Steinbeis experts offer guidance on the processes of setting up a business
The School of International Business and Entrepreneurship (SIBE) – a business school belonging to the Graduate School at the Faculty of Leadership and Management at Steinbeis University – counts more than 400 successful business founders among its graduates. But not every startup is successful. 90% of startups fold within a couple of years, although an unknown (likely much higher) number of ideas are abandoned, with teams being wound up prematurely and business models failing even before firms officially complete the foundation process. SIBE has been putting the perilous early stages of startups under the microscope as part of a study aimed not only at determining the type of support that is required, but also providing aspiring business founders with a checklist of the most important milestones.
The initial years of a startup or spin-off are often fraught with challenges, although that is not to say that the time before actually setting up a company, also known as the pre-seed or seed stage, is any less critical. Entrepreneurs will only be able to enter the market if they succeed in developing and substantiating an innovative business concept and present it to the right investors. Although there are currently over 1,000 different support programs, it is rare to find support targeted at the early stages of startups. Existing programs tend to assume important topics such as idea generation, business model development, and market orientation have already been addressed, and as a result such issues are only given rudimentary consideration.
As part of a startup study, the School of International Business and Entrepreneurship (SIBE) has investigated which success criteria are essential in order for prospective business founders to overcome the challenges faced during the pre-startup stages. Around 500 startup experts were contacted, with roughly 15% (n = 70) agreeing to participate in the study. The majority of respondents (59%) work at startup and transfer centers, or function as startup mentors and coaches. At 10%, only a relatively low number of respondents were business founders. The remaining 31% of respondents comprised business incubators, accelerators, company builders, investors, and other types of experts.
The first milestones on the journey to setting up a business
The early stages of a startup essentially comprise two pre-foundation phases. There is the pre-seed stage (referred to as the orientation phase in German-speaking countries), which is the very first stage entered into by a startup. This is followed by the seed stage (planning phase). For the study, the startup experts were asked which important tasks, key steps, and milestones have to be managed during each stage. According to the survey, the focus during the pre-seed stage should lie strongly in the business concept (92.9%), market orientation (85.5%), and networking (84.3%). Six out of ten respondents also felt that team building and the innovative idea underlying the business concept are very important. This contrasted with the subsequent seed stage, when emphasis is given to the business model (91.3%), market validation and the proof of concept (86.9%), and the financing plan (81.1%).
Early support is of great importance. Despite this, it is not always easy for new firms to find the right support during the early stages. For this reason, the experts were asked to what extent different types of services and offerings are important. With agreement scores exceeding 75%, access to the required technology and infrastructure, the availability of business coaches and mentors, and the provision of (expert) networks were all cited as very important for both pre-startup phases.
Why business founders fail – and what makes them successful
The study also explored which problems, obstacles, and impediments result in early failure. With a score of more than 80%, according to the experts working with the wrong people is a recipe for failure. 60% of respondents also cited a lack of skills and expertise, a lack of or inadequate funding, and a poor business concept as common causes of failure. At under 40%, the less likely causes of failure include lack of experience or support, work overload, and a lack of networks.
But what support can be given for aspiring business founders to succeed? To find out, the startup experts were invited to suggest useful tools and models, so that sub-goals can be defined and milestones achieved independently. The top answers were the Business Model Canvas for developing and setting up your own business model, design thinking for coming up with ideas, lean startup methods as a business strategy and mindset, and the Value Proposition Canvas for defining benefits.
Competences and networks rather than funding
The intention of the study in looking at the early stages of the startup process was to examine important goals, key factors, requirements, and support options during the pre-seed and seed stages of startups. Thanks to the diverse backgrounds of respondents, it was possible to elicit which factors are important both for prospective business founders themselves, and for stakeholders and organizations providing them with support, so that obstacles and hindrances can be identified and overcome early. It should be noted that for almost all questions and responses, funding was considered of secondary importance; more focus should be given to the ongoing development of social competence and interpersonal skills, forging and expanding networks, and finding appropriate team members, coaches, and mentors.
The whole study (in German) can be accessed here: https://bit.ly/3acWtwo
Dr. rer. nat. Patrick Roth (author)
Start-up & Business Development Expert
Steinbeis School of International Business and Entrepreneurship GmbH (Herrenberg)