Start-ups: Revolutionising traditional business models

Launching a new business, particularly one for which there is no like-for-like precedent, isn’t easy. Stories of the mammoth success of certain entrepreneurial ventures – for example, the many tech start-ups founded in the innovation hub that is Silicon Valley, and dot-com bubble ‘winners’ such as Amazon and Microsoft – are ones most of us have heard about. However, they may have given the impression that a great business idea, some initial investment, and the right people on the job is enough to get an early-stage business off the ground and enjoy rapid growth.

Sadly, most entrepreneurs and start-up owners find out, often quickly, this just isn’t the case. In fact, the reality is 90% of start-ups fail – 10% within their first year. Financial mismanagement, poor market-fit, misjudged pricing, strong competition, ineffective marketing, and inferior-quality new products and services are all common causes, among many others.

How can business owners and start-up company founders avoid these pitfalls? What key skills and expertise are needed to give a young company the best chances of success? What differentiates start-ups from other businesses?

What is a start-up?

While start-ups share many similarities with regular types of businesses – they contain groups of employees who work collaboratively to deliver products or services consumers will buy – a fundamental difference exists: the way in which they approach this. Regular businesses work from templates, replicating business models that are already proven; start-ups break the mould, creating brand-new templates and establishing new ways to innovate.

Start-ups are also typically differentiated by the ways they utilise new technologies. This tech-focused approach is why they are often able to achieve growth and success on a level traditional business can’t compete with: they revolutionise industries.

There are different types of start-ups.

• Scalable start-ups aim to launch a venture and then rapidly scale or grow it in order to deliver the maximum return on investment (ROI). Scalable business models are typically tech-based, require extensive market research to identify and exploit potential opportunities, and aim to dominate in their given industries.
• Social start-ups are designed to enact positive change – for example, social or environmental – rather than making vast amounts of money for founders and co-founders. Social ventures are often developed to tackle widespread issues in disadvantaged communities.
• Lifestyle start-ups are based around a start-up founder’s hobbies, interests and activities being turned into a business. They often require large amounts of creativity and passion, as what is done for fun becomes a means of making money.
• Buyable start-ups are designed to be sold to larger companies, often for millions of pounds, once they are established. They can be attractive ventures for serial entrepreneurs with an exit strategy; they may have a start-up concept or business plan with large growth potential but do not want to be involved with the company in the longer-term. Tech start-ups, such as apps, are common in this space.
• Small business start-ups generally focus on longevity, sustainability and community. Rather than vast growth potential and huge profit, small start-ups aim to create financial stability – a family-run bookshop, for example – by offering viable products and services to a smaller customer base.
• Large company start-ups occur when established, large companies adapt or diversify their business model, or market, to remain competitive. Resources and funding is typically sourced from the existing successful business and its ecosystem.

Whichever type of start-up you’re involved in, it pays to learn from others in the know. The Lean Start-up – by Steve Blank, Stanford University Professor and entrepreneur – is widely regarded as a faster, smarter start-up methodology entrepreneurs can adopt when developing their business plans and models.

What are some examples of successful start-ups?

Many start-ups are now global household names: think the likes of Peloton, Amazon, Uber, We Work, Apple and Beyond Meat. They’re wildly successful for a number of different reasons – whether they plugged a gap in the market, used technology to make products and services more affordable and accessible for everyday consumers, or found an innovative solution to fix a common issue.

Take Airbnb as an example. After identifying an issue with the choice, price and lack of availability of hotels and accommodation options, it developed a new methodology based on crowd-based marketplaces and the sharing economy. As well as offering users greater flexibility of accommodation, it also enabled individuals with assets to share access to additional sources of income.

With its on-demand, low-cost video streaming model, Netflix transformed the way users consume films and tv shows. The convenience, accessibility and choice it provides, all from the comfort of our sofas, ultimately led to the downfall of movie rental incumbent, Blockbuster.

How are start-ups financed?

A preoccupation for many entrepreneurs and founders is sourcing and securing funding for their venture, both in the early stages and later in the lifecycle. While some start-ups are relatively low-cost in the beginning – due to many factors, such as not having a fixed workspace – others can prove expensive – product or service development, relevant technologies, bringing the best people in, launching to market, and so on. Depending on the market or industry a start-up is operating in, figures can easily run into the millions.

Cash flow and resource allocation must be managed responsibly for a business to grow sustainably. In terms of securing financial backing and accelerators, common approaches used by start-up founders include:

•       crowdfunding
•       angel investment, from angel investors
•       investment companies, such as Y Combinator
•       start-up loans and business loans
•       personal savings, family and friends funding, and financial bootstrapping
•       business grants
•       venture capital, from venture capitalists, and private equity
•       subsidies
•       debt financing
•       leasing
•       initial coin offering (ICO) and initial public offering (IPO).

The approach start-up founders take will be influenced by a number of factors, including where the business is in its lifecycle. Known as Series A, B, C, D and E funding, rounds will depend on how the business is performing, how risky it is, the assets it has, its market size and more.

Equip yourself to succeed as a start-up entrepreneur

Ready to make your start-up business a success? Keen to drive growth within an existing business?

Whether you’re launching your own innovative venture, iterating an existing one, or seeking to capitalise on opportunities as an intrapreneur, choose the University of Wolverhampton’s online MBA Entrepreneurship programme.

Develop the expertise, skills and mindset to make your way in the challenging, creative and exciting world of entrepreneurship. You’ll learn how to harness your ideas and ambition to navigate changeable, fast-paced situations, apply problem-solving and decision-making know-how to business issues, and act decisively in ways that will scale your new company. With flexible study to suit you, you’ll explore topics including leadership and management, sourcing funding, organisational strategy, business sustainability, strategic marketing and supply chain operations.