In the previous article, we explored the role of internal processes. This article will look into the various industry factors that influence start-up success. The industry-related factors are competition, large customer and corporate entrepreneurship, Suppliers & Support Services, Resources, Entry barriers, and industry structure.
Competition is an interesting phenomenon; much competition indicates healthy demand. But that also means that entering the market would be difficult. A strong value proposition and position would be required, along with solid differentiation of the products. Sometimes, competition combined with stagnant growth indicates an opportunity for disruption, which could present an opportunity for innovation for a start-up. Strong competitors well-entrenched with a large customer base could pose a threat and put up many entry barriers like stringent qualification criteria, low prices, supplier consolidation, etc.
However, much interest is shown in “coopetition,” where competitors are willing to collaborate on aspects of business, like supply chain optimization or leveraging technology. Coopetition can dramatically change the competitive landscape where companies could collaborate on some aspects while competing in the markets. Identifying such opportunities can breed healthy competition while optimizing resources and improving profitability.
Large businesses can play a key role in supporting start-ups by encouraging them with favourable supply contracts and payment terms. Often, start-ups are launched based on assurances from a single large customer. While this can be a great entry strategy, more effort is needed to lead to sustainable growth. The start-up must explore and gain more customers quickly to reduce the dependency on a single customer. A new phenomenon of corporate entrepreneurship has been taking root, where large companies are spawning off new ventures, supporting them with funding and resources. The initial work is done within the firms to build a proof of concept before making it independent. These start-ups could also be leveraging the parent company’s products and services, further enhancing the market position of the parent.
A strong supplier base makes a lot of difference to new start-ups. While the established suppliers may not favour the new entrants, their presence makes it easy to get the necessary resources. The support service providers make it easy for start-ups to set up and run operations quickly. These services could span company registration, compliance, regulatory aspects, and basic aspects of operations. Many start-ups waste a lot of effort and money to meet some of these aspects due to a lack of awareness, and a good base of support services can make their life very easy.
The availability of key resources is another major enabler for new ventures. These could be raw materials, human capital, ancillary units, and distribution channels. While the e-commerce revolution has eased much of the distribution challenges, the regular retail channels still handle the lion’s share of the trade. Access to the same is a critical success factor for many new ventures. Sometimes, the availability of key resources prompts new ventures to do product innovations, leading to new market opportunities. A new way of launching new ventures has been focusing on abundant resources in a region that can be easily accessed and used for creating new products using local manpower.
Many entry barriers could exist in any industry, some by the incumbents and others due to the industry structure. Regulatory barriers could make it difficult for a new venture to comply with. There could be infrastructure, financial, resource-related, and even customer-imposed barriers due to cultural aspects. Understanding and navigating such barriers is critical to a new venture’s success.
Industry structure could play a major role in limiting the profitability of a new venture. This could be a challenge as well as an opportunity. A new venture could completely change the industry dynamics and structure by redefining the game's rules. A good example is a situation created by AirBnB, where the existing hoteliers are fighting a court case, accusing AirBnB of a regulatory breach. The aggregation business model has taken the world by storm. Many such traditional industries are ripe for disruption and business model innovation, offering great opportunities for new ventures.
We have discussed various industry factors critical to new venture success. These aspects of the ecosystem should be carefully considered by both policymakers and founders to ensure that they don’t become insurmountable, impeding business growth.
About the Author
Flt.Lt. Sridhar Chakravarthi is an experienced organizational change coach and consultant with over 30 years of leadership experience in various industries. He believes in the possibility of exponential growth for individuals, start-ups, and mature organizations. He empowers them to achieve exponential growth by bringing agility into their mindset, processes, and behaviours. He is an authorized training partner for Enterprise Agility University, runs his company “Coach for Change” and lives in Bengaluru, India.