In a 10-part series, the Malaysian Global Innovation and Creativity Centre (MaGIC), in collaboration with The Star’s Metrobiz section, explores what it takes to make a great startup ecosystem, beginning with an understanding of what startups are all about.
The Father of Modern Chemistry, Antoine-Laurent de Lavoisier once said that it is vital “to submit our reasoning to the test of experiment, and never to search for truth but by the natural road of experiment and observation.”
A startup’s journey is not very different, in that it is meant to run a series of experiments before it hits a growth path. According to Steve Blank, a Silicon Valley serial-entrepreneur who developed the Customer Development Methodology, “A startup is an organisation formed to search for a repeatable and scalable business model.”
But what is a business model?
A business model describes how your company creates, delivers and captures value. An entrepreneur is supposed to create a vision for a product that solves a real problem in the world, with a series of assumptions about all the pieces. Who are the customers? How do you sell to them? How do you price and position the product? How do you build and finance the company?
An entrepreneur’s job is to quickly validate whether the model is correct by seeing if customers behave as predicted. Most of the time they don’t. So entrepreneurs are supposed to tweak that business model until they find enough traction to grow into a sustainable company.
Once on a growth trajectory, a startup decides to enter new markets or create new product lines and eventually exits favourably, providing significant returns to investors or venture capitalists.
Like science experiments, a startup is meant to fail several times before it succeeds. It is important that we understand this in order to support local entrepreneurs who are looking to push the boundaries of innovation.
Jack Ma’s e-commerce company Alibaba Group Holding Ltd’s recent US$25bil (RM80.7bil) initial public offering on the New York Stock Exchange, which is the largest in history, proves that Asian entrepreneurs and markets are just as competitive and innovative as those in the US.
Another revered Silicon Valley figure, Y Combinator startup incubator founder Paul Graham describes a startup as, “a company designed to grow fast.” He goes on to explain that a startup does not have to be newly founded to work on sophisticated technology or to take venture funding. He emphasised that the only essential thing for a startup to achieve is high growth.
Without high growth, a company is categorised as the more common small- and medium-sized enterprises of mom-and-pop shops, professional services firms, manufacturers, brick-and-mortar businesses, or resellers. They typically grow at a steadier rate, require physical locations, more up-front capital (usually bank loans as opposed to private investments) and are not as scalable (can only serve a limited number of people based on human resource capacity).
The new startups of the 21st century are also admittedly different from the old-school startups of the 1970s, back in the early Microsoft, Oracle and Apple days. Today’s startups are a new breed that leverages the Internet and technology to scale across borders very quickly.
Startups such as Facebook, Airbnb, Dropbox, Pinterest, Uber and Spotify have all achieved billion-dollar valuations in a matter of three to four years.
This signifies that we are in a new era where entrepreneurs are able to very quickly create global products that permeate our daily lives. And these entrepreneurs can come from anywhere, not just Silicon Valley, which is typically the benchmark for startup and innovation ecosystems around the world.
Startups are the main job creators in the US economy, and similarly, it will become the primary growth engine for Malaysia as we seek to become a high-income nation by 2020.
As a nation that is trying to push its own innovation boundaries, we should come together and support our young entrepreneurs and enable them to solve some of the toughest problems in our country and beyond.
Next week: Some of our local startups who have made it big