State III Good-growth in sales
4.3.2 The Initial Architecture and Initial Configuration
The startup constellation represents a key for entrepreneurship as the basis for further development of the firm and its assessment by others (“observers,” particularly finan- cial backers). It will generate expectations concerning the development or even gener- ate expected values for the firm (,for instance, financial projections of VCs).
In line with the GEM model (Figure I.15) we assume this constellation to be preceded often by a “pre-startup” phase comprising linking idea generation and revealing op- portunity and conceptualizing the firm (Figure I.125). In the GEM-approach (Figure I.15) the pre-startup phase covers activities of the “potential entrepreneur” and the
“nascent entrepreneur.”
The diaries of the German firm Suncoal Industries GmbH (B.2) provides a lucid insight into the pre-start phase of an NTBF.
Basically, one must differentiate the founding success and the survival of the new firm.
We shall denote the one to four years period after firm’s foundation as the “startup thrust phase” (Figure I.125). Our discussion will follow an approach focusing on the founder person(s), resources and environment as well as the founding process. Here the vision and mission of the founder(s) (ch. 2.1.2.7) are important for building the firm and expectations.
Previous research suggests that the initial choices of the entrepreneur or the team have a lasting impact on the way the company evolves. In particular, they may facili- tate self-reinforcing mechanisms (ch. 2.1.2.5), positive feedback mechanisms, by which a system’s conversion processes and output (Figure I.5) or states are enhanced or brought into a more favorable situation.
For instance, group formation is often associated with processes of system’s develop- ment by self-reinforcement and self-enforcement (ch. 2.1.2.5). Early decisions refer- ring to intangible and tangible resources (Table I.8) will be important (ch. 4.2.2).
The discussions so far emphasized the fact that startup and NTBF development will be affected not only just by financing, but also by associated issues of ownership and control of the new firm. Correspondingly, initial architectures of NTBFs must be differ- entiated – by one of several classes of taxonomy given later in Table I.74 and Figure I.128 – to discuss the various NTBF developments adequately (cf. also A.1.1.6).
Initial resource endowments – the stocks of resources including the founders’ experi- ences (ch. 2.1.2.4) that entrepreneurs contribute to their new firms at the time of founding – may explain the different life chances of new firms during start-up (cf.
[Bhidé 2000; Klepper 2001]). In that way certain firms, such as spin-outs of industrial firms or serial entrepreneurs already control a relatively large productive base and some financial reserves at start.
Initial financing and very early development will often rely on own resources and re- sources of family and friends (3F) and significant cash flow (Table I.23, Table I.24, Table I.25).
And there is a number of NTBFs which were started because the founders had al- ready customers (notable cases cited in this book are ChemCon GmbH (B.2) and PURPLAN GmbH (Box I.21) whose founders started as consultants or engineering planners, IoLiTec GmbH and Solvent Innovations GmbH (A.1.5), WITec GmbH (Table
I.41, Figure I.123; B.2) and US Cambridge Nanotech ([Yang and Kiron 2010], Table I.80; B.2) , SAP AG (A.1.4) and Concept Sciences, Inc. (CSI; Box I.11).
Furthermore, family and family members may not only provide financial resources (3F, ch. 1.2.7) or buildings/land to the entrepreneur, but also other business-related sup- port and advice or other commitments as observed for William Henry Perkin in Britain, the “father” of the synthetic organic dye industry (A.1.2.), ChemCon GmbH (B.2) and Nanopool GmbH [Runge 2010].
Additionally, the Family & Friends System (ch. 1.2.2, Figure I.16, Figure I.17) may pro- vide emotional support and role modeling. For instance, spouses with similar or com- plementary talents, skills or education (for instance, commercial rather than technical orientation) may enter the startup of the entrepreneur full- or part-time, as described for the role of spouses of the US firms Osmonics, Inc. and Avery Dennison [Runge 2006:91-94, 474-477]. Spouses also founded Cisco Systems in the US (both with IT competence; Figure I.145) or in Germany ATM Group AG (B.2), CeGaT GmbH ([CeGat 2011], B.2) and OHB AG (end of ch. 2.1.2.4).
Hence, many entrepreneurs owe much of their success to parental education or inher- ited or won family contacts. WITec GmbH could take advantage from two factors. One of the founders, J. Koenen, got a loan from his father-in-law who also served as a role for being self-employed (Table I.41).
Special family-related cases occur if entrepreneurial activities sprout out of existing firms of the family. One case concerns business succession. Another case is “branch- ing” or “specialization” of a family-owned firm. For instance, the German startup
“Heppe Medical Chitosan GmbH” providing nano-chitosan as well as high-quality and high-purity chitosan and chitosan derivatives for medical and cosmetics applications is run by Katja Heppe (now Katja Richter), whose parents run the company Heppe GmbH. The parents’ firm produces among other things chitosan for industrial paper and textile applications.
Chitosan is a natural product, a linear polysaccharide, which is produced for commer- cial use from the shells of shrimps and other sea crustaceans. It is one of the most important renewable raw materials of the world, cellulosics being the most important one.
At the startup phase the founders’ aspirations, ambitions, experiences, competencies and skills are crucial to the company’s growth, as are financial and business re- sources. But, potentially interconnected to financing aspects, the initial startup setting is influenced by the fact whether the startup will strive for large-scale production or whether the characteristics of the opportunity requires fast development for entering the market.
Large-scale production requires tremendous amounts of capital. To be successful a rule-of thumb says: For markets with short product cycles the time till market entry is important, for longer product cycles cost of production is critical.
For the startup the environment of the NTBF is relevant, for instance, statuses and developments of technology, existing or emerging functionally equivalent technologies and industry (segments, markets and competition, and other relevant systemic in- fluences). Therefore, the entity of inquiry will be the initial configuration which covers the startup’s initial architecture (ch. 1.1.2; Table I.5).
Technology entrepreneurship may be compared with an across country auto racing with a starting point and various initial conditions, but with a given finish. At the start there are cars with various technical and design features having a driver or driver team with various capabilities and experiences. But to reach the finish (goal) there are several courses with various hindrances, bar- riers, ups and downs as well as bumpy or smooth roads and an environment affecting the course, for instance, wind and rain making the course slippery.
And there will be gas stations to get needed power and cross-roads requiring a decision to follow the planned route or changing direction. The “starting con- stellation” of the entity determines the momentum for “lift-off” and then deci- sions will have to be made which route to follow initially (the “expected path to success”) and in which manner (“action and execution and speed”).
A complementary metaphor can focus on the start of an aircraft: A runway is used for preparation and then there is a needed thrust for the departure of the aircraft (lift-off).
All that is in the aircraft’s “potential”; and sometimes there may be an additional mo- mentum, for instance, wind from behind (for instance, reflecting a startup having al- ready customers on foundation, as described above).
The metaphor concerns the “startup thrust phase” (Figure I.125) which may cover a one to four years period with the startup and the founder(s) having their new firm steam up (Figure I.122).
For those NTBFs which started with having customers the thrust phase will be very short, probably one or two years. The startup thrust phase of NTBFs will be as- sociated mostly with characteristic “average” growth rate patterns (Table I.70, Table I.71) reflecting “acceleration” to lift-off. The startup thrust phase must be differentiated from the “scale-up period” of new firms with large-scale production which usually takes six to eleven years until product launch into the relevant market (Table I.73).
If vision is where the entrepreneur wants to arrive at (ch. 2.1.2.7), culture is the foundation he/she can get there (cf. also Table I.43).
In this context of direction, execution and control Reid Hoffman, co-founder of LinkedIn (ch. 3.4.2; B.2), made some recommendations for entrepreneurship [Kaiser 2004]:
“Smart people tend to think that they can execute on a complex plan. Executing on a complex plan is generally a recipe for failure. If you can’t make a startup work on a simple plan then your chances of success are very low.
Another lesson is that as an entrepreneur you want to choose a project that is far enough away from what others are doing. You want as much distance from other players so that you have the opportunity to create something.
The last thing I would add is that you want to measure your endeavor as soon as possible. You want to be able to gauge the viability at the earliest possible moment, so that you can change and adapt your model as needed.
Entrepreneurs tend to want to launch only when their product or service is perfect.
The problem is that waiting undermines the ability to evaluate whether the idea works as quickly as possible, so that you can correct course. Correcting course frequently is key to success.” (cf. overshooting, Figure I.88)