Charlie Gunningham discusses what sets startups apart from regular businesses.
"Why are we always banging on about startups? There’s much more innovation done by regular businesses, and they need help just as much as startups do, if not more.”
This is a view I hear quite a bit. While it is true that regular businesses outnumber startups, probably engage in fantastic innovation and deserve our recognition and support, startups hold a few unique characteristics that make them very interesting.
What is a startup?
Let us be clear what we are talking about.
For our purposes, a startup is:
• an early stage innovative company or research project, which is;
• developing or commercialising a scalable, marketable opportunity;
• aiming to disrupt incumbent businesses in an industry and/or developing a new category;
• run by founders of any age (not only millennials).
This means startups could be at the idea stage or many years into their journey.
While a brand new restaurant, law firm or real estate agency might be a mighty fine business, they would not be classified as a ‘startup’ under this definition.
That’s because these businesses operate inside an existing industry and will require a step increase in staff, physical space and capital if they are to grow.
By contrast, startups can scale quickly without these requirements. That’s what makes them interesting.
Canva, originally from Perth, grew from scratch to an $8.7 billion valuation inside eight years. That’s pretty hard to do in any business type other than a tech startup.
Most tech startups will not survive. Trying something new is hard. Breaking into industries is tough. Creating a whole new industry is crazy difficult. In a state better known for mining, oil & gas and property, it’s also hard to raise the funding to ‘build the rocket ship’.
Scalability
Startups’ abilities to scale fast make them an attractive business for budding entrepreneurs and eager investors.
This is especially true if the startup deploys a SaaS (Software as a Service) business model.
Every additional customer logs on, pays an ongoing fee and gets on with it. The additional cost of that customer is negligible – the only cost is their acquisition - and yet additional revenue is created.
Co-founder of app review service AppBot, Claire McGregor, is someone who understands the SaaS model well.
“Using a recurring revenue SaaS model is one of the key strategies that allowed us to successfully bootstrap Appbot,” she told Business News.
“It can be especially effective for niche products like ours, where it’s possible to keep your churn (subscription cancellations) very low. The recurring nature of SaaS also makes growth easier to predict and keeps the cost of retaining customers low.
“We’ve opted for a low-touch approach to SaaS sales, which means the business continues to close deals 24/7/365. It’s highly scalable and that has meant we can grow revenue at a much faster rate than we grow the team.”
Lucy Cooke, the founder of this year’s Startup of the Year, SpaceDraft, also uses a SaaS model.
“The drip, drip, drip… is everything and it can be a long time between drips, particularly when you’re in beta testing – [which] is why fundraising is so important.” Lucy said.
“The best advice I received was to test pricing for as long as you can in as many industries as you can. We know we want specific kinds of users so if they have an issue with our pricing then we listen, and adapt accordingly.”
Dr Jeremy Nunn is the founder and CEO of HR technology business Work Metrics.
“SaaS is the core model for us. Our software scales with the client. They also get the benefit from the shared knowledge of all our clients who continuously tweak features and requests which get made available to all,” Dr Nunn said.
The SaaS Mountain
The key is achieving a critical mass. Climbing the ‘SaaS Mountain’ can take years. It’s a tough journey, with many mis-steps and falls. But if you can scramble out of the foothills and acquire scale, the view from the top is wonderful.
If anyone is going to get us out of COVID, help diversify our local economy and create new wealth, jobs and growth, it’s these types of scalable businesses.
The ‘next Canva’ is out there. What are we going to do to help find them?
Charlie Gunningham is founder and principal of Damburst, a digital strategy advisory business.
