Is there a mental recipe for startup success?
Written by Denise Van Blitterswijk Senior Policy Advisor and Charlotte Reypens Senior Policy Researchers for New Technology & Startups, Nesta
For many entrepreneurs the biggest hurdle to growing their businesses can be mental. Our research looked at what motivates entrepreneurs to grow, finding that many of the most successful founders exhibit four distinct attributes, which begs the question, does the perfect founders’ mindset exist?
Scaling a business is hard, so hard that less than 1 out of every 100 startup entrepreneurs actually manage to do so. A lot of the research and many of the proposed solutions to this problem have focused on the external environment, suggesting that the lack of scaleups is caused by a lack of talent, insufficient access to capital or that the market size that is too limited. These factors certainly are important to explain the scale-up gap, but taken in isolation they form an incomplete picture of the scaleup challenge, sometimes neglecting the human quotient in this whole scenario.
Our research into this topic revealed as much, namely an entrepreneur’s motivations, perceptions and mindset play an important role in determining the growth potential of a business. Given this, we ask — could there be a mental recipe for startup success?
What are the typical features of a scaling mindset?
A ‘scaling mindset’ typically refers to the mix of attitudes, beliefs, values and behaviours that determine why and how people make decisions, in this case entrepreneurs. It is a concept that is hard to capture, but recent research by Startup Genome hints at its importance. They found a strong correlation between founders with certain mindset features and the likelihood of their startup to be successful and attract external finance.
So what does this scaling mindset look like? We used interviews with founders of European scaleups to identify some features that they have in common (see Nesta’s Paths to Scale report and case studies to read the full stories). We found these could be categorized in the following ways: impact-orientation, innovativeness, dominance, and value creation.
Impact-orientation refers to a founder’s motivation to impact society, expand the reach of their business and transform as many lives as possible. The founder of UK-based Lantum, Melissa Morris, displays such a sense of purpose — she is passionate about her mission to help the NHS manage its people efficiently at a fraction of the cost, with the goal of saving £1 billion on agency spend. It is exactly this mission and drive for impact that has been key to the success of the fast-growing business: “Everybody really cares about what we’re doing,” Morris shared with Nesta. “Lots of people here could have easily gone to work for other companies but they want to help the NHS do more with less, which creates a great sense of purpose.”
Innovativeness speaks to a founder’s desire to change or disrupt an outdated industry and to create new opportunities in the market. German scaleup Cargonexx did so by trying to innovate in trucking — a legacy industry, at first glance difficult to target. But what started as an idea that arose when stuck in traffic, is now a global business. As founder Rolf-Dieter Lafrenz told us, the drive to innovate the market — and the additional environmental benefits that are created in the process — create true meaning.
Dominance refers to a founder’s motivation to become the dominant player in their field, outmaneuvering their rivals to gain a larger stake in the market.These entrepreneurs often seek a first-mover advantage, wanting to grow fast to outcompete potential rivals in (inter)national markets. The co-founders of blue-collar recruitment app, CornerJob, were serial entrepreneurs on the hunt for their next project when they realised that no big player had cracked the recruitment and blue-collar jobs space. They chose an aggressive growth model, rolling out the service across the world very quickly (launching nationwide in four countries in six months) — in part because rival recruitment platforms were gaining traction. Chief executive David Rodriguez is focused on building something that keeps growing and helping people around the world.
Finally, value creation is all about solving problems and in doing so, creating value for various stakeholders. These are entrepreneurs who enjoy the process of creating and growing a business, particularly those who want to repeat previous startup success. In their eyes, the value they create goes beyond financial gains. For the founders behind Unbabel, a Portuguese company offering AI-powered, human refined translation services, this is their most important driver. For them, money is a side effect — the core purpose is to build a business that makes a difference and solves a real problem.
Building the right mindset
Through business schools, accelerators and support programmes, much progress has been made to teach the tools of business and entrepreneurship. Now it’s time to teach the mindsets. Just like the tools of entrepreneurship, mindsets can be taught through education, training sessions or exposure to role models.
Preliminary evidence on the impact of mindset training is promising: entrepreneurs who participated in such a mindset training increased profits by 30 percent in a two-year time span, a much stronger increase than those who took part in a standard business training. However, the ideal time to teach mindsets is during childhood and adolescence. One route to this would be to increase exposure to entrepreneurship at an early age, ensuring young people have the opportunity to get hands-on experience of entrepreneurship during their time at school.
Any entrepreneur will be able to tell from experience that the process of starting and growing a business is far from straightforward. Entrepreneurs continuously have to make key decisions about their growth paths and how to finance these — whilst keeping the business running. Teaching not just the tools of entrepreneurship, but also the mindsets could support (potential) entrepreneurs in their journey of starting and growing a successful business, ultimately to help more entrepreneurs beat the scaling odds.
Originally published at https://digileaders.com on October 22, 2019.