesting guest bloggers to share their views.