Fears of Founding a Start-Up
A personal view
Three months ago I started the workshop IT-Venture Design, where we have ideated a start-up in the field of deep-tech. Deep-tech start-ups are companies that work in one or a combination of the fields: Artificial intelligence, augmented reality, virtual reality, blockchain, and internet of things.
The most people work in a company and do not found their own businesses. Large companies do not recognize the market opportunities or do not want to recognize them. This creates an opportunity for founders to develop new innovations and bring them to the market. But the entrepreneurial opportunity is not finished. It must be found and developed over time by the founder.
Moreover to the entrepreneurial opportunity, there is the general opportunity. With the general opportunity you do not laboriously develop your own product. With this you copy an existing product. Copying a concept is only sense if the current company is weak and you think you can improve the concept. The imitator can in fact learn from the mistakes and weaknesses of the first and can avoid them. You also can complement and expand the product.
Another approach is to copy a product from another country and found a company to sell it in your own country. In this approach it must be checked whether patents or other rights are violated. Large companies employ their own departments to prosecute right infringements or are affiliated with organizations that do this for them. If you violate their patents or rights, it often ends in a big disaster. The business performance of “copy and sell” is more limited to financial success rather than true innovation. It is more challenging to find an idea about a problem and be innovative.
Different groups of people can help you to find an idea for a problem. On the one hand, the founder and his employees can find an idea, on the other hand, external groups such as customers, suppliers, partner companies, external consultants, public institutions, universities or business agencies can be helpful to find an idea. The proximity to the customer is very important. The critical customers, called lead users, can supply valuable ideas and generate potential innovation. In addition, workshops can be organized with selected customers. The target is to find new ideas that will be an advantage for the customer. Another concept is to analyze the exchange of views of customers. Ideas can be discovered in customer forums or group discussions. Another possibility is to organize idea competitions. People have to present ideas on a topic and the best ones get awarded. Furthermore is to investigate and evaluate the behavior and the feelings of the customer by means of tests in the laboratory. As a result, new knowledge such as the customer’s decision-making behavior can be found. Customer observations are also associated with this, to recognize how customers use products and services. Watching the competition can also be a way to expand its product range. At trade fairs or through observations of new technological possibilities, further ideas can be developed.
Mostly, the incentive for product innovation comes from the customer, but they often do not articulate their needs, interests and problems. Therefore, the founder must recognize these needs and develop an offer for the customer to provide him an added value. It offers to question the customers and examine systematically the customer wishes. Business opportunities can be captured by everyone, but everyone can evaluate the opportunity differently. Ken Olsen claimed in 1977: “There is no reason why everyone should have a computer at home”, meanwhile it has been shown that it was good of other founders to commercialize the computer. How a person views an entrepreneurial opportunity is often dependent on their prior knowledge. The prior knowledge can come from different sources, such as work experience, hobbies or school education. Knowledge about markets, supply of the markets and knowledge about customer problems are particularly interesting. With this knowledge, it can be recognized more precisely in which market the entry with a new technology pays off, how a technology can be used to supply markets and which products and services based on it can be offered. If the founder has little knowledge in one area, it will help to ask experts in the area to seek advice.
It is not only important to assess an entrepreneurial opportunity, afterwards it should also be evaluated. The evaluation shows whether the entrepreneurial opportunity makes sense and whether it is economically worthwhile. Therefore, a feasibility study should definitely be carried out. The feasibility study can be used to check whether an innovation is technically or economically feasible.
In principle, two decisions are possible for the use of entrepreneurial opportunities. In most cases, a separate company is founded. A company can be found alone or in a team. To found alone is a very big challenge, so it is often better to found in a team. It can also be an idea to connect with an existing start-up and form a joint venture. This gives you more know-how to realize the entrepreneurial opportunity. Another possibility would be to sell the entrepreneurial opportunity as a patent or license. If the development costs of a product or a technology are very high, it make sense to run the development only to a certain stage in order to be able to market and sell it.
But many people are afraid to found a new start-up. They assume that founding a start-up is a high risk. You certainly can not assume that every entrepreneurial opportunity become a million dollar company without risk. However, there are also many risks that can be estimated and minimized if you know them.
A fear factor of many potential founders is the financial risk. It is assumed that all savings or a large part of the private capital have to be invested into a start-up. Often all the savings are put into a company or a mortgage is taken. When the company makes its first profits, the money is often reinvested to grow the business. Ultimately, the founders risk going bankrupt and losing all their savings. There are several ways to minimize the financial risk. A strategy is to work together with banks, partners or venture capitalists and get borrowed capital. Start-ups can also work together with special programs like accelerators, incubators or company builder and get financial support. Often these programs are offered by large companies, but these programs can not only provide financial support. Incubaters take the first steps with the start-up and also offer them basic conditions, such as example office space. Accelerators offers in addition to the basic conditions workshops for founders to help the start-up to grow faster. A company builder tries to invest as early as possible in a start-up. They are deeply involved in corporate development across all stages of growth.
Another strategy is to transfer his savings and private capital to his spouse, should the company go bankrupt the spouse’s capital can not be touched. Moreover choosing a advantageous legal structure can reduce the risk. For example, you can found a GmbH in Germany, in which you have to invest 25.000 € in the corperate capital. The advantage is that you must in maximum liable with the corporate capital. Another legal form in which you can be in maximum liable with the corporate capital is the UG. You only have to invest 1 € in the corporate capital. In addition, 25% of profits must be placed in corporate capital. If the UG has reached a corporate capital of 25.000 €, the legal form can be changed to a GmbH.
Another risk is that if the start-up fails then you could not be able to work back into your previous job. This can happen when you working in an industry where no employee is searched. Many companies do not want to hiring employees who are close to retirement. If you are close to retirement and may want to return to work, you should think twice about founding a startup. One way to found a start-up and still work in a company would be to do both in part-time.
It takes a lot of time to found a business, often a working day of a founder is 10–12 hours. This is probably also noticeable in your private life. A separation between work and private life is often not possible. There will be less time for the family and social engagement, so founding a start-up should be discussed in the family. Due to the long working hours there are high physical and mental stress. This can be an increased health risk for you, if you do not feel fit you should consider the foundation more closely.
Furthermore some founders are afraid that they will not pass the competition with other start-ups or bigger companies. They think that other start-ups or big companies with their many resources could be faster than their own start-up. But if you are the first to deal with an innovation, you have a time advantage over other companies. It is good when others are also deal with the innovation. This confirms that other founders think that it can be earned money with the innovation. As a rule you do not need to be afraid of bigger companies. The bigger companies would probably want to buy you because you have the most knowledge in the field. Then you could do an exit.
