A Day as a Unicorn Is Better than Five Years as a StartupNEW ITALIAN COMPANIES ALMOST NEVER DIE, BUT THEY ARE NOT VERY INNOVATIVE. IT WOULD BE BETTER TO TAKE BIGGER RISKS IN MORE ADVANCED SECTORS AND KNOW HOW TO LEARN FROM EXPERIENCE AND FAILURE
by Markus Venzin, Dean for Innovation, Bocconi University
Around 90% of Italian startups survive the first 5 years! On the face of it, this statistic suggests we are doing something right – but are we? Is it actually disguising the reality that we are insufficiently innovative?
The Global Field of Play
We all know that there is a clear link between the level of innovation and the profitability of firms – in every industry. This link has become even stronger in recent times as new technologies change the way firms operate. Ubiquitous data and digital transformation are the lingua franca of the 21st century. Where technology effects all processes in all firms. Yet, our great European tradition of being at the cutting edge of technology has been outpaced by China and the US and their drive to develop and commercialize new technologies.
Europe is lagging behind. Within the continent, the startup playing field is also uneven with different countries racing ahead while others are limping behind. Indeed, the 2019 scale-up ranking places Italy at 11th in Europe; suggesting that the gap between Italy and the top 3 ecosystems of the UK, Germany, and France is now so wide that the trio seem to be playing in a different league to the rest of Europe. For example, the UK counts 9 times more scale-ups that raised 20 times more capital, than Italy.
So before we cheer our 90% survival success rate, we should take a step back and reflect what this means. Such a high success rate actually indicates that we are not sufficiently aggressive in pursuing new, disruptive, ideas and ‘failing fast’ then pivoting. Instead, Italian startups prefer to ‘die slowly’ pursuing incremental ideas and innovation. These invariably result in slower overall growth and that is the danger for Italy and Europe, particularly if Europe wants to have a meaningful role in global innovation and entrepreneurship. Despite being behind, Italy isn’t standing still, however, moves are being made to catch up - in terms of capital raised, number of hubs, incubators, and events – but more structure and energy to the ecosystem is required for faster momentum.
What we need to do is to create the conditions for entrepreneurial success – an ecosystem where ideas are nurtured in order to flourish and grow. Where individuals are encouraged to dream big and realize those dreams. We need to create an environment where it’s ok to fail as long as failing is fast, learning takes place, and we quickly move on to more promising ideas and innovations benefitting from this experience. This means creating a space for trying things out, for experts to support the entrepreneurs’ ideas, and resources are provided to take the best ideas and fast-track them through launch and scaling. It means partnerships and coopetition, where different players come together and mutually benefit. Growth will only come from dreaming big. Growth will only come from bringing together different people and organizations.
Bringing Together Tech and Business
Business schools have to contribute substantially to support Italian firms in their attempt to catch up and take their place on both the European and global stage. They need to do so by teaming up with tech institutions - Tech needs business and business needs tech. A symbiotic relationship that can deliver greater value beyond the two sides.
Consider, for example, an IoT application to make a cable drum intelligent. By adding a device to the drum that is equipped with a GSM module and several sensors, customers such as utilities that want to manage their assets can now know where the drum is, how much cable is on the drum, and whether the drum has been mishandled. With the smart drum, they can now improve their logistics, warehousing, and many other processes, as well as benefitting the environment by collecting ‘lost’ drums.
This example - as with most IoT applications – is composed of 4 basic elements: hardware, cloud-based storage of data, artificial intelligence to transform data (i.e., how fast the drums turns without moving, thickness of cable…) into information (i.e., the remaining cable lengths on the drum, location of drum), and the business model (i.e., optimizing collection of empty drums, managing insurance claims for mishandling drums…).
The strength of business schools is to support and develop the latter two elements. To gain traction on the former two elements they need to work with other partners to leverage their expertise and complement their own. This is a very positive dynamic that can help broaden their perspectives. Collaborating with different partners whether they are universities, businesses, financial institutions, startups or not-for-profits, as well as government will forge links between currently disparate players in the overall ecosystem. There are typically three phases in start-up/scale up:
The pre-acceleration phase: Do you want to be an entrepreneur?
The pre-acceleration phase supports founders through early ideation to creating a minimum viable product. This would typically involve building skills and knowledge in diverse topics such as design thinking, lean startup, sales, digital marketing, web design & analytics, agile project management, financial modelling, pitching, and go-to-market strategies. It is important to ensure that entrepreneurs are confident in their abilities to sell their idea to others and get their buy-in. At the end of this phase, the entrepreneur should have a prototype to support their storytelling.
The acceleration phase: Are you ready to build a business?
With a prototype in hand, this phase focuses on entrepreneurs developing their product and engaging potential customers. During acceleration, the goal is to create the company, facilitate networking, build inspiration, and generate market opportunities. The entrepreneur should be further developing the prototype based on inputs received from potential customers and others in the ecosystem. They also need to think about recruiting other talent to support them in building their company and product as it is unlikely that the entrepreneur will possess all the needed skills, much less the time to do everything that is needed to successfully accelerate.
The scale-up phase: Are you ready to build your company?
Scale-up relies on partnering with venture capitalists and other investor types, as well as getting support from individuals and organizations who are experts in scaling companies. Building customer segments, thinking about expanding beyond the home country, and
developing their products and value propositions are the key criteria for success here. This is not easy but if entrepreneurs can crack this phase, they will find themselves on a strong trajectory towards growth and performance. While it is true that not every company is able to successfully scale, to realize the dream of a strong European ecosystem of entrepreneurship and innovation, scale-up is vital if European is to become the third power on the playing field.
Bocconi, as Italy’s leading business school, is best placed to orchestrate this ecosystem to create value and growth. Building it will be our contribution to ensuring that home-grown talented entrepreneurs get the opportunity to build their ideas and scale them on first the European and then global stage.
Read more about this topic
Bocconi for Innovation’s Three Parts Support Every Stage of Development