Fast, Focused, Flexible: Start-up Characteristics, Enterprises Should Emulate

A recent report from The Economist indicated, “today, fast-growing startups, not big incumbents like HP, are celebrated as the centers of innovation and influence in technology.”¹ Start-ups are characterized as being fast, focused and flexible. Enterprises will emulate start-up characteristics in the future to manage the threat of market disruption.

Successful Start-Ups are Fast and Flexible

Not only was Uber the most successful start-up last year, but this year, Uber is looking to raise its equity funding at an astounding $51 billion valuation.³ While some tech experts caution against such high valuations, the list of billion dollar start-ups is growing. Last year, the top 10 most successful start-ups were Uber, Xiaomi, Airbnb, Palantir, Snapchat, Didi Kuaidi, Flipkart, SpaceX, Pinterest and Dropbox.³ Start-ups are usually first funded by either: an early stage investment fund, an accelerator program, or a serial entrepreneur. Accelerator programs offer Start-ups the speed and flexibility needed during an early start.

There are more than 2000 start-up accelerators worldwide.⁴ Start-up accelerators are managed by experienced business persons, who oversee the entire start-up process from initial idea, all the way through to growth and operating decisions. The start-up gives a portion of equity to the accelerator program, incentivizing the accelerator to have a vested interest in the outcome of the start-up. In return, the accelerator program offers a small capital injection, a business education, and professional services to their start-ups.

A professor from MIT Sloan School of Management, Yael Hochberg, and her colleague Professor Susan Cohen, developed a project to learn more about accelerator programs. Hochberg said, “The goal of the seed accelerator rankings project is to start a larger conversation about the accelerator phenomenon, its effects and its prospects for the future.”⁵ Their findings from the rankings project is as follows:

• Average accelerator investment includes mentoring, workspace, professional services and an investment around $25,000 in exchange for 6% equity stake.
• The average accelerator is slightly over 3 years old and have graduated about 7 groups of start-ups.
• 90% of start-up entrepreneurs said they would repeat the accelerator experience again
• 95% of start-up entrepreneurs said it was worth giving up the equity to the accelerator⁵

Start-up Ecosystems are Focus Centers

In the report titled The Global Future of Work – The Future Place and Structure of Work, Frost & Sullivan defines the following: “a startup ecosystem is a community usually located in close geographic proximity, that allows startup companies to thrive, given strong access to venture capital funds and other financial organizations, incubators and accelerators, co-working spaces, technological support, and skilled labor.”²

The highest concentration of start-up ecosystems are located in North America. Silicon Valley is the largest start-up ecosystem in the world, and holds 35% more start-up entrepreneurs than any other ecosystem.² Other regions, especially in Europe, hope to grow their start-up ecosystems similar to the size of Silicon Valley. The 20 largest start-up ecosystems in the world in 2015 are listed in the chart below:

To Remain Competitive, Enterprise Structure Needs to Adapt

The key to competitive advantage of the future is connectivity speed.² In 2025, a transactional presence on the web will be mandatory. Growing connectivity, technological innovation and ease of starting a business will increase the threat of start-ups. Organizations will respond by a more organic and agile structure. Traditional top-down structures are forecasted to handicap large organizations in the future.² Trends indicate a reduction in inefficient bureaucracy and decision authority shifting down on the organizational chart. Start-up’s organizational structures are often different from traditional enterprise structures and include the following:

Source: Frost & Sullivan – The Global Future of Work – The Future Place and Structure of Work

Frost & Sullivan forecasts, the C-Suite of 2025 will include new roles that focus on “Technology, Talent, and Territory.”² The shift in focus will be brought on by the growing threat of disruption, a change in talent priorities and behavior, and an increased dependence on automation. Moreover, Frost & Sullivan, forecasts the following C-Suite roles will be common in 2025:

• Chief Data Officer (already implemented by over 100 large enterprises)
• Chief Automation Officer
• Chief Talent Development Officer
• Chief Freelance Relationship Officer (You would be surprised to know that freelancers are estimated to make up 40% of the US labor force by 2020.)²
• Chief IP Officer
• Chief Disruption Officer

The future of innovation is expected to change due to unsustainably high R&D costs, and the increased ease of collaboration. In fact, Innovation and R&D may exist in a virtual testing ground in the future. The virtual testing ground will be able to simulate a product without performing the physical test. For example, a new engine concept can be tested for performance output through a virtual model. Frost & Sullivan sites the following 4 trends causing a shift from classic to virtual innovation:

• Open Innovation
• Global Distribution
• Freelance Work
• Advantages of Simulation

Conclusion: Take Action

Enterprises can become faster, more focused, and more flexible by considering the following start-up oriented projects:

• Modify the organization’s hierarchical structure. Consider the options proposed by Frost & Sullivan Marketplace, Open Allocation, Holocratic, Post-Lean and Organic discussed above.
• Create a Start-up accelerator or ecosystem within the organization to stimulate intrapreneurs to create and develop projects.
• Collaborate with experienced start-up entrepreneurs.
• Create an advanced accelerator team in one or more of the start-up ecosystems to evaluate potential projects that could be brought in-house. Start-up ecosystems are forecasted to remain strong in North America and Europe, but Asia Pacific and Latin America’s ecosystems will gain traction, creating a global community of innovation.²
• Use subsidiaries for market tests of start-up products prior to full implementation.
• Evolve your workspaces. F&S recommends incorporating a start-up style “which incorporates elements of the home and focuses on innovation through collaboration, will increasingly influence office design in larger and more conservative companies, especially to engineer serendipity.”

For more information on successful start-ups please view the two charts below showing the list of the World’s Most Valuable Start-ups in 2015 and how they were started:

World’s Most Valuable Start-ups and How They Started:

References

1. The Economist Intelligence Unit. (2015). Silicon Valley’s startup boom: Y Combinator, the X Factor of tech. EIU.com: The Economist.
2. Walker, J. (2015). The Global Future of Work – The Future Place and Structure of Work. Frost.com: Frost & Sullivan.
3. Richter, F. (2015, October 22). Worlds Most Valuable Startups. Retrieved from Statistica.com: http://www.statistica.com/chart/3904/worlds-most-valuable-startups/
4. The Economist Intelligence Unit. (2014). Special report – Tech Startups: Accelerators: Getting up to speed. EIU.com: The Economist.
5. Shieber, J. (2014, March 10). These Are The 15 Best Accelerators In The U.S. Retrieved from Techcrunch.com: http://techcrunch.com/2014/03/10/these-are-the-15-best-accelerators-in-the-u-s/
6. https://www.crunchbase.com/funding-round/211176ddab64c19f775fe7e47ab9c1c2
7. http://www.vanityfair.com/news/2014/12/uber-travis-kalanick-controversy
8. https://www.crunchbase.com/organization/morningside-group#/entity
9. https://www.palantir.com/careers/offices/paloalto
10. http://www.foxbusiness.com/features/2013/06/14/in-q-tel-glimpse-inside-cias-venture-capital-arm.html
11. https://www.crunchbase.com/funding-round/ac829d31fefa993394cda22d802c5de1
12. http://www.entrepreneur.com/slideshow/248136
13. https://www.crunchbase.com/organization/gsr-ventures-management#/entity
14. https://www.crunchbase.com/organization/accel-partners#/entity
15. https://www.crunchbase.com/organization/space-exploration-technologies#/entity
16. https://www.crunchbase.com/funding-round/1a1ea5eacf5093a83ddcd8cf3d58fbd9

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