Not all newly formed enterprises pursuing to bring technology products or services to market are tech Startups. Not all innovative technology product or service companies will experience high growth and take over the business of high-performing existing firms. Many such companies have been struggling to survive for decades, let alone experiencing exponential growth after an initial period and unleashing Disruptive Innovation effects on existing jobs, firms, and industries. Concerning which enterprises pursuing innovation are known to be startups, tech startups refer to those early-stage firms who have been seeking the feasible possibility of reinventing matured products by leveraging emerging technology cores so that they succeed in creating new markets due to uniqueness and take over the market of existing matured products through unleashing creative wave of destruction.
Tech startups are after exploiting the uniqueness of emerging technology cores through Reinvention of matured products. They begin the journey by serving the nonconsumption market with the novelty at the early stage of the technology life cycle. Further advancement of the technology core led to empowering their reinventions as better substitutes to existing matured products, helping the mainstream market get their jobs done better. Over time, further progression makes their innovations suitable for the unserved market segment. Consequentially, initial slow growth in serving the nonconsumption market leads to rapid growth for being a better substitute to matured products, followed by the growth in serving those customers who did not even think about the necessity of such products. Hence, tech startups face both opportunities and challenges. Invariably, reinvention opportunities pursued by tech startups are fraught with pervasive uncertainties of technology, hype, chasm, infrastructure, ecosystem and competition, and unfolding consumer preferences.
During the dot com era, tech startups became very popular. The underlying cause of the popularity of tech startups is the possibility of rapidly growing investment due to innovativeness, scalability, and growth.
Examples of tech startups
Let’s draw lessons from contemporary, immediate past, and far-past examples of tech startups.
Far past example—Sony took the license of Transistor in 1952 and embarked on reinventing radios by changing the matured vacuum technology core. In 1955, Sony released the first transistor radio. As Sony’s pocket radio was a primitive alternative to kitchen countertop vacuum tube radios, Sony targeted the nonconsumption market—college students. However, unlike current startups, Sony did not focus on subsidizing radios to increase the market and raise more investors’ funds. Instead, Sony focused on refining transistor technology to make their reinvented radios increasingly better and cheaper, fueling a creative wave of destruction. As RCA, Zenith, and a few other American and European companies profiting from matured vacuum tube radios did not pursue it, the rise of transistor radios’ creative wave of destruction unleashed a disruptive effect on those high-performing firms. Consequentially, Sony surfaced as a role model for startups. Unfortunately, many early-stage firms claiming them as startups have not been following Sony’s path of unleashing disruptive innovation.
In the immediate past–with the magical innovation power of Steve Jobs, Apple came up with Apple I in 1976. Unfortunately, there was no magic inside Steve’s wooden box. Hence, without finding customers, Apple had to burn half of the first lot of Apple I. Ironically, Apple’s startup success came from the refinement and commercialization of Xerox’s idea of a graphical user interface. Upon failing with Apple I and having me too success with Apple II, Steve unveiled the reinvention of the personal computer in 1986—the graphical user interface-based Macintosh. However, it emerged as a primitive alternative as the GUI-based interface slowed the computer. Fortunately, the underlying processor and memory core kept quickly rising to be better and cheaper due to the advancement of semiconductor technology. Subsequently, Apple’s Macintosh graduated from the hobby market to the mainstream desktop publishing market, resulting in rapid customer base growth. Furthermore, due to the ease of use and low cost, in addition to mainstream publishers, many small offices started adopting it as an in-house publishing platform. It appears that there has been a strong parallel between the success of Sony and Apple in fueling the creative wave of destruction out of reinvention by leveraging emerging technology cores.
Contemporary tech startup examples—Often, we cite Uber as a successful tech startup. Unfortunately, it’s wrong. The primary reason is that, like Apple and Sony, Uber cannot keep making its ride-sharing innovation increasingly better and cheaper. Hence, it relied on burning investors’ funds to expand the market through subsidies to increase the valuation. Despite the current subsidy-driven market expansion, all other tech startups should find the path of fueling reinvention to create success. For example, tech startups, like Rytr and WriteSonic, pursuing AI-powered writing tools, must keep adding ideas for making writing and content production tools to surface human competence to capture a significant market. Unfortunately, instead of focusing on technological advancement, they have been relying on raising funds to buy customers and show scale and growth. However, such an approach risks getting caught in chasm and hype due to misleading early progress.
Key tech startup challenges
Tech startups face many challenges in turning their ideas into profitable businesses and sustaining them. Along the way, they must demonstrate the latent potential of unleashing disruptive innovations to gain market capitalization. However, among all the challenges, two are vital: (i) fueling the reinvention wave for unleashing a creative wave of destruction and (ii) Winning the race to gain market power.
Fueling reinvention wave
- Finding a suitable technology core—despite the necessity of creativity, competence of the team, and risk capital, the technology core plays a crucial role in tech startups. If the technology core is not amenable to progression in surpassing the quality and cost performance of the incumbent matured technology core, tech startups will find no success path. Besides, the technology core must have a suitable novelty to make the reinvention appealing to the nonconsumption market at the early stage. By the way, invariably, innovations of tech startups do not emerge with a good product-market fit. Hence, invariably, the mainstream market rejects the products of tech startups at the early stage of the life cycle. The amenability of technology core to advancement keeps progressing the product life cycle, improving product-market fit. Furthermore, if the technology core is not suitable, business and pricing models proposed by business school gurus run the risk of faltering.
- Crossing the threshold of matured products—the reinventions of tech startups must grow and cross the quality-cost threshold set by the matured products. Hence, in addition to assessing the amenability of the progression of emerging technology core, the threshold must be crossed by the reinvention waves for graduating to creative wave destruction. For example, lithium-ion battery core has shown tremendous progress over the last 40 years. However, due to the high threshold set by the internal combustion engine and liquid fuel, the electrical vehicle wave has yet to be unleashed as a creative wave of destruction.
- Finding and tapping into the nonconsumption market—market research must find accessible and reasonably large nonconsumption markets. Customers of this market segment will be the early adopters of tech startups’ reinventions, while mainstream will be waiting for further progress. Tech startups will likely get caught in Death Valley without finding and exploiting this nonconsumption market.
- Gaining proprietary capability in advancing technology core—tech startups must have solid in-house capability for technology advancement and fusion. Without it, idea stock will not grow adequately to meet the urgency of fueling the creative wave of destruction.
- Focus on empathy for tapping into consumer preferences—as stated, invariably, reinvention of ideas of tech startups emerge in primitive form. They need to keep growing and rising as Creative waves of destruction to incumbent matured products. However, two critical questions are (i) what features to add and which existing features to advance in releasing successive versions. Hence, empathy in knowing customers’ untold desires and pains in Getting jobs done is vital in leveraging technology and externalities to keep advancing reinventions.
- Pursue Passion for Perfection—often, tech startups must keep advancing technology core and their reinventions over decades to succeed as creative waves of destruction. Hence, systematically sustaining such momentum is a daunting challenge. It has been found that passion for perfection plays a vital role in sustaining the momentum of refinement.
- Select suitable timing for resonating synchronized responses—no reinvention idea can succeed in isolation. Hence, tech startups face the challenge of finding an appropriate time to ensure synchronized response. For this reason, sometimes, latecomers succeed with discarded ideas. According to Idea Lab Founder Bill T. Gross, timing is the most critical factor for the success of tech startups.
Winning the race to attain market power
Pursuing a reinvention wave is not enough to profit from tech startups. Contrary to common sense, tech startups face the opportunity and challenge of making their products increasingly better and cheaper by leveraging technology progression. Hence, there has been a race to advance their products to improve the quality and reduce the cost simultaneously. Winning this race ends up with price-setting capability. Hence, tech startups face the challenge of winning the race to attain market power. Furthermore, due to the meager marginal cost, even zero, tech startups face the reality that the winner takes it all. Hence, how to win the race is a critically important factor in pursuing tech startups.
- Building no-replicable internal refinement capacity—as explained, turning humble reinventions into creative waves of destruction requires refinement of technologies and making incremental advancements for serving consumer preferences increasingly better at a decreasing cost. Such a capability is not vital for unleashing creative waves of destruction. More importantly, it should be done far better than competitors. Hence, tech startups must have non-replicable or hard-to-replicate internal refinement capacity.
- Creating a systematic Flow of Ideas for scale, scope, and positive externalities—for unleashing a creative wave of destruction, creating scale, scope, and positive externalities effects is vital for tech startups. Hence, tech startups face the challenge of creating a systematic flow of ideas to create traction and win the race.
- Creating switching barriers to incumbents—invariably, incumbent high-performing firms profiting from matured products are better positioned than tech startups to pursue reinvention. Besides, they will be desperate to switch at a later stage if they leave the risk to tech startups to take the first bite of the apple. Hence, to succeed in winning the race, tech startups must create switching barriers through various means, including patents, network effects, and ecosystems.
- Pursuing strong ecosystem partnership—no tech startup can succeed in turning their idea of reinvention into a creative wave of destruction alone. They need to form partnerships to advance components and lay the infrastructure for reinventions to take off. Hence, the winning strategy demands ecosystem partnership.
- Outperform competition in speed—a great idea is not enough to create startup success. It demands a flow of ideas to keep adding momentum of quality advancement and cost reduction for unleashing a creative wave of destruction. Besides, many pursue the same idea. Hence, speed of advancement plays a vital role in the success of startups in winning the reinvention race.
In defining tech startups and stating what it takes for their success, we often refer to the importance of great ideas, teams, risk capital, business and pricing models, and product-market fit. Yes, they are essential. However, in explaining tech startups using conventional business terminologies, we often fail to underscore the importance of fueling a creative wave of destruction and winning the race by leveraging technology possibilities to serve consumer preferences increasingly better in getting their jobs done. Hence, this article has attempted to address this voidness in defining what tech startups are and what it takes for their success.
