Starting a business is inherently challenging and risky. Entering a world of experienced competitors where you have no standing or reputation means that it’s always going to be an uphill battle to gain recognition and start to be financially viable. What often makes this even harder is that the systems and processes that support businesses are largely modelled around companies that have a track record, not those just starting out.
“When a startup is in its early stages - the first five years or so - it’s very difficult to have financial indicators that are above zero to show their funders that they are productive and are experiencing growth”, says Dr Efpraxia Zamani, Senior Lecturer at the Information School and one of four co-investigators engaged in research to address this problem.
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| Dr Efpraxia Zamani |
With Anastasia Griva (from the National University of Ireland Galway, funded by the EU’s Horizon 2020 research and innovation programme), Dr Dimosthenis Kotsopoulos and Dr Angeliki Karagiannaki (both from ELTRUN, Athens University of Economics and Business), Dr Zamani has been working on this project with early career digital startups in Greece over the past two years, building on existing relationships from past research.
The project’s first stage aimed to define what “growth” actually means for early stage startups; this is a gap in the literature, but also something that is much needed in practice.
“Existing definitions of growth tend to rely on indicators such as profit growth and labour growth”, says Dr Zamani. “These metrics have very little relevance for early stage startups.”
Firstly, the research team consulted experts and practitioners in the field, venture capital funds and incubators (bodies which support startups), asking them for their views on what growth is, as well as how - or even if - it should be measured, and how all of this relates to the capabilities of startups. Next, a survey was conducted with both early stage startups and startups that were more mature, asking about their experiences. Specifically, the survey looked at how company culture was perceived to affect growth and what capabilities were necessary to achieve growth early on. After gathering all this data, the team then needed a more nuanced understanding of what these metrics really meant.
“Existing definitions of growth tend to rely on indicators such as profit growth and labour growth. These metrics have very little relevance for early stage startups.”
“We wanted to focus more on the contextual factors; how these things actually relate to the everyday experience of startups”, Dr Zamani explains. To do this, the team undertook a comparative case study of two Greek startups. Startup A was an early stage virtual company, who had been working remotely from their very inception, with no physical footprint. This company was focused on technological innovation, in terms of their products and services but also in terms of their internal processes as a business. Startup B was a little more mature, having gone through growth and now functioning as a profitable company with positive financial indicators. This second company did have physical premises, but - like so many - was now working remotely due to the COVID-19 pandemic. Both companies were interviewed about their company culture, their perceptions of growth and how they actually went about promoting and selling their goods and services to their customers.
In comparing the two companies’ responses, the team found that Startup A were in the habit of holding back their technological innovations, making sure they were absolutely perfected before releasing them. This was at the expense of focusing on customer experience and satisfaction. Startup B, in contrast, focused more on continually improving their products and services once they were released, as well as paying attention to customer experience. They also placed a lot of emphasis on the satisfaction and happiness of their staff base.
“Whilst the first case couldn't really break free from that early stage, the second case managed to very quickly gain positive financial indicators due to their focus on their staff and their clients”, says Dr Zamani. “They were more ready to adapt to the turbulent environment inflicted on them by the pandemic.”
Despite already being based solely online, Startup A were simply not able to adjust their operations and selling capabilities effectively enough to sustain growth through the challenges that faced them in 2020.
From their findings, the research team came to define growth for early stage startups as “the result of the company’s selling capabilities, but also the ability to scale up using their entrepreneurial skills, adaptability skills and innovation capacity”. In order to achieve this kind of growth, the company’s “absorbing capacity” has to also be considered: realising the value of external knowledge, such as from consultants or incubators, and bringing it inside knowledge from outside. This, the researchers conclude, will help them to attract additional funding.
“The pandemic gave us an opportunity to see how [digital] technologies offer business continuity or how they can actually be an obstacle”
At the end of the study, the researchers developed some propositions intended for academics to take on to further research, but also for practitioners to implement into their contexts in the field. One of these propositions is that early stage digital startups which experience growth do so because they have enhanced their selling capabilities to include empathy for their customers; engaging with them and developing their products and services based on their needs, rather than just pushing whatever things they want to sell. Another proposition is that successful early stage startups exhibit absorbent and adaptive capabilities; taking external information from experts and from their own analytics and appropriating them into their own contexts. This helps prepare them for any major disruptions - such as the major one we are all still living through in 2022 - and making them more likely to survive.
“My personal motivation to be involved in this project was less to do with an interest in growth but more an interest in the digital”, says Dr Zamani. “What is its role in a startup? Does it help or inhibit operations? To what extent do advanced technologies like business analytics and the Internet of Things provide value for clients and businesses?”
“The pandemic gave us an opportunity to see how these technologies offer business continuity or how they can actually be an obstacle”, Dr Zamani continues. “These companies are not always supported by governments, so we were interested in how they themselves could leverage the digital to move into a place where they don’t need more investment.”
Startups need information to feed into the analytics machine right from their beginnings in order to identify opportunities. Though they might not have an ‘information professional’ on their team defined as such, every stage of a digital startup's early years will require the exploitation of data in order to put the company at the forefront of their area, making them attractive to funders even in the absence of traditional financial indicators.
Dr Zamani says that some of the findings about company culture were unexpected. The successful startup that was studied was consumer-focused, as expected, but the prioritising of continuous staff development was a surprise.
“They were looking for people that would fit into the organisation, irrespective of whether they had the technical skills”, Dr Zamani explains. “They were confident that the business itself could support them to develop the skills, whereas the organisational fit either works or it doesn’t.”
The other startup was hiring people that were experts in their field and had the technical skills required for their roles, but that didn’t always fit into the organisation.
“They failed to see that and it created a higher staff turnover, which impeded their growth”, concludes Dr Zamani.
A research paper has been published on this project, with another in the pipeline. Dr Zamani hopes that angel investors and other funders will take an interest in the project’s findings; investors decide whether to invest in a company based on if they believe in the product or service, but they also want to see indicators which may not exist for early stage startups, and this research aims to close the gap and stop these startups from being excluded from funding. Dr Zamani posits that anyone interested in digital entrepreneurship will get something from this research, especially given that the study was undertaken over such a long period of time and with multiple different approaches, giving many different angles to the issues tackled.
By helping young businesses to be able to define and show their growth to investors and customers alike, Dr Zamani and the rest of the research team behind this project are taking their expertise in the digital world out into the real world and trying to level the playing field in any number of competitive markets. Information is at the heart of everything in modern society, with business and technology being just two of many intersecting areas. There’s never been a more exciting time to be working in information science.
- Richard Spencer
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