What Do You Have to Know to Build Healthy StartUp Ecosystem
Aleksandar Mastilovic
Telecommunications Engineering and Telco Market and Regulation Expert, Digital Transformation for eGovernment and SMEs Consultant, Scientist, 5G and Smart Cities Lecturer, Tech Agitator, Policy Maker, Entrepreneur
All expressed views, statements, and opinions are my own and do not reflect any of my affiliations. This is, primarily, the tech blog series, not limited to technologies and engineering only but also considering digital transformation's economic, environmental, social, governance, and other impacts on humanity.
In today's rapidly evolving world, we are witnessing the emergence of disruptive technologies such as 5G/6G, Edge/Fog/Cloud Computing, Internet of Things (IoT), Artificial Intelligence (AI), and their combined applications in complex ecosystems as Smart Cities, and Digital Transformation for Public Administration, Industry and Business, each posing a unique blend of opportunities and challenges. My blogging aims to raise awareness of benefits, risks, challenges, and solutions for achieving the Smart Society and share my knowledge, experience, thoughts, predictions, and analysis.
Start-Up Current State
Entrepreneurship is a buzzword - without any doubt. Today, everyone discusses innovation, start-ups, and communities. The side businesses around the main topic of entrepreneurship become even bigger than start-ups. Together with money, many self-called experts are infiltrated into these communities, offering training, advising, and supporting services - but with very doubtful quality and benefit for attendees. Still, the truth is that most of them cannot start their businesses, and many of them have never tried. They don't have any experience or talent for entrepreneurship, but in today's world in the Age of Social Media, everything happens too quickly, and we cannot evaluate the value of "contributors" and what they use as their opportunity.
I will soon write a special blog focused on the "fake" experts with 10-line headlines on their LinkedIn profiles - that is not focusing on this blog, but it is strongly related, and we should keep that in mind. I start my blogging with non-technology topic to bring broader community together. Entrepreneurship is a perfect platform to bring various communities together, from young entrepreneurs and founders, banking sector, VCs and individual investors, even politicians and decision-makers. Even academic community can find its role in transferring their scientific results into business and practical implementations.
My motivation to write on start-up is the fact that I face the lack of deeper understanding of structure and roles of different stakeholders in the ecosystem. It is more than critical to help everyone in the ecosystem to understand basic components and their specific roles in the successfully established entrepreneurship ecosystem, especially needed for high-tech start-ups. It will help founders to identify easier who are skilled players in the pool and who are just so-called experts. The key takeaways from this blos is to understand roles about the main nodes of an entrepreneurship ecosystem: Incubators (usually containing Code Schools and FabLabs), Accelerators, Tech Hubs, and Venture Funds (VC and capital and investment mechanisms will be a special topic in future blogs).
Incubators - Accelerators - Tech Hubs
There are more than 70.000 start-ups only in the United States currently, but also thousands of them in the EU, China, India, and many other countries which recognized the potential of entrepreneurship actions for economic growth and social progress, meaning that millions of founders around the world looking to grow their businesses. Start-Ups are not only about economic growth but also might strongly impact other social aspects, such as improving the social inclusion of weak groups such as young people, women, minorities, etc. Self-employment and reaching the market outside their community and country usually give them a chance to increase their independence, a feeling of freedom, and an opportunity to build a better life.
Start-Ups and their founders naturally gravitate to incubators, accelerators, and tech hubs aiming for support and advising in their early-stage steps, looking for opportunities to convert innovative ideas into real business products and services. Most of them try to create some prototype form and pilot actions that can be presented to potential investors and Venture Capital (VC) Funds. Incubators, Accelerators and Tech Hubs are different nodes in the entrepreneurship ecosystem and infrastructure, and they are usually founded by the government, cities, and universities to support creative design and creative thinking and launching new businesses. However, all three types of nodes have many things in common.
Which One Should You Join? Depend on What Your Start-Up Needs
Incubators, Accelerators, and Tech Hubs help fill any knowledge gaps for founders and get better access to what start-ups need to?grow: Skills, Capital and Customers (if we want to simplify the story, these three types of nodes are focused on one of these three grow parameters, what will be described in the blog).
Finding the right door to knock on is a bit tricky, especially for inexperienced entrepreneurs and start-up founders. Incubators, Accelerators and Tech Hubs are related but also distinct entities by their type and different between individual entities in the same category by capacity, equipment, expertise, and other parameters.
1. Incubators: Lay the Groundwork
Incubators generally focus on early-stage start-ups providing support mostly in skills necessary for success. Start-Up founders can learn the basics of innovation, innovation management, creative design, creative thinking, and basic principle of business models and learn to create their business plan.
Whom does it fit for incubating phase? There are no hardline criteria, but if you match all these three criteria, the Incubator is usually the right place for your start-up:
Incubators work with founders helping them to determine the viability of their projects. We should consider that sometimes the best ideas and products don't fit the market at the moment or the market is not ready for it. If that is the case, Incubators have a task to help founders to reframe their ideas and transform them into new concepts which fit better into the current market. Incubators do a great job if they help founders save years of invested time and money in ideas that could be more viable for the market, which is the key aspect of good mentorship. It sounds simple YES or NO, but behind that, mentors in Incubators should be highly experienced experts from various fields, from engineering, marketing, and business, and people who failed and successes at least once with their own ideas.
Founders and their teams have the opportunity to collect or expand their skills in Incubators, especially if we talk about tech skills in software and hardware design and prototyping. Because of that, Code Schools for software engineering (programming, basic algorithms, web design, web programming) and FabLabs for hardware-electronics design training are located in Incubators.
领英推荐
I will write more on Business Plan for Entrepreneurs in this blog in tghe form of a basic NPV Analysis. Each of parameters such as CAPEX and OPEX contain many subparameters inside - some of them we can calculate, other should be estimated based on available information on market state, estimated APU (Average per User) profit and etc. For all of them, there are methodologies how to do it and it is not free will and ad-hoc estimation process. We will learn some of methodologies for market analysis, but as I am a telco engineer, I usually prefer and use the telco market examples and methodologies.
For founders, besides product and service design and prototyping, it is essential to learn how business works and how to calculate basic elements for their business plans, which should be presented to potential investors and VCs. Their business plans should contain detailed calculations of CAPEX (Capital Expenditures), OPEX (Operational Expenditures), TOTEX (Total Expenditures), CF (Cash Flow), FCF (Free Cash Flow), DR (Discount Rate), DCF (Discounted Cash Flow), EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization), NPV (Net Present Value) or alternatives such as IRR (Internal Rate of Return), ROI (Return of Investment), SROI (Social Return of Investment, considering social impact together with financial, even sometimes including environment - climate change and (good) governance impact, calculating ESG scoring for non-financial reporting besides traditional financial reporting).
Before we learn more on business planning for entreprenurs, remember the fact is that nobody will invest their own money in your projects and ideas (even if you have amazing ideas) if you don't have a properly prepared business plan and calculated positive NPV within reasonable period of time (3 - 5 years, usually). Investors give you money for their own profit and you should present viable plan how you plan to earn them money (they don't care if you will earn money for yourself!).
2. Accelerators: Scaling Opportunities
The key difference between the roles of Incubators and Accelerators are in that Accelerators usually require market-fit verified start-ups. Accelerators desire to scale the start-up as their primary focus.
The scaling in the context of Accelerators usually means that Accelerators connect start-up founders with capital. Accelerators ensure founders have all the right tools for an investor conversation and are prepared to answer the questions investors will ask. Seeking investment capital for a start-up is a serious commitment. Once a start-up gets the capital investment, everything starts to change quickly. A start-up with capital investment has to proliferate and scale its operations - the founder(s) are no longer lone stakeholders in that business. Founders are beholden to the returns their investors expect of them at the exit point - many VCs and investors intend to exit from the start-up within 3-5 years with achieved financial interest agreed upon at the starting point of investment based on the presented business plan.
At the moment, start-ups get investment, and Accelerators support them to scale with organic growth strategies, refining business strategy, marketing, and other services similar to Incubators.
3. Tech Hubs: Connect Start-Ups with Community
Tech Hub is a broader term, but it usually refers to an organization that serves as a central landing zone, often a physical place, for the region where these startups, startup support programs, and investors can be based. Tech Hubs are, sometimes, and that is the best option, located on university campuses. Students use them, but also professors and scientist for their scientific and research work and converting (sometimes theoretical achievement) the R&D into business. Tech Hubs are visible because they organize seminars, workshops, talks, and events. Still, they also offer mentorship and resources that entrepreneurs can use as co-working space, community programming, social events, and networking opportunity.
Unlike Incubators and Accelerators, most Tech Hubs don't have a set curriculum for entrepreneurs. Instead, entrepreneurs can choose their adventure and take advantage of the resources most relevant to their needs.
Position Yourself as An Entrepreneur
Everything we learn in this blog together is also a great test - when you approach a potential mentor, incubator, accelerator, or tech hub, talk to their leadership. They have to know their roles - ask them for the support and services they provide to ensure you speak to the right people. Unfortunately, you will realize soon that half of them exist for their own purpose, or they lay based on some grants outside as an amazing machine to spend money without measurable and visible outcomes. So when you find great mentors and nodes as incubators, accelerators and hubs - share your opinion and help the rest of cummnity to self-filter bad insiders.
Of course, even the best incubators, accelerators and hubs are not business runners - it is still your responsibility for your business, and it is about your right choices at any stage of start-up evolution, so at least you have to know what you have to know and whom to ask. High-tech skills and unique difficult-to-clone ideas are the best way to succeed, and don't believe you can do a successful global business based on already old-fashioned ideas, e.g., smart v-cards and web shops. Don't sell product and services - try to sell new added value to customers to attract new and keep existing customers - the business is about loyalty so build your community and passion.
The world in 2023 needs more. We have to accept the fact that not all of us are enough skilled and talented to become successful entrepreneurs - but it is still great if you can join another start-up with your passion. A global statistic shows that only 0.3% of start-ups become vital companies, and less than 0.05% reach a global market. It doesn't mean you don't need to take a shot and try - otherwise, you will never know...