I.5) have generated value and, moreover, whether value creation has been achieved efficiently.
Communication based on explaining what is and why what to do is a key capacity to influence someone else’s behavior as compared with one’s own behavior. In the con- text of entrepreneurship and building consensus among all the people of a startup it is advantageous to refer to operational facets related to each individual’s decision pro- blem in the context of objectives introduced by R. Ackoff.
Ackoff’s suggestion as cited by Runge [2006:341] is concerned with the valuation of the objectives, the possible courses of action and the efficiency of each course of action in achieving each objective and the individual’s probability of choice for each course of action. Accordingly, there are three effects of communication with a related basis, options and results referring to individual behavior and actions:
Motivation: Values of the objectives
Information: Possibilities of choice of the available courses of action Instruction: Efficiencies of the available courses of action.
Information usually affects a person’s mental state of cognition. Instruction refers to a finite number of actions to achieve a result which, as the simplest case, may proceed sequentially, but will become complicated through conditional branching options or loops. An everyday example of an instruction is the “cooking recipe.” Motivation is the major effect leaders should focus on.
Concerning operations, behavior and social interactions corporate culture in large firms develops for new employees usually quite differently. Here one often observes three paths:
Official and Codified:
“Manuals”; for instance, Operations Manual, Office Manual etc. (on paper or the firm’s Intranet); spelled out by supervisors
Official and Not-Codified:
Expected behavior; “tacit,” rarely spelled out Unofficial & Not Codified:
Do’s and Don’ts; individual leaders’ approaches to coaching and supporting.
This means, it takes rather long (and is costy) before a new employee has learned not only about the firm’s offerings and strategies, but also the culture.
Initial Architecture and Initial Configuration with Corporate Culture
for that “footprint of a firm” which may be sufficient to understand, explain and make statements about what can be expected from a firm’s development.
According to GST the architecture is always related teleologically to the founder’s goals interconnected with his/her aspirations and expectations. But there are various routes for the firm founder to reach the goals (Figure I.122). Accepting bounded ra- tionality (ch. 4.2.2) the founder may not necessarily be aware of all the paths that are possible. As a reflection of competitive situations for startups striving to reach the
“same goal” the systems view implies that there may be, for instance,
(Almost) identical architectures having different initial configurations (think of startups in different countries, think of different input material as is observed for the biofuels industry – A.1.1).
Initial architectures that may differ, for instance, just using generic technolo- gies.
Different architectures which will usually follow different paths (such as vari- ous conversion processes);
however, at a particular “cross-roads” (Figure I.122), one architecture may switch to a path of another one; think of the many processes in biofuels when an initially thermochemical route switches over to a bioengineering process, becoming a hybrid process (A.1.1.3; Figure I.175).
But, different architectures can generate the same value for firms and thus would not provide competitive advantage.
The initial configuration (Figure I.122), structurally initial architecture plus environment, depends essentially
on the industry’s or economy’s situations like a recession or a “bubble” or the start of a new industry and
on the market level and type, whether foundation is oriented toward a mega- trend, a niche, requires building a market (disruptive innovation strived for) or start in a policy-driven market or mediatorial market (Table I.15).
Entrepreneurship in an area of industry genesis represents a special initial configura- tion for an NTBF (ch. 4.3.5; Figure I.143, Figure I.144, Figure I.145) and is often asso- ciated with the phenotype of “exponential” growth (Figure I.107).
Financing is a key component of a startup’s architecture. Initial financing of techno- logy-based startups often begins before the formal incorporation of the new firm. It begins during the pre-startup phase (Figure I.52, Figure I.125).
The “pre-startup phase” covers a time span which begins with the initial communica- tion and discussions of startup intentions, driving forward related specific scientific or technical inquiries and continues until the formal foundation as a legal entity that has been authorized to operate by a state or other political authority (“incorporation”).
After firm’s foundation there is the startup thrust phase which coincides essentially with the phase of “early stage entrepreneurial activities” covering the first 3.5 years after formal firm’s foundation according to the GEM model (Figure I.15).
Incubation of RBSUs (ch. 1.2.6.2; Figure I.) represents a particularly illustrative example of financing toward formal firm’s foundation. Concerning availability or gath- ering of resources the pre-startup phase may overlap partially or totally with an incubation phase, which, on the other hand, may also extend into the startup thrust phase (Figure I.125; ch. 1.2.6.2; Figure I.).
Independently from sources of financing (Figure I.52, Figure I.59, Table I.30) one should take the statement given by a “bioentrepreneur” as a general recommendation:
“The key thing I have learned over the past six-to-seven years is the impor- tance of having enough cash in the bank. ... I have learned that it is a good strategy to raise money, even when it is not needed, so that there is always a sufficient cash cushion for when the market is uncertain.” [DeFrancesco 2004]
Initial financing as one basis of pursuing the business opportunity is a key component of the startup’s (initial) architecture and configuration (ch. 1.2.7). As founders’ attitudes (and goals) toward financing in relation to control/ownership of the new firm differ the initial financing structure is an important factor and issue when addressing a firm’s development and growth.
For proper discussion we shall introduce a taxonomy for financing of NTBFs (including initial financing) according to ownership and control by founders as given in Table I.74 (cf. also Table I.30). Control affects essentially leadership/management and strategy or strategy logics, respectively, and, hence, decision-making concerning the firm’s development or growth path and pace. Initial NTBF configurations may show initial financing according to all these types. For instance, a large number of biofuel startups started with venture capital (A.1.1). They are “VC-based startups.”
Obtaining massive amounts of venture capital or capital from an IPO does not neces- sarily mean loss of control. For instance, due to a dual class structure of common stock, a Class A share may be accompanied by five voting rights, while a Class B share may be accompanied by only one right to vote, or vice versa. Also dissection into three classes is observed.
A detailed description of a company’s different classes of stock is included in the company’s by-laws and charter. In this way the founders of the US firms Google (Box I.24), Groupon, Zynga, LinkedIn and Facebook (ch. 3.4) retained control over their firms.
Table I.74: Taxonomies of financial structures of technical startups’ initial architec- tures in terms of ownership and control by founders and related typical sources for financing.
(Almost) Full Ownership, Full Control
Majority Ownership, Almost Full Control
Minority Ownership, Little (almost no) Control
Examples (any combinations or left out of one or more of the given components) Bootstrap;
Cash flow;
3F + Bank loans;
3F + bank loans +
“angels” + public R&D projects
3F, cash flow; bank loans + public R&D organizations (e.g.
universities’, research insti- tutes’ ownership in exchange for IP) + CVC + angels + silent partnerships of (public) investors or even VC
3F + VC +CVC + private large-scale investors (“VC-backed startups”)
The vast majority of NTBFs fall into the two groups in which the founders’ control over the firm is retained (over the first ten to twelve years of their existence). VC-based NTBFs account for no more than 5 percent of all the NTBFs (Table I.23, Table I.24, Table I.25). Their economic significance results particularly from the number of jobs they generate for the national economies (ch. 1.2.7).
We shall consider VC-based startups always as a class of NTBFs where venture capital firms or corporate venturing companies exert control over the firm. Sometimes there are firms which may have venture capital from investors or companies, but con- trol remains with the founder(s), such as the above mentioned companies (Google etc.) or in Germany CeGaT GmbH (B.2) or Gameforge AG (ch. 3.4.1.1, B.2).
The transition from of a fledgling business or NTBF to a well-established medium- sized or large company is associated with fundamental transformations. If a startup becomes a VC-based NTBF the associated change from leadership and management roles of the founders does not only mean a change to professional management (Figure I.118), but usually also a switch to approaches of Management Science and Technology and Innovation Management (TIM, Figure I.1) with formalized structures and work processes, such as New Product Development (NPD), New Business Deve- lopment, PhaseGate innovation processes (Figure I.79, Figure I.134, Figure I.180) etc.
Particularly, approaches, visions and leadership/management style of a CEO estab- lished by VCs – usually persons with one or two decades of experience in relevant positions in large firms – may clash with that of a founder taking a CTO or CSO position as observed for Amyris Technologies (Table I.99; A.1.1.5).
In line with phased models we assume that the paths of the startup to reach its goal are interrupted by “transitions of one into another state” with a certain period of dura- tion (ch. 4.3.4), the “transition states.” These are depicted as squares in Figure I.122
and occur as “crises” in Greiner’s model (Table I.68) or “adaptations” in Bhidé’s [2000:22] view. Transition states will “relax” to new states which will be “dynamically stable” characterized by a new configuration until the next “interruption” occurs.
Additionally, it is assumed that
the “transitions” and associated development phases are distributed uneven and usually not foreseeable for the whole path to sustainable growth.
“Interruptions” of a firm’s development are initiated by events, happenings or “pertur- bations.” And we regard a “firm event” (or “firm happening”) as any effect from inside or outside of a purposeful system with a positive or negative impact on reaching the organization’s goal(s) or keeping the organization’s current state.
If these events or happenings become aware to the organization’s control system (for instance, the firm’s leadership or management team) they will require to make de- cisions how to proceed to reach the goal(s). Here, it is to be noted that for purposeful systems the principle “one cannot not decide” applies. This means, even no decision will have an effect on the firm’s further development (ch. 4.3.5.1).
Figure I.122: Relating initial configuration with associated architecture and variability of paths to goal achievement for NTBFs.
Usually unpredictability of specific growth paths is assumed to be due to the increas- ing complexity of the firm as it grows. But, moreover, a purposive system like a firm must always exhibit choice of alternative courses of action (Table I.6), a choice of paths. The mix of tangible and intangible resources required for growth is rather pre- cise, but shortages of any one resource, for instance, by a recession, can create bot- tlenecks with knock-on effects.
Apart from consideration of goals there may be requirements of pace for the growth of a startup. Pace can be defined by the entrepreneurs themselves (Box I.20). But in case of external financings there may be pushes for pace (or urgency) by investors or lenders. Another criterion for pace and speed up will be a conscious decision to compete against another large or small firm on pace if the entrepreneur knows that the particular competitor has a slowly moving organization, for instance, a bank [Hoffman 2007b].
Hence, pace or urgency as a driver of development may have an influence on the decision concerning the path to be followed to reach the goal.
On the other hand, Bhidé [2000:61] pointed out that there may be a number of start- ups which have no clearly defined goals, but follow an approach of adaptation to emerging or revealed opportunity: One third of the Inc. 500 sample entrepreneurs changed their initial concept.
Additionally (ca twenty years ago) 41 percent of the Inc. 500 entrepreneurs had no business plan at all and 26 percent had just a rudimentary plan [Bhidé 2000:54].
For technology ventures, however, one can assume that the situation has drastically changed. One can assume that currently the vast majority of the related technical startups have clear goals and plans (and will use a business plan). But there continue to be successful foundations without explicit and formal planning documents and are based essentially only on purposeful action (German PURPLAN GmbH, Box I.21).
Box I.21: Jump starting a company by finding, attracting and binding customers rather than writing an explicit business plan or doing detailed planning [Wintzenburg 2009; PresseBox 2012].
The German NTBF PURPLAN GmbH was founded in 2003. It had revenue of €14.2 million, 114 employees and 15 apprentices in 2011 and had revenue of ca. €18 million with ca. 120 employees in 2010 and an export rate of ca 50 percent (in 2009 €10.6 million and 120 employees; 2008 data: ca. €16 million and 103 employees; 2007 data:
80 employees, 2006 data: ca. €7 million and 65 employees). Since the year of foundation revenues have increased by a factor of ca. eight.
PURPLAN plans and constructs complex plants for storing and refining liquid sub- stances – many of which are water-contaminating or inflammable, such as MDI and TDI and polyols for polyurethanes, hardeners, binding agents, pentane, solvents or glues. PURPLAN with a distinct focus and targeting consequently a niche in estab-
lished markets has been recognized by the German National Founders’ Award as one of the Top-Climbers (Box I.17).
PURPLAN carries out demanding tasks combining high-tech-planning and precise workmanship and executing its contract jobs through project teams in which engineer- ing competence and practical project-handling skills complement each other success- fully. Running successfully the interfaces between engineers, master craftsmen and craftsmen is PURPLAN’s core competency.
Usually, there are firms which are good with planning or good with fast and cost- efficient construction, but only few can combine both areas. The interface is very difficult to manage. Characteristic features of all PURPLAN plants are holistic system solutions, high user comfort, quality and pronounced safety systems. In the area of automation programming is performed and software-solutions are compiled which meet the most sophisticated requirements.
PURPLAN has two mid-aged (ca. 45 years old) engineers as founders and firm’s foundation resulted from frustration. One of the founders, Andreas Sandmann, was an employee and engaged considerably for fifteen years in building a machinery firm.
However, in the end his boss rejected to delegate more responsibility to him.
Sandmann wanted to shape more, wanted more decision-making authority and more reward.
Fully upset by this situation he decided to leave the firm and founded together with a colleague, Oliver Schawe, the firm PURPLAN – without a business plan, credit and starting capital. Their major “capital” was experience and contacts and networking.
The team just called potential customers by phone (“cold call”) and caught the first orders for selling a plant for production of polyurethane foams – via sub-contractors.
At the beginning they just wanted to plan the plants. But with an increasing number of orders growth started and customers suggested that they themselves build the plants – and they started PURPLAN. In retrospect Sandmann’s conclusion was: “I now reap the fruits of several years of employment. This would not have been possible immedi- ately after leaving the university.”
This path of experience-based entrepreneurship starting with not much planning to change over to production compares with starting with consulting (ChemCon GmbH, B.2) and focusing directly on customers without much explicit planning; and it is similar to the path the founders of SAP AG (A.1.4) followed.
PURPLAN followed “opportunistic adaptation” [Bhidé 2000:18] which means without much effort to prior planning and research or only sketchy planning and rather high risk entrepreneurs adapt to unexpected circumstances in an “opportunistic” fashion.
PURPLAN GmbH is one of the above mentioned NTBFs which almost from the start are involved in commercial activities and production-oriented firm’s foundation oc- curred through initiatives of customers. Some key components of the initial architec-
ture include the founders having industrial experience in the startups activities, the firm type being “other (academic) NTBF” (Figure I.122; Table I.2) and relying on unique core competencies (Box I.21). Firm developments followed an exponential growth until 2008, when the Great Recession began.
As market entry by catching customers represent a key step and event for a startup and having already customers at the foundation provides simultaneously an emer- gence of an initial configuration out of the initial architecture.
Having orders and/or customers already at firm’s foundation is a special favor- able initial configuration as it does not only provides revenues (and positive cash flow) from the beginning, but makes further planning of penetration into a largely known market rather reliable.
Correspondingly, it will be much easier to attract external financing, if needed.
The below Figure I.123 illustrates this situation for the case of WITec GmbH, which was founded as a university spin-out (firm type RBSU) by an entrepreneurial triple (Table I.41). Similar to PURPLAN growth of WITec in terms of revenues exhibits a dip when a recession (here Dot-Com Recession) occurred. Otherwise growth follows roughly a linear pattern. Though revenue data are still missing, WITec does not seem to exhibit a decrease of revenue in 2010 as most firms do during the Great Recession.
A “full” description of WITec’s entrepreneurial configuration is given in Table I.80.
Figure I.123, continued.
German WITec GmbH (from Ulm in Germany; B.2) started 1997 with a real cus- tomer and some more customers with purchasing intentions and provided reliable expected values of profit data for 1998 [Koenen 2010]. This opened options to choose among three banks which offered needed loans for expansion (financial resource base). WITec’s initial architecture is additionally characterized by a favor- able leadership team (Table I.41, Figure I.73) and resource building.
Since 1998 revenues of WITec exhibited strong linear growth (squares represent real data, the dashed arrow extrapolates early revenue data). CAGR (Equation I.10) between 1998 and 2009 is ca. 29 percent. Since 2000 productivity of WITec is extraordinary and consistently around €271,000 per employee (configuration in Table I.80). WITec shows both innovation and investment persistence.
WITec could finance its growth essentially from generated cash-flow (“organic growth”; Figure I.127). In 2010, however, it added non-organic growth to its strat- egy. It acquired a majority stake of the Ulm company omt optische messtechnik GmbH which focuses on industrial process control.
Figure I.123: Revenue development of German WITec GmbH.
Similar situations of initial configurations (Figure I.124) when entrepreneurs start with customers with foundation of the new firm are the management buyout (MBO) and business succession (as described for Aluplast GmbH and KWO, B.2). A key differ- entiator here is the architecture with regard to education and/or experience of the en- trepreneur(s). Admittedly, business succession is rarely a “new firm.” It could be one, if the successor(s) reduces activities in the old business considerably and adds a new one or changes over to a totally new business model for the firm.
If there is an a priori strong interconnection of the founders’ intentions and an explicit goal, there may be situations happening inside or outside the company that require changing the path. Furthermore, if the founders evaluate particular paths to be equiva- lent so that they cannot decide which path to follow they find themselves in a situation of “experimenting” – probably by trial and error.
The theme remains, but the way of implementation and execution changes. Then, it is of extreme importance to stick persistently to the vision and the essence of the goal – there must be goal persistence (Figure I.122). Take, for instance, the US company PayPal (A.1.7) that provides people the opportunity to pay online. Recently, payment by PayPal became also available for smartphones and PC-tablets.
According to Wikipedia, PayPal, founded in 2000 as a merger of two startups, is an e- commerce business allowing payments and money transfers to be made through the Internet (“e-payment”). Online money transfers serve as electronic alternatives to tra- ditional paper methods such as checks and money orders. A PayPal account can be funded with an electronic debit from a bank account or by a credit card. The recipient of a PayPal transfer can either request a check from PayPal, establish his/her own