Startups Changing the Nature of the Economy

Walking into the Hofburg, city palace of the Habsburgs, you might well expect a world of elegance, nobility and pomp. Not today.

At the startup and tech event Pioneers Festival, everything on stage is constructed from wooden pallets: a microphone pedestal, a table, two armchairs and more. Wooden pallets are the building material of an imagined object, just the way startups are the foundation of new enterprises.

Organised by the STARTeurope, an agency that supports startups and provides them with necessary information and advice on how to turn an idea into a business, the Pioneers Festival is an annual event in Vienna where entrepreneurs meet investors, a kind of startup academy for sharing know-how.

Defining a startup is difficult. Steve Blank gives one of the most comprehensive definitions of startups as temporary organisations designed to evolve into larger companies. In general, they go through six stages of development: discovery, validation, efficiency, scale, sustaining and conservation. In recent years, the role of startups has grown due to an increase in open source inventions, open architecture, and a massive increase in communication and intellectual exchange.

"We are experiencing a socio-economic shift that is driven mainly but not solely by innovations in the software industry," said Björn Lasse Herman, the founder of the Startup Genome Project, whose aim is to decrease the number of failed startups by providing advice and feedback. But software cannot design itself; it takes bright and determined people to play with it and simply create.

"Every startup, in India, Chile, U.S., or elsewhere, has an opportunity to become the new Google or Facebook," Herman encouraged the audience. But how does one know that an idea is a good one?

"The best way to test your product is to launch it on the market and wait for the feedback," said Dr. Thomas Funke, director of the Research Studio e-Spark at the Institute for Entrepreneurship and Innovation at the Vienna University of Economics. Entrepreneurs have to analyse the market, define a customer base, secure funding, and calculate costs and projected profit. Beyond this, it’s a question of timing and purpose.

"The best way to predict the future is to invent it," said Adam Cheyer, founder of Siri quoting Alan Kay. "But timing is everything." However, without having the right purpose or market need, looking for the right moment could be pointless.

Every startup must have a purpose, said Tom Hulme, a serial entrepreneur and startup investor. "A purpose has to evolve and grow beyond moneymaking. A balance must be achieved between earning money and reaching happiness." To find a purpose, young entrepreneurs have to simply act, do experiments that measure not only the response of their direct customers but also the impact that their product has on society at large.

 

No one claims this is easy

The startup journey, as Hulme explained, consists of three phases: ignorant optimism, informed pessimism and informed optimism. It is during the first phase of ungrounded confidence that more than 90% of all startups fail. The figure is an estimate, as Dr. Thomas Funke explained to The Vienna Review, because of the difficulty in distinguishing an idea from a startup. However, it is not an exaggeration to say that the failure rate is high.

"The majority of companies do not fail because of the competition," said Björn Herman during a workshop at the festival. "The key reason is mostly self-destruction, usually caused by companies doing things that later turn out to be irrelevant." This is caused by two factors: uncertainty and lack of visibility into the market. This can result in premature price-scaling and over-engineering of the product while ignoring customer development.

"One of the reasons why this happens is because most young entrepreneurs think they know exactly what they’re doing and what is right," Herman said. Entrepreneurs have to constantly re-assess their assumptions and stay focused on setting their priorities: to learn how to say no to many and yes to only a few essential things. It’s what Herman calls the "entrepreneurs’ paradox", "the ability to hold on to a vision of where you want to get and what you want to achieve, but at the same time thinking very short term, and question every single step that you take."

However, not all is up to entrepreneurs, because the success of startups is also determined by the startup ecosystem, a subset of a larger entrepreneurial and business ecosystem. In a report published by Dr. Thomas Funke and Ulrich Fandl at the Institute for Entrepreneurship and Innovation, a startup ecosystem is defined as "a set of networked institutions with the objective of aiding the entrepreneur to go through all the stages of the process of new venture development." Every ecosystem is unique. Austria’s parametres include the available subsidies, the talent pool, understanding of the culture and the startup community, access to capital, and adhering to tax obligations and restrictive labour laws. Benefits would be the stability of the market and the central geographic location.

According to the report, Austria is still behind leading countries, like the U.S. and Germany, in the number of startups, and quality and amount of support provided. Although the Austrian startup ecosystem has matured in recent years, only 1% of approximately 330,000 students get educated in entrepreneurship, Funke told The Vienna Review.

"Among the 75% of students that think about founding a startup, only 5% actually do, and significantly more men than women," he said.

Two problems in Austria that require immediate attention, according to Funke, are a lack of entrepreneurial spirit and poor communication between entrepreneurs and agencies that provide support, funding and feedback.

"Austria does not lack startup initiatives or agencies that provide support in various ways," Dr. Funke said, "but it usually comes down to knowing someone who knows someone and so on." His recommendation is for more transparency as to what is available and who qualifies. This would boost the interest among talented students – the responsibility of universities, but also of government and agencies.

Research Studio e-Spark and a few others are determined to close this gap and create a new line of successful Austrian entrepreneurs. But without even greater involvement of the government and universities, their effort is pointless.

Having Europe’s largest startup festival held in Vienna is a hopeful sign.