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Features of Start-Ups
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DOI: 10.1108/978-1-80043-388-520201014
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Chapter 11
Features of Start-Ups
Judit Kárpáti-Daróczi and Tibor János Karlovitz
Abstract
We consider start-up companies that have been established for rapid
growth and are active in the international market. In this study, we examine the conditions required for starting a start-up. We analyze how it is
possible to add value to an idea that makes a business unique. First, we’ll
show you when to talk about start-up. The starting point is that a start-up
company is organized on a community basis. This much greater knowledge
is coupled with high-level technological competences. In addition, there
is a need for some “big idea,” innovation, which investors see as fantasy.
A new niche market must be found where hundreds of thousands of customers worldwide can be served without any geographical constraints. The
founder must have a high-risk appetite, and even naughtiness, because the
novelty he invented will narrow the market of others and harm the interests of others. Here’s a look at the financing options for start-ups. At the
end of this chapter you will find case studies on different start-ups.
Keywords: Businesses with Moderate Growth; Extra Fast-growing
Business; innovation; incubator house; spin-off companies; good practices
Introduction
The purpose of this chapter is to clarify which businesses are considered startups and why. The purpose is also to show which businesses are not start-ups.
It distinguishes between start-ups and start-ups with extra-strong growth. The
former is used in a general sense and the latter is used by a very small proportion of start-ups. It is important to deal with the latter, because special financial
funds in the European Union, and in Hungary for example, help to set up extra
Managing Customer Experiences in an Omnichannel World: Melody of Online and Offline
Environments in the Customer Journey, 177–194
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doi:10.1108/978-1-80043-388-520201014
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Judit Kárpáti-Daróczi and Tibor János Karlovitz
fast-growing businesses. In contrast, start-up small businesses are predominantly
based on equity.
Therefore, the purpose of this chapter is to formulate start-ups, to distinguish
between low-growth and ultra-fast start-ups, and the challenges that start-ups
face. From a marketing point of view, there is also a difference between average,
“normal” start-ups and extra-fast-growing businesses.
For more than a hundred years, American entrepreneurs have been at the forefront of developing corporate organizations in the world that have dictated the
pace in product development, production and sales. That is why these companies
served as an organizational model throughout the world. American companies
have provided the market with affordable products. Their technical achievements
(e.g., automotive, telephone) have transformed people’s lives and created a standard of living unprecedented anywhere else in the world. Today, however, the world
has changed so much that it has gone beyond the limits of adaptability and development of traditional businesses. The principles around which companies used to
be based have become obsolete. Modern technology, the disappearance of national
market boundaries and increased consumer choice have rendered obsolete the
goals, methods and organizational principles of traditional American companies.
After the World War II, the organizational model developed in the United
States quickly spread to both Western Europe and Japan. This form of business
organization has been tailored to meet the strong and booming demand and the
demands of booming economic growth. This was perfectly appropriate in the
post-World War I era. At that time, consumers were happy to buy anything that
companies were offering them. For customers, only quantity was important, and
quality and service did not matter. Companies have increased their production
capacity to meet the increasing demand. In contrast, innovation was not given
much attention by companies as it would have been too time consuming and
costly for them and would have resulted in a loss of market share. Today, however, the world has changed. The race accelerated. Japanese rival companies have
appeared, offering consumers cheaper and better quality products than US companies. This has led to an increase in consumer demand. Japanese companies
were mindful of consumer needs, so they prioritized innovation and were able
to bring new products to the market that traditional American companies didn’t
have time to develop. Competition has intensified and is now taking place in several important areas. In competition for tight niches, companies compete in different areas: price, choice, or quality, or pre-sale, post-sale or after-sales service.
New businesses can already appear on the market with their latest generation of
products or services, as traditional large companies are trying to capture the costs
of their previous development. That is why it is very important for large companies to recognize that small start-ups can also pose a serious threat to them. The
pace of change has also accelerated. Companies have to contend with a greater
number of competitors to cross national borders. The speed of technological
development also stimulates innovation. The life cycle of products has declined
from several years to several months. While Ford has been manufacturing the
T model for an entire generation, the life cycle of the computer product launched
today is one year at most (Hammer & Champy, 1993).
Features of Start-Ups
179
Richard Florida as early as the early 2000s, American economist and social
scientist believed that the world economy was undergoing a paradigm shift. As
a result, after 20 years, about two-thirds of a country’s economy comes from the
creative industries (Florida, 2002). The two fastest growing segments in this sector are design and software development. And most extra-fast start-ups, whether
they are health technology, biotechnology, smart kitchen equipment, games or
communications, are definitely bound to these two segments. Entrepreneurs who
are able to recognize and maximize opportunities can best meet consumer needs
(Drucker, 2004).
So the question arises as to what entrepreneurial qualities entrepreneurs have
when they start an extra-fast start-up business.
This study distinguishes between the basic differences between start-ups that
are traditionally established, and those that are moderately growing, and extrafast start-ups. It is also a goal for the reader to find out what sources start-up
companies can finance, which individuals or organizations will help start-ups
raise enough capital to meet extra fast consumer needs. By reading this chapter,
it becomes clear to the reader what fundamentally characterizes startups operating in an accelerated world, turbulent market environment, what challenges they
face, what challenges they face and how to finance fast growth. The purpose of
this section is to understand the specifics of start-up companies through a specific
example.
Background
According to the definition of Central and Eastern Europe, this study distinguishes between start-ups and low-growth start-ups. Extra-fast-growing businesses make up only a small percentage of all start-ups. In everyday practice,
there is an approach where every start-up business has the potential for extra fast
growth. However, this is not true for all companies. A significant proportion of
start-ups are already local. From a gas station or a hairdressing salon, it is hardly
possible to add value that makes that particular business completely new, original and unlike any other. Table 1 shows the difference between the two types of
business.
Main Focus of the Chapter
This chapter is about start-ups. It examines what characteristics they have and
what challenges they face. When starting a new business, there are a number of
factors to consider. Only a few of the many ideas are good for starting a business.
Innovations can go on and spread very quickly, both in a science lab and in a
large company. Concentrated, fast market sales and rapid response to change are
important. The success of any start-up business depends on the extent to which it
manages to show its importance and significance in society, and on what marketing methods and tools it can operate and mobilize. This section focuses on small
businesses in general. It reviews the stages of starting a business, refers to the need
for innovation (novelty content) and outlines the main principles of financing.
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Table 1. Differences between Startup and Start-up.
Trait
Businesses with Moderate
Growth (Startup)
Extra Fast-growing
Businesses (Start-up)
Market
Local market
Global market
Intention to
grow
Moderate growth
Extra fast growth
Capital
requirements
Relatively low, usually
from own resources
It is a large capital requirement and
cannot be met from its own resources
Risk
Relatively low
High risk
Organizational Adaptation to market
culture
conditions
The need for constant change
Marketing
Using traditional marketing Involving social media and using
tools
new marketing tools
Human
Resources
Multifunctional professionals Highly skilled, versatile, creative,
(all-in-one professionals)
self-employed professionals
Leadership/
Management
Traditional thinking,
vertical communication
Common thinking, new approach,
horizontal communication
Founder
Professionals, but with
little management
knowledge
Team-minded, creative
professionals looking for a whole
new solution to a real problem
Conditions of
establishment
Changing environment,
but there are patterns, the
market is familiar
There is a lot of uncertainty, the
need for rapid change and the
need for high capital and support
mechanisms
Workforce
motivation
On average motivated
Extra highly motivated (“hard
work–hard rest”)
Source: Own editing.
This chapter also deals with what constitutes a start-up business in the case of a
joint venture or organization.
It covers extra-fast-growing businesses as a special form of start-up, and shows
you what a non-fast-growing business is. This is followed by the role of the incubator (house) and the spin-off companies, and finally some well-known examples
of extra-fast-growing businesses.
Issues, Controversies, Problems
1. Stages of Starting a Business
It is wise to examine the history of businesses from an evolutionary point of
view (Simon, 1993). A business is a process of creating value in which someone
Features of Start-Ups
181
recognizes an opportunity, creating value for consumers that are beneficial to
both creators and society. Of the resources needed to produce an idea, entrepreneurs usually have the professional knowledge and possibly the social capital, but
they must obtain the money from external sources. Social media is a great help for
entrepreneurs, which enables them to develop the idea on the one hand and, on
the other hand, to test not only the actual finished product but also the idea and
the sketch (Kotler, 2001).
Timmons, a fast-growing business, has refined the upscale career of classic
businesses into five phases (Timmons, 1990):
1.
2.
3.
4.
5.
Research and development phase: 1–3 years before foundation
Start-up phase: the first three years of the business
Early growth phase: enterprise 4–10 years
Maturity phase: 11–15 years
Stability phase: after 15 years
Of course, the number of years at each stage of development is only an estimate, though the years reflect well the practical experience of American businesses. The first two of these stages are important for starting a business:
(1) Research and Development Phase: This phase is 1–3 years before starting the
business. Adizes calls this stage a company – similar to a living organization –
as a courtship phase (Adizes, 2004). This section can be further divided into
two sections (Secundo & Capaido, 2020):
(a) Bootstrapping stage. In this start-up phase, the founder makes individual
efforts to turn the concept into a profitable business. You also involve others
in developing a new idea: think in a team. Use your own money and money
borrowed from family and friends to invest in the idea. The novelty of the
idea requires above-average creativity and willingness to take risks (Freear
et al., 2002.). At this point, there is no product yet, just an idea that is being
developed by team members through social media. Due to the high capital
requirements, the founders usually seek the help of business angel investors.
Business angels are happy to invest in a business if they see the team’s cash
management ability, creativity, and see potential in the new product.
(b) Seed stage. It is at this stage that the prototype of the product begins to
be developed and then marketed. At this stage, the product is tested with
consumers. This is when the founders need the most help, and they need
the most support mechanisms, such as accelerators, incubators and equity
investors, that can speed up the process. This phase is the most uncertain
in the life of a start-up. Founders who fail to find enough sponsors fail at
this stage (most start-ups fail). However, entrepreneurs who succeed in
gaining sponsors are more likely to become profitable. At the end of the
phase, founders value their start-up businesses.
The start-up phase starts when the business enters the market and lasts for about
3 years. This section is called the Adizes Infancy (Adizes, 2004), And Greiner
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Judit Kárpáti-Daróczi and Tibor János Karlovitz
presents it as a phase of Growth through creativity (Greiner, 1998). In the start-up
phase, the company enters the market and starts selling its products. The founders
hire the first employees. They are looking for employees who have special abilities
and the ability to adopt the founders’ work culture: creative thinking, hard work
and rapid adaptation to change. It is then that the operations of the company are
organized, the organizational arrangements are made and the corporate finance
is organized. At this stage, due to rapid growth, there is a need for high investment
and venture capital. The more successful a new business is, the more dangerous
it is to lack of financial foresight. The more successful a new venture is, the more
dangerous the lack of financial foresight (Drucker, 2004, p. 245). Businesses that
survive the critical phase of start-ups can be successful and become significant
players in the economy (Martinsons, 2002).
Timmons’ model is supplemented by Hisrich and Peters (2002) with five
phases before introduction: Phase 1 of the idea; 2. Product design phase; 3. Product development phase; 4. pilot production phase; 5. Preliminary market testing
phase. The importance of these preventive phases for technology-based businesses is essential for future growth.
The design, early start-up and development processes of a business influence
its structure and performance at a later stage. (For more on organizational theories, see: Blaikie, 1995; Burrel & Morgan, 1979; Gelei, 2005). There are additional
uncertainties in the start-up phase of a business, which is the black box of the
business. This so-called “Death Valley” could even lead to the dissolution of the
company (Hudson & Khazragui, 2013). Starting a business is supported by marketing communications throughout the process and will be followed up later on
(Kotler, 2001).
Starting a business requires a combination of several factors: an idea, money
(capital), and one or more people (entrepreneurs) implementing the business
idea. Timmons calls this the three driving forces behind the business (Timmons,
1990).
(1) Idea. A business starts with an idea that attracts consumers and is considered worthy to buy. The idea may not be revolutionary. The point is that the idea
should be one that can meet the needs of a particular consumer segment in some
other way. The business should not fall for the marketing shortsightedness, so do
not think that the invented idea is suitable for everyone. The business needs to
find the target group whose needs the product is meeting. Most innovations are
characterized by meeting an already existing need with a product or service that
already exists, but in a different way than before.
Not all ideas are born into a business. Potential businesses that do not know
who their customers are, what their actual target group is, have not identified
the market and are not yet ready to start a business. A business that wants to
be successful in the market follows the principle of marketing, so it sees the key
to achieving organizational goals by defining the needs and needs of the target
market and then meeting it more effectively than the competition (Kotler, 2001).
So the idea must be tested by consumers before it can be implemented.
A business idea becomes a business solution if it is viable, marketable and
competitive (Vecsenyi, 2003). A product is considered to be functional if there
Features of Start-Ups
183
is a technology by which it can be produced. When the idea is in the mind of an
entrepreneur or it is on the computer, it may not be viable, it may not work in
reality.
A viable product should be tested for viability. To do this, it is necessary to
assess whether the product is capable of generating income and whether it can
be produced economically. Expected turnover, investment needs, cash requirements to maintain viability, expected profits and return on investment must be
assessed. The steps required to test the marketability of a viable product are as
follows:
⦁⦁ Identify your customer base: (Who are the potential consumers whose needs the
product may meet? Who can be targeted with the product?)
⦁⦁ Understanding customer purchase behavior: (What qualities do potential buy-
ers of the product have?)
⦁⦁ Interpreting customer needs
⦁⦁ Sustainability and growth of the settlement of customer needs
⦁⦁ Changes in sales forms and modes
⦁⦁ Impact of new and anticipated legislation
⦁⦁ Definition of product/service: positioning
If the product is marketable, its competitiveness should be examined. To
examine this, it is necessary to identify competitors, examine the barriers faced
by new potential entrants, consider the factors affecting competition, examine
product substitutability and then identify substitute products. Knowing these, the
bargaining position of buyers and suppliers can be inferred. At the end of the
test, the contractor can assess the competitive advantage of his product over its
competitors.
(2) Entrepreneur. To realize an idea you need an entrepreneur, someone who
is willing to invest money, time and energy into implementing an idea. The
entrepreneur takes the risk. You take the risk because you are investing your
money in the business right now, but it will only become clear in the future
whether it was worth it or not. In addition to key competencies, an entrepreneur must have multiple competencies to be successful. These competences
can be divided into three major parts:
(a) Professional knowledge: Knowledge (knowledge) of the field in which
the individual wishes to realize the entrepreneurial idea. In addition, one
must know the rules of operation of the economy and the laws. Entrepreneurs must also have basic entrepreneurial knowledge and it is essential to
acquire marketing skills.
(b) Managerial competences: An entrepreneur who wants to start his own
business must have the competencies to run a business. These include
leadership skills, leadership and delegation, holistic thinking, analysis and
the ability to evaluate, self-evaluate and communicate.
(c) Entrepreneurial competences: Willingness to take risks, overall thinking,
strategic thinking, planning, creativity, etc.
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(3) Capital. The third important thing is capital (money), which is also essential
for starting a business. There are businesses that are more capital intensive
and some that can be realized with less money.
The idea can be realized from own resources or from external sources (loans,
investments, loans). It is rare for an entrepreneur to have sufficient own resources
to start a business. Founders of successful businesses handle their resources carefully: they achieve high productivity while keeping their fixed costs low and with
minimal financial resources (Bygrave & Zacharacis, 2004).
2. When Startup is Start-up (at the Same Time, the
Business Is Growing Extremely Fast)
The question arises when to consider a start-up business as an extra-fast growing
business.
Many have ventured into the concept of startup. Some start from the ability
to grow fast. Paul Graham, founder of Y Combinator, an American incubator,
programmer, philosopher, start-up guru, calls startups the most important thing
when it comes to the speed and power of growth. Anything else that has to do
with start-ups, he says, comes from growth. Growth is also considered one of the
most characteristic features of start-ups by Hungarian serial entrepreneur Peter
Kádas, a business angel and founder of the Taction Tribe accelerator. In his view,
rapid growth, or more specifically the potential for rapid growth, separates startups from other businesses (http://startupdate.hu/misztikus-growth-hacking/).
Others think above-average growth rates as the main distinguishing factor.
Many experts and start-ups take into account dimensions of size, revenue and
stage of life when defining the concept of start-up. According to this, start-ups
are small-sized early-stage companies that grow out of business quickly:
You risked a categorical statement: I think after about three years
of business most start-ups cease to be start-ups. (Robehmed, 2013)
At start-up, a group of people work for a common goal, usually
within a limited time frame. This organization can never be too
big. (Iqram Magdon-Ismail, co-founder of Venmo, a mobile app
that lets you send money to your friends instantly and for free)
(Robehmed, 2013)
If a larger company has been acquired, if you have more than one
office, eighty-plus employees, more than $ 20 million in revenue
per year, and more than five people on the board, then we are
no longer talking about start-ups. An interesting contradiction is
that once a start-up becomes profitable, it starts moving away from
this stage of its life (Gino Zahnd, co-founder and CEO of Cozy,
an application that facilitates tenant and homeowner contact.)
(Robehmed, 2013)
Features of Start-Ups
185
Other approaches question this and emphasize the constancy of start-up features.
Many experts and start-ups find it important to determine sales, size and life cycle:
If you work with start-up techniques and culture, it doesn’t matter how big you are, you are essentially a start-up (Pat Phelan,
co-founder of Trustev, an authentication software that enhances
e-commerce security) (Robehmed, 2013)
When more people come together, start planning and find a niche
market to focus on, we’re talking about business. In fact, it is worth
setting up a company once the market situation has been validated
(Darvas Gergely, President of the Hungarian Spinoff and Startup
Association.) (Sebők, 2014)
You do not need to be a company or a legal entity; the point is to
have an incomplete product, such as a prototype, for your team
or project. Let there be a business model and a service, that is, a
working idea (Tar László economist, CEO of Pannonline, author
of Startups.hu, Hungarian tech start-up database.)
This is also the opinion of Prezi, Ustream and LogMeIn as the most successful
Hungarian start-ups, although their age, number of employees and annual sales
exceed those of a start-up.
It also raises the question of whether only legally established companies can
be considered as start-ups, or whether initiatives in the project or team building
phase fall into this category. In most cases, they are referred to as businesses, but
paradoxically, it is not a prerequisite for an established business to be behind a
startup. Under this assumption, a start-up can also be a project phase in which
team members look for the path to implementation (cf. Zóbolyi B. Péter, http://
insiderblog.hu/hazai-palya/2013/09/11/bphub-2/).
According to the Hungarian startup dictionary, the main feature of start-ups
is that they create something radically new. This novelty can be a new product,
a new process, a new business model, a new ecosystem. Ayah Bdeir, founder of
littleBits (a company that sells kits of electronic modules that everyone can use to
build workable models), says that the key is to create something that didn’t exist
before (Robehmed, 2013). A similar definition is that start-ups are companies
with high growth potential based on technology ideas. Many people point out
that a business can only achieve breakthrough impact and above-average growth
if a novelty or idea it invents answers a real problem that makes life easier for
consumers or makes the world better.
Paul Graham, the founder, programmer, philosopher, start-up guru of Y
Combinator, an American incubator, has a definition that distinguishes start-ups
from their familiarity with traditional businesses, based on their global market
readiness. According to these, start-ups do not produce for the local market, they
do not specialize in solving local problems, but they respond to needs that arise
worldwide.
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One of the characteristics of start-ups is uncertainty. Several Silicon Valley
entrepreneurs (Eric Ries, author of Lean Startup, David Gilboa and Neil Blumenthal, founders of Warby Parker, Gyula Fehér, founder of Ustream) share
the view that start-ups are created in uncertain circumstances new products or
services. Their success is by no means certain. They take a huge risk, and only a
small percentage can really succeed (Robehmed, 2013).
The definitions that characterize start-ups with a distinctive work culture
and personality can be linked to this line of reasoning. These companies have
a great deal of enthusiasm and dedication from the founders, and this culture
permeates all employees. The founders experiment bravely and can mobilize
huge energies to succeed. This intense erosion can be felt by James “J” Sider,
co-founder of BandPage, when we enter a start-up (Robehmed, 2013). It is also
believed that large companies need to adapt this work culture if they are to
remain competitive.
Start-up definitions that highlight the specific financing problems and needs of
these firms are associated with high-risk appetite. In addition to the high capital
requirements, many (e.g., Pat Phelan, co-founder of Trustev, Ayah Bdeir, founder
of littleBits) also consider work without enthusiasm initially as a defining element
(Robehmed, 2013).
As defined by the Wirtschaftslexikon:
A startup is a young, start-up business that is set up with little start-up
capital to implement an innovative business idea, and that generally
relies on either venture capital or business angels or seed capital to
expand its business or improve its capital adequacy (Springer Gabler
Wirtschaftslexikon, http://wirtschaftslexikon.gabler.de/Definition/
start-up-unternehmen.html?extGraphKwId=427)
So the starting point is that the start-up company is organized on a community basis, which gives the founders more knowledge to share. This much
greater knowledge is coupled with high-level technological competences. Startup business founders think it’s worth talking to people who are already out of
the initial difficulties of starting a business. It is worth looking at them as role
models, asking them questions, getting to know their story, and understanding
how they have progressed. However, common knowledge and technology is not
enough on its own: it needs some “big idea,” something “extra plus” that investors can imagine. They need to be persuaded to think big (globally). Investors
like to invest money in people and teams who have a vision and want to start a
big company, and are able to hire good people: excellent, motivated professionals. A large investor meets 1,500–2,000 prospective entrepreneurs each year, but
only invests in 10–15 start-ups. Preferred are entrepreneurs who are brave and
want to change the world, and they believe they can do it. You need to break
into a tiny segment that has not been discovered yet, find a niche market that
can serve at least 100,000 customers – geographically – worldwide. The prospective entrepreneur needs to look for investors who will respond to them and
help them think about their business ideas. The founders of start-up businesses
Features of Start-Ups
187
are able to work hard (12–16 hours a day) for their business and are constantly
thinking about how they can help their users meet the needs of their consumers at an even higher level. That is why they are able to make shifts very often
and very sharply because they are always looking for the right way. They deal
with 15–20 problems a day. It depends on whether or not they are successful,
how many of these problems can be solved. Rapid growth is true for them in
all areas: they are exponentially growing in turnover, revenue and employment,
and are constantly expanding their businesses. It is true for employees that they
are “knowledge workers” who are creative, excellent professionals and have an
intrinsic motivation. They are willing to work with the company even outside
working hours. Working conditions are favorable to workers: they provide all
the conditions necessary for them to be able to perform their work as efficiently
as possible. They strive to avoid wasting time on regeneration, recharging, and
relaxation. They don’t tell employees how much time to spend at their workplace and when to do it. They are expected to work independently, creatively
and intensively. At the end of the work, they are discussed whether or not they
have successfully completed the task, but the way forward is the employee’s
responsibility. If the employee has a question, he will get help. In general, these
companies are very open. Nobody has their own office. It’s important that
employees can easily reach each other, work together, think together, and if
someone has a good idea, they can quickly share it with others. Everyone is free
to schedule their time and get all the help they need. Management encourages
employees to explore their hobbies and interests because they believe that if
they are healthy, rested and calm, they will do their job better.
3. Which Businesses Are Not Considered Start-ups?
Locally, businesses can certainly not be considered start-ups. Micro companies
created alone, without the involvement of others, will probably not be. It is difficult to add something radically new to businesses based on statutory occupations
regulated by public authorities. Entrepreneurs who only dare to think small, want
to produce only for the local market or provide services, seek primarily to maximize profits, not to meet customer needs, and are not considered start-ups. Businesses that are looking for slow, steady growth, secure livelihoods for their family,
operate in relatively stable market conditions and are adaptive, have no strategy,
no vision and no mission are excluded drift by market events. A company that is
not at the forefront of innovation, creativity and motivation of employees is also
not considered a start-up enterprise.
4. Start-up and Innovation
As mentioned earlier, innovation is closely linked to the concept of extra-fastgrowing businesses. There are countless definitions of innovation and many
forms of appearance. In this chapter, everything is considered innovation as a
new, higher quality way of meeting consumer needs (Drucker, 1986). So innovation is the production of a new product, the introduction of new technology, the
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transformation of the organization, but much more: everything that leads to the
delivery of new, higher value to the consumer.
At this point, the innovation skill characteristic of extra-fast start-ups is distinguished from the establishment of a general enterprise. With the adoption of
application-level applications, the development of others is often the basis for
starting a startup. These are often content that is even available for free – and
will only be purchased in the form of a more advanced system once they are in
place: they have enough revenue. Post-launch kick-offs are one of the hardest
times for start-ups: since there is still relatively little self-development in the
company, you can easily find yourself in the legal, patent and copyright maze.
For a start-up, it takes a lot of courage and “naughtiness”: a radical novelty
narrows the market of others, and the new opportunity may harm the interests
of others. The ideas of start-up companies are often so astonishing that many
do not believe it, they do not understand why something should be changed in
a good way. The entrepreneur, however, believes in what he does, believes he can
help users, change and make the world better with his idea. Many start-ups start
with engineers (technicians), so they are IT based and offer a product that can
be used worldwide.
5. Financing Start-ups
Unlike traditional businesses, extra-fast start-ups are businesses that are
designed to grow fast. In three to five years, a company must achieve strong
market success in an international environment. This is more important than
starting a startup to be innovative or to take a high risk. Initially, start-ups
usually start with family funding, that is, Friends and Family. Usually there are
family members and friends in the environment of every entrepreneur who are
willing to lend small or large amounts to help the business. Some of them may
have already provided financial assistance in setting up a business. They were
given a loan to start it, so it is also in their interest to help the company with
the loan in a critical situation (Béza, Csapó, Farkas, Filep, & Szerb, 2007). The
advantage of a friendly loan is that it is generally interest-free and the family
loan may not have to be repaid. However, the business cannot rely on them
indefinitely either. On the one hand, because this resource is finite, which is not
able to cover the extra high costs of developing startups in particular, and on the
other hand, relatives, acquaintances can be shaken in the entrepreneur’s confidence, or they ask to intervene in similarly to banks, they may require physical
collateral (loan collateral).
Startups are therefore in need of new investors very soon, precisely because
of the rapid growth. These investors believe in the entrepreneur, see in them the
ability to think big (think globally), dare to dream big, believe in the need for
your business and your product/service, and being able to surround himself with
the right people. Able to employ people who can identify with the company, love
and do their job well, and are highly motivated. As mass demand for a given
product and/or service comes into play, significant improvements are suddenly
required and can be huge. Companies may need additional capital injections
Features of Start-Ups
189
during the market entry phase (Vecsenyi, 2003). They are either solved by Community funding or, if there is a venture capital fund or national source, then,
under certain conditions, drawing them up may be the financial basis for development. Start-ups require the most start-up financing (seed capital). In addition, support mechanisms include angel investors, venture capital, hatcheries,
accelerators, co-working, small business development centers and science and
technology parks.
Start-up companies can have a huge impact on society. A good example
of this is Estonia, where people wanted a Western standard of living after the
change of regime but there were no companies that could create the conditions
for this. This is where the start-up company Skype started operating. When it
was sold a few years after its launch in 2005 (for nearly $ 2.5 billion), it generated about a quarter of sales revenue. Five percent was returned to the mother
country. Because the employees were also co-owners of the company, this company generated more than 30 new companies in the country. People have a new
attitude towards businesses: they dare to believe they will be successful. And even
if they fail, they have learned a lot about starting a company. The most critical
of the startup problems is the financial shortfall. In addition, lack of sufficient
business knowledge, technology lag and team management problems can lead to
company failure (Núñez, 2007).
6. Who Makes Up a Start-up?
During their studies, engineering students implementing product and/or technological innovation often find themselves in a situation where they can choose
between the relative security of a multinational company or the extreme uncertainty of a new venture. Quit their studies and start a business? Or are they trying
to sell the patent, know-how from the idea? Or are you looking for an “inclusive”
business? Or start a new one? What kind of business development assistance and
environment can the university provide?
University students who are studying engineering or law are usually not
enthusiastic about economic subjects. One of the exceptions, based on educational experience, is the establishment and operation of start-up companies.
Due to public speaking, fashion and some national success stories, a student
with a viable idea plays with the idea of becoming a successful entrepreneur. Of
course, as you become familiar with case studies of companies seeking to reach
such a global market, their capital and resource needs, their expected life cycle
and their enthusiasm wanes. Other solutions are not always attractive to them.
However, a spin-off company or an in-house incubator can do much more for an
inexperienced start-up. Perhaps the most important question is whether you can
be a university student with an idea, an invention, a new technology or a freshly
graduated engineer a successful entrepreneur? The role of the higher education
institution and its supportive environment can also be important. Can the university offer alternatives to the student so that the student also obtains his or
her diploma and the institution can profit from the R&D proposal and idea
developed?
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7. Start-up and Incubator House
In theory, start-ups can also use the services of incubator houses. All the more
so because at first it seems rarely that we will consider a start-up business as a
start-up. The idea of operating incubator houses started in the United States.
The concept of incubation is complex and includes the provision of assistance
to start-ups (operational, strategic and administrative). Incubators help start-ups
survive the initial, most vulnerable period. The basic services provided by incubators in the European Union are the follows:
⦁⦁ provision of incubation space (location);
⦁⦁ administrative service (business administration);
⦁⦁ financial services (such as seed funding, involvement of business angels);
⦁⦁ helping start-ups (e.g., business and legal consultancy); and
⦁⦁ providing opportunities for networking.
The purpose of incubator houses is to start up a business within 3–5 years and
be able to operate independently. Incubation is a tool that helps start-ups to grow
and grow, regardless of area or name. This will improve the innovation performance of enterprises and reduce their failure rates.
Incubators can be typified in several ways: strategic objective, function, relation to the economy and the market. The purpose of setting it up can be, for
example, to develop the local economy, to support the work of a social group,
or to develop the company. For strategy goals, a start-up venture can be of the
following types:
⦁⦁ Business innovation center
⦁⦁ Independent private incubator
⦁⦁ Corporate incubator
⦁⦁ University business incubator
In the United States, incubator houses are also classified according to their
primary function. Mixed-use incubators do not select candidates, they are open
to anyone regardless of industry. We are talking about a technology incubator if
most of the tenants are technology-oriented associates. There are also industryspecific (incubator) incubators. Companies in the service sector are supported
by service incubators. Start-ups in difficulty are called “start-ups” empowerment
incubators. We also know incubators without walls, especially for information
technology-oriented businesses.
Based on their relationship to the economy, the literature distinguishes three
types of incubators based on the European Union survey: the traditional, the specialized and the new economic incubators. Market-based incubators are market
based. For start-ups it does not matter what type of incubator house they join,
because the support mechanism, especially for start-ups with a higher risk, can
help a lot in the initial difficulties (Bruton & Rubanik, 2002). However, a malicious, negative environment can lead to business failure (Boeker, 1988).
Features of Start-Ups
191
8. Spin-off Companies
Technology incubation is closely linked to spin-off companies. These businesses are
created by pooling the knowledge accumulated at universities, using the intellectual
capacity of researchers at research and higher education institutions to transfer technology. They are very volatile at the start. Failure endangers their operations, since the
founders were not from business, but from theoreticians with little practical experience.
In a broader sense, a spin-off company is a new company founded in whole or
in part by university researchers, other university employees or students, which
utilizes any knowledge acquired at the university. According to a more restrictive
interpretation, a spin-off is a company whose founders are university employees
who set up the company at the university, have a formal (legal) relationship with
the university, and utilize proprietary technology.
Startups can also be spin-offs, with starters including undergraduates and
young PhD students. This formation provides greater protection, but obviously
comes with a price. Start-up support is even more necessary for a startup than a
traditional start-up (Van Gelderen et al., 2005).
9. Examples and Good Practices
The company Prezi.com started out with a prototype that Péter Árvai started to
persuade his friends to quit their job and start the company together. They started
out by wanting to create a valuable, good thing for users, a world product that is
used everywhere in the world and the US market was the most appropriate. They
began operations in Silicon Valley in San Francisco. The essence of Prezi is to
create a computer presentation as if the artist were able to present their ideas on
a big board. The other founder, Péter Halácsy, admits that he was accidentally
curled up with two people who had previously set up a start-up company, talked
to them, asked for advice, and asked for it today. According to him, knowledge
sharing basically defines the companies that operate like them in Silicon Valley, because their guiding principle is “You are not working for a company, but
for Silicon Valley,” where the companies operate as divisions. Everyone knows
everyone and helps each other’s work, sharing their experiences and knowledge.
Between 2010 and 2013, the total value of the company was doubled: the number
of employees and doubled year after year (7–14–30–60–150. About 120 out of
150 people work in Budapest (from 25 different countries). Users and income
year after year has grown exponentially, with approximately 25 million people
using Prezit today, but the founders say it is far from reaching the 25 million users
they dream of. Changes in product methods, innovations by engineers, changes in
design, changes to the product much and quickly and coordinating them are the
biggest challenges. Each office is planning to settle for a year, to a bigger place.
When they take a level (make innovations), they are already thinking about the
new challenges they will face. They are constantly evolving, always doing something else, always coming up with something new that they don’t know how to do,
and they are always thinking about the next level, The founders are always trying
to learn from others and gain experience.
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LOGMeIN is also based in Boston, but they started in Budapest. But investors were Americans who wanted their money not too far away, so the company
headquarters had to be moved to the United States. They employ 650 people, of
whom 250 work in Hungary. They have over 40 million users and have installed
their products on over 200 million devices. They do not believe in quick individual
enrichment, but in their love of what they do. They are paid 20% higher than the
average and provide their “knowledge workers” with the tools they need to relax
(TV, Billiards, etc.), which they say will guarantee their creative, self-actualizing
employees better performance and the importance of what they do. Initially, they
were able to develop with the help of four investment firms, which were able to
exit the business with a multiplier within a few years. According to the founders,
many would-be entrepreneurs would have the opportunity to start a business, but
they do not believe in themselves, even if successful or not, they could certainly
learn from it.
The company Ustream started in 2007 in Hungary in one flat with two
American and one Hungarian founders. The company deals with live video
streaming on the Internet. It was able to grow into a global company by building a strong brand by focusing on one market and by developing its own platform, so it was not dependent on their suppliers. As a result, within a year, they
had a stronger system than any company that worked on connecting existing
systems. Company staff monitored the channels 24 hours a day to see if there
was any abuse, violation of the terms of use and attention to growing content.
The company operates in the United States (marketing, product marketing, and
sales) and in Budapest (a full engineering team), operating for a total of 9 years
when IBM acquired them for multiple investments (approximately 50 times).
They believe it is a great leap, both professionally and humanly, to enter the
international market.
The founder of SOLD started his business as a spin-off entrepreneur at MIT
University with two partners. They wanted to give consumers something that
they themselves did. They say start-up philosophy is not taught anywhere, it must
be invented. It’s awesome and if you don’t enjoy it, you don’t have to do it. This
company helps people how to sell what they no longer need. A simple application has been developed. The potential seller is sent a box containing everything
needed to pack the package and the potential buyer’s address. They are constantly
examining where and how their systems can be attacked. They look for a problem
that they can attack and try it on people very quickly, and then look for the five
things someone wants to beat them. In addition, they make small videos to demonstrate why it is important for the consumer to sell their excess products: they
show astonishing, funny, extreme desires in the videos that the seller can make
from the amount they are seeking.
Solutions and Recommendations
This chapter introduces business development, starting with traditional business models and then with extra-fast start-ups. The goal was for the reader to
become familiar with the traditional corporate model, which was appropriate in
Features of Start-Ups
193
a relatively stable market environment and has become obsolete in today’s turbulent market environment.
In the future, it would be worth looking into the future where start-up companies that were founded in the early 2000s are nowadays where they are sold by the
founders; whether they can still be called start-ups or not.
As special players in start-ups, extra-fast start-ups have a significant influence on society, consumers, competitors, business investors and policy-making.
Because of their important role, it is worth paying attention to them and making
their business model widely known. Today, the emergence of this new type of
enterprise has been perceived by several countries at governmental level and is
considered to have significant economic potential.
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