After the 2008 economic crisis – which earned itself a prominent place in the annals of economic history – as a direct consequence of the bursting of the US real estate bubble, the crisis of the big merchant banks and the bankruptcy of Lehman Brother, a new business model has emerged strongly within the global market: start-ups.
However, it would be reductive to attribute the birth of this new economic actor to a mere response to the economic crisis and unemployment, because the starup phenomenon, which originated in Silicon Valley, was already known since the early 1990s. Start-ups, in fact, represent an important innovation factor that does not only involve the industrial and technological sector but also the cognitive capital and the entire organisation of the entrepreneurial structure of reference, with relevant implications on the role, quality and skills of human capital.
The emergence of start-ups, and their marked proliferation, are proving to be the strategic drivers of the economy today and are expected to play an increasingly decisive role in the years to come.
We wanted to delve into this topic with Lucrezia Argentino Coordinator of RBS4Entrepreneurship, the entrepreneurship programme dedicated to the students of Rome Business School, to whom we asked what role innovative entrepreneurship will play in global and Italian economic development and, above all, what are the key moments in the life of a starup.
“The start-up phenomenon is constantly evolving in Italy and in the international context. In this scenario, entrepreneurs, particularly the youngest ones, are always looking for new stimuli to launch their business ideas and, above all, to find ways to communicate them and thus obtain funding. The picht represents a fundamental, if not the most important moment in the life of a start-up. It is a support tool that contains all the necessary information to present to possible investors in order to persuade them to funding. It is the story of the idea, the first touchpoint with which to convince stakeholders. It must be constructed by leveraging the emotional aspect of the product: the storytelling must intercept the sentiment and interests of the identified target, following the principle of customer personas, i.e. creating a correlation between the idea and the needs of the market. The narrative must contain the elements of the context, the problem and the resulting solution and has the primary function of creating empathy. According to some entrepreneurs, the picht also comes before the so-called product market fit, before product validation and the so-called MVP, the minimun viable product. “
The idea is always the starting point for any action that must then be transformed into a concrete project in order to be realised. In this context, the validation of an idea plays a decisive role in understanding its real potential to first be economically sustainable and then to generate profit.
This process is made up of a series of activities including research on stakeholders, the target market, potential customers and their purchasing power, and competitors. Immediately afterwards, we move on to the validation phase, which consists of two stages: validation of the problem, i.e. the correlation between the problem identified and the solution offered, and validation of the solution, i.e. verification that the proposed idea is in line with the consumer’s needs.
“As mentioned, the picht is the business card of a start-up and its conception changes depending on the target audience. If the funder is an investment fund, the presentation of the idea will have to insist more on the financial aspect, the business canvas, the revenue model. The step following the picht is the validation of the idea, i.e. all those actions that make up the process in which one tests and validates one’s solution before opening it to the market. This step is also very delicate because it is decisive for the continuation of the start-up’s life: validation clearly means having had a positive response from what one has identified as the target market. To accomplish this, one presents investors with the so-called MVP, a primordial version created with any tool made available by technology that is not overpriced, to test the reaction of the target.”
The life cycle of a start-up is made up of well-defined moments ranging from the birth of the business idea to the exit, the moment when, having reached full operation and having completed its financing, the start-up is acquired by a larger company.
“Growth accounts for 70% of the remaining work, because getting to market is important but then you have to grow and scale.
Scaling and growth are 2 concepts that may seem similar but they are not, because scalability, a pivotal moment in the start-up world, is vertical growth that allows for minimal expenditure, while remaining fairly stable with production and infrastructure costs. All of this is also possible thanks to the marketing techniques that revolve around start-ups and that lately even large companies are embracing. I am thinking for example of data-driven activities such as growth hacking, and growth marketing. Data, metrics and insights are now indispensable tools for faster, more efficient growth without wasteful economics.”
Numerous studies highlight the increasing awareness of the importance and role of digital companies within the economic system, which is also reflected in a growth of employment and GDP. Start-ups differ from other business models in their strong dependence on external providers of resources, especially financial resources.
In fact, recourse to self-financing is very impractical for this type of enterprise, where the risk of failure is very high. To overcome this, which is certainly considered one of the most critical issues for a start-up, new ways through which founders and financiers interact, such as venture capital funds and business angels, have developed alongside the ‘traditional’ forms of financing.
Venture capitalists, temporary partners of the starup, are professional investors who finance with the aim of realising a capital gain to create value; business angels are private investors who decide to take part in financing the venture capital of a new enterprise. It should be emphasised that in the knowledge economy, the innovative capacity of the start-up phenomenon has led to an intensification of cooperative relations and synergies between institutions, enterprises and investors.
The success of a new business venture is increasingly difficult to achieve without the provision of tools to combine intellectual capital with the management of technological and economic complexity. Undoubtedly, one factor to be considered is the entrepreneur’s aptitude, especially in the creation of a team capable of conveying a vision and mission that is attractive to investors and cohesive from a technical as well as a human and social point of view.
“Today it is necessary to have people management that goes beyond, or rather can be the element of innovation through the enhancement of the human factor. Leadership, as we know, is no longer only expressed through a vertical downward channel: the one man show, the one woman show approach is not characteristic of the start-up world. A good startupper must instil a feeling of positivity in his team to counteract moments of crisis, which can be many.
The life of the startupper is defined by deadlines: by definition he has a very tight time partition characterised by speed, sprint, release, which must also meet the demands of investors, and moments of stress must be overcome with the involvement of all the resources and skills of the team. The perfect entrepreneur must possess, not only as a personal vocation but also as a skill, an attitude of problem solving and critical thinking accompanied by technical tools such as design thinking and project management, which is certainly a decisive skill.”
There are many reasons why start-ups succeed or fail. They may depend on market supply and demand, incorrect business planning, incorrect financial management or a team without the right skills. Many studies note that the failure of young companies mainly occurs in the first years of their existence.
The failure rate for a start-up is very high: 9 out of 10 do not make it to market. The biggest risk is not having validated the idea well and not finding a real demand for our product/service. The biggest mistake is to think we can do everything ourselves. It is therefore important to rely on advisors who support the star-up’s journey with business models, even before drawing up the business plan, constructed in such a way that they adapt quickly to reality and are easily updated, because the start-up environment is constantly evolving.”.
According to data from Mise, the Ministry of Economic Development, more than 14,000 start-ups were registered in Italy between 2001 and 2021 that are involved in software production, research and development, or offer services to businesses. Also according to the Mise report in the fourth quarter of 2021, 71.37% of new limited companies are involved in research and development and 45.21% of those active in software development are registered as innovative start-ups, i.e. high-tech. Over the course of the various legislatures, governments have allocated various incentives to help these young businesses, which are considered a source of innovation and economic growth.
“The landscape in our country is definitely growing, we are catching up with the international context, especially the Anglo-Saxon one. Our entrepreneurs are on average 41 years old: in Europe the average age is 38, in the US it is around 33-35. In Italy we also have to overcome the gender gap. Women entrepreneurs are a clear minority and are involved in the strand of start-ups with a strong social impact, which are unfortunately also those that are much less financed than those with a high rate of technology, in which large companies are very interested, which need new technologies and are beginning to enter the market as investors, supporting start-ups also with open innovation programmes.
From this point of view, it is increasingly the case that the start-up does not make the exit but becomes a supplier to companies, a sort of ‘technical-technological’ consulting company. I would like to emphasise that in the international context, the Italians represent excellence in everything that concerns research in the medical field: health care, health tech, nano-technologies, and technologies applicable to healthcare. In these fields we are very advanced also thanks to the so-called university spin-offs that represent the best practices of how healthcare and research are done“.
Lucrezia Argentino is Innovation & Communication Expert at Opinno Italy and Coordinator of the RBS4Entrepreneurship programme at Rome Business School. She manages Open Innovation programmes and is project manager on consulting projects for digital transformation.
