In 1980, a young Harvard Business School professor named Michael Porter published Competitive Strategy, which drove thinking on the subject for the next 30 years. In essence, he argued that you build sustainable competitive advantage by maximizing bargaining power throughout a value chain.

Yet more recently, that kind of single firm level analysis has been called into question and leaders have learned to look more broadly at ecosystems. In fact, a recent report by Accenture Strategy found that because business models are being constantly disrupted, ecosystems have become a “cornerstone” of future growth.”

While value chains are strictly defined by “primary activities” such as “inbound logistics” and “support activities” like technology, ecosystems have mostly been a nebulous term. Clearly that’s not good enough. If we are going to compete in an ecosystem-driven world, we need to understand how they function and how we can leverage them to drive a business forward.

What Is An Ecosystem?

Ecosystem is a term that gets thrown around quite a bit, but people never seem to define what one is. All too often, it alludes to some indescribable ether that surrounds an enterprise. When you can’t define how an action would impact a customer or partner, you simply invoke “the ecosystem” and that’s supposed to make it all make sense.

Yet it’s important that we define terms that have meaning, because if we don’t they just become a catchall for things that we can’t describe. That’s a problem. As Wittgenstein pointed out long ago, if we can’t define something we don’t really understand it and if we don’t understand something we can’t hope to manage it very well.

Ecosystems are best understood as networks of networks and that tells us a lot. In fact, there is a whole science of networks to guide us. What’s most important about networks is that they are driven by links not nodes, so the most important network activity is connection. Networks are dynamic, always evolving, not static.

That’s where focusing on value chains runs into problems. Maximizing bargaining power within a value chain almost compels us to see things as a static, “winner take all” type of challenge in which you play one partner off against another. When you see things as an ecosystem, however, there is clear value in investing in connections and building up the nodes around you to improve your position.

It Is Ecosystems, Not Inventions That Drive The Future

We tend to think of history as a series of “great men” driving events. So electricity conjures up visions of Edison and his light bulb and automobiles remind us of Henry Ford creating the Model T. Yet the truth is that the impact from those inventions didn’t come till decades after those men brought those inventions to life.

In both cases, it was secondary inventions that drove the impact. Electricity allowed businesses to redesign factories to optimize workflow and drive productivity. Home appliances replaced backbreaking work and freed up energy for other tasks. Roads and gas stations revolutionized product distribution and led to the modern retail industry.

Computers followed a similar path. Digital technology had been around for decades when IBM launched the PC in 1981, yet it wouldn’t be till the late 90s that we first started to see an impact on productivity. The truth is that computers don’t do much by themselves. Applications need to be designed and people need to figure out how to put them to good use.

Notice that it’s impossible to point to any one thing that tipped the scale, because what drove impact was an ecosystem of connections between partners, suppliers and customers who needed to learn how to collaborate effectively. That has far less to do with technology than it does with forging meaningful human relationships and it takes time.

Power Today Lies In The Center Of Ecosystems, Rather Than At The Top Of Hierarchies

Traditionally we’ve seen the world as a driven by hierarchies. Kings and queens ruled the world through through aristocracies that carried out their orders. Corporate CEO’s outlined strategies that underlings would have to execute. Discipline was enforced through a system of punishments and rewards.

In a hierarchy driven world, you progress by climbing your way to the top. So you do your best to drive the performance of those under you to impress those above you. Success is determined by how high you rise. You learn to put great emphasis on signals that you have made it, such as the title on your business card and the size and location of your office.

In an ecosystem driven world, however, power does not lie at the top of hierarchies, but emanates from the center of networks. So an office on the executive floor may, in fact, diminish your ability to shape events if it leads to disconnection. At the same time, being seen as approachable, rather than high status, may enhance your power.

Here’s where Porter’s ideas about value chains can get you into trouble. If you are constantly trying to maximize your bargaining power, you are likely to weaken connections and find yourself at the periphery, rather than at the center, of networks. In an ecosystem driven world, displaying your power can often serve to undermine it.

You Move To The Center By Connecting Out

As I explain in my book Cascades, the best way move to the center of networks is by connecting out. At first, that may seem counterintuitive because it seems simpler to identify a central hub and connect in. Yet those nodes, by definition, already have a lot of links and your connection is less likely to be meaningful.

Once you understand that networks are dynamic and evolving, it becomes clear that a better strategy is to identify emergent nodes and connect to them early on. As the network grows, the center shifts and you are more likely to improve your position. In an ecosystem world, the best strategy is to widen and deepen connections throughout the network.

AnnaLee Saxenian gives an apt description of how this works in Regional Advantage, where she tells the story of how Boston’s “Technology Highway” lost relevance and Silicon Valley moved to the center of the technology universe. The Boston-based companies saw things in terms of value chains and focused on vertical integration to maximize their bargaining power. The Silicon Valley upstarts, on the other hand, saw an ecosystem and thrived on connection.

Today, of course, technology has exponentially increased our ability to make connections. However, what is crucial to understand is that relationships are essentially a very human activity. You don’t build them through gadgets or algorithms, but my investing your most valuable resource — yourself.

– Greg

An earlier version of this article was first published on Inc.com

Image: Pixabay

Starting a business?  If you spend a few moments to research the startup world, you will quickly find recommendations for programs, facilities, and processes that offer to help you get started and/or grow in the most efficient way.  Each of these startup methods has its merits as an alternative to bootstrapping.  The best choice for your endeavor may depend on the type of business you are starting, at what stage you find yourself, as well as the requirements and benefits of individual programs. 

But which way is best for your business? 

Incubators:

A “business incubator” is a program, often set up as a not-for-profit, to help create and grow new businesses, via providing support and other services such as low-cost work space, manufacturing space or equipment, access to financing, and technical services.  They are often initiated and operated by municipalities, private companies, or universities.  Staff members offer advice and expertise.  Founders may also be provided shared services such as phone, secretarial staff, office space, and equipment.

Some incubators focus on specific types of businesses or founders, so entrepreneurs should seek an incubator that is a good fit for their business.  The incubator program may end at the expiration of the lease period or completion of an incubation program. 

Incubators are most suitable for businesses that have a local focus or service focus:  retail, services, or consulting.  Their main thrust is to promote entrepreneurship in their community.  They generally assist traditional brick & mortar businesses with getting started, and some also work with technology-based businesses.

To locate an incubator near you, contact your local governmental economic development agency or university.  To enter an incubator, be prepared to present a written business plan, along with a detailed application.

Pros: Low-cost workspace and access to advice and resources.  Incubators are a great place to start if the founder is at the idea stage or early in the startup process, and desires general guidance and assistance.

Cons:  Your business must meet the incubator’s admission qualifications and space is limited, so some qualified applicants may be turned away.  Also, be aware that some incubators are operated by incubator managers for the purpose of building their own resumés, and not primarily for the benefit of the entrepreneur. 

Accelerators:

A “business accelerator” is a program that focuses on business growth, and preparing the business for scaling (large-scale customer/revenue increases).  An accelerator provides mentorship and an educational curriculum, typically ending in a “Demo Day” pitch event where each founder gives a presentation for investors, which sometimes includes the media.

Accelerator programs are typically structured into cohorts with group-driven experiences with intensive training and iteration, for a block of time (1 week to 6 months, but sometimes longer).  The founders may be required to relocate, in order to be in physical proximity of the accelerator.  Accelerators often make a small “Seed” investment between $15K and $50K and might also require receipt of a percentage of the startup’s equity.  A major component of accelerators is preparing the startup to be a good candidate for investment.  This means that, in the view of the accelerator’s management, the new company has the potential to reach a very large market.

To locate an accelerator, search online for accelerators that specialize in your business sector.  Founders are chosen for limited slots by a committee.  Be prepared to provide a written business plan and to begin the process with an online application form.  The application process usually includes an interview or a number of interviews. 

Pros: Mentoring by high-level experts in your field, funding opportunities, networking, access to angel or venture investors.  Helpful in guiding businesses with existing traction (customers and/or revenue) to expand to global scale.

Cons:  This is a highly selective process for choosing participants from a large pool of applicants.  Relocation may be necessary.  Equity is often expected.  Typically, accelerators are not an option for non-scaling businesses such as consultants or local services with a small potential market.  Application rejection rate is high.

Rejection by an accelerator does not necessarily mean that the business model is not viable; rather that the accelerator did not feel that the business would be a fit for their own program and business investment strategy.

Cowork Spaces:

“Coworking” is essentially office-sharing among several individuals and/or small businesses.  It can be an informal arrangement where a business owner with extra office space sublets desks and offices, or a cowork space can operate as a business that rents out desks and offices to freelancers and telecommuters, sometimes with additional services on offer.  Some charge daily, weekly, or monthly rent, others sell memberships based on use of specific amenities. 

The type of space and arrangements vary, too.  Founders can rent desks that are first-come, first-served, or they can reserve an assigned space.  Enclosed offices and open-plan seating may be available, as well as storage space.  Some formal cowork spaces offer networking events where member businesses can meet and collaborate, which can be especially useful for a small, new business.

To locate a cowork space, search online in your area to find the space that has the services you need at a price that works for your business, and that is convenient for you to commute to on a daily basis.

Pros:  Lower cost than that of leasing a formal office space.  For kitchen-table startups, it improves time management and lets you leave work “at the office.”  Social interaction and networking help make entrepreneurship less lonely and stimulate sharing of best business practices.  A professional setting that is low maintenance helps keep founders focused on getting a business up and running.  Flexible plans enable founders to reduce risk by adjusting use based on growth and budget needs.

Cons:  Commuting, childcare, and eating lunch out can add to costs.  Typically, founders must bring their own computer equipment, and safeguard it while in commonly accessible areas.  Some may find open-plan facilities to be noisy and potentially disruptive to concentration, making a private office a better choice.

Venture Studios:

A “venture studio” helps entrepreneurs grow by combining company building with venture funding.  They often play a matchmaking role by linking business ideas to people who can execute on those ideas.  A venture studio works alongside several startups and “scale-ups” at the same time.  They may start with ideas from within to create new businesses, or they may apply expertise (and sometimes a small amount of capital) to assist founding teams to build, scale, and grow companies.

Unlike an incubator that focuses on the infancy of a company or an accelerator that operates within a fixed period of time to help a business to get to market or prepare to enter the fundraising process - a venture studio is available throughout each step of the startup lifecycle, often to the startup’s first exit (i.e., Series A or Series B).

For a founder, a venture studio can take on certain responsibilities (in the technical, accounting, HR, or marketing arena, for example) to help the entrepreneur avoid early mistakes when cash flow is critical and time is short, and taking pressure off the time-consuming capital raising process.

Pros:  You can have the best of several worlds with features of an incubator, an accelerator, and a cowork environment.

Cons: You will likely need to offer equity in your company to the funding party, and a certain amount of control or influence may be exerted by the venture studio.

Bootstrapping:

To “bootstrap” a business means to start it with your existing available resources, without outside funding or assistance.  The word “bootstrap” comes from the expression “to pull oneself up by one’s own bootstraps” - in other words, to improve one’s position by one’s own efforts.  While bootstrapping might sound more difficult than other methods, it is by far the most popular way to start a business because outside funding (grants, loans, angel capital, or venture capital) is not generally accessible to the average entrepreneur.

Instead of applying for a program or signing up for a shared startup experience, you use your own experience and common sense to build your business.  If you need to find out how to do something, such as accounting, you can research your options, and hire an expert to help you with areas where you don’t have the skill or knowledge. 

Many bootstrapping entrepreneurs start out as employees who work on their startup businesses in their off hours, from their own homes.  Funding comes from the founder’s own pockets and resources.  By maintaining a paying job and cutting back on frills, many entrepreneurs can preserve a meaningful lifestyle while starting a business.

To make the best use of personal funds, entrepreneurs must start “lean” (keeping costs to a minimum) and focus their spending where it will be most effective so the business doesn’t run out of funds before it can take on enough paying customers to pay its bills.  When using personal credit cards to support a business, it is a good practice to separate business expenses from personal expenses for tax purposes, and log each business expense.

Bootstrapping can be combined with other ways to start a business. For example, coworking can help you to establish a separate, dedicated space for your startup activity, and you can preserve your startup cash by choosing the minimum service level that the coworking space offers.

Pros:  By bootstrapping your business, you retain ownership and control of your company.  Even if your company takes out a loan, you are not required to give away equity (a share of ownership) to the lender.  You can progress at your own pace without any requirement to follow the deadlines of a startup program.

Cons:  Finding the funds to start a business can be a challenge.  Scoring funding from angel and venture investors is quite competitive; also, it is unlikely that a conventional lender would secure a loan by accepting a share in an unproven business.  Forging ahead without advice from experts in general business practices and those experienced in your business sector could result in a slow start, or an incomplete (non-money-making) business model.

Business Services Platforms:

As a boost to bootstrapping, business services platforms pull together a collection of services that cater to entrepreneurs.  Typically, the services are individual offerings that are not interconnected.  The services vary, with some offering access to deals and discounts on services such as fundraising, advice, educational material, marketing, or business tools.  These platforms tend to cater to technology-based startups already positioned to reach national or international scale by disrupting the traditional business practices of an existing industry.  This exclusive focus may leave out most great small businesses, whose growth and reach are measured on a local scale.

Pros:  Services are curated to serve entrepreneurs.  Entrepreneurs can continue bootstrapping and maintain control of the business, while gaining access to help that the founder would otherwise need to find on their own.  Founders can keep a rein on the budget and control the speed of their progress. 

Cons:  Most business services platforms are made up of a series of disconnected services, lacking a central, coordinated space to build a business.  They typically focus on the tasks required at the beginning stages of a business, but lack features to help an existing business thrive.  They also tend to focus on tech startups, and lack essential collaboration and community tools.

Where Does Brilliant Factory® Fit In?

By contrast, BrilliantFactory.com is a fully unified suite of services for a single, low subscription fee and login.  The product is a collaborative and inclusive ecosystem for the other 99-percent of tech and non-tech entrepreneurs, which welcomes participants from small business, mom & pops, the underemployed, stay-at-home parents, kitchen table solo-preneurs, recent grads, minorities, 2nd-Act professionals, veterans, and the differently-abled. Additionally, our platform works for enterprises of all types and sizes: retail, professional services, real estate development, health products/services, disaster mitigation, manufacturing, advertising, distribution, entertainment, aerospace, agtech, edtech, insuretech, conservation, micro-finance, and more.

Brilliant Factory is different; it’s the entrepreneurial ecosystem that offers the best of all worlds.  Entrepreneurs can bootstrap their way to success while taking advantage of the tools available in Brilliant Factory to gain knowledge, find customers, learn from other founders, and build their businesses – all without having to meet rigid application requirements, give up equity, or pay large consulting fees.

Conclusions:

Entrepreneurs have many options for starting and growing their businesses, but wading through the possibilities can be daunting.

Whether it’s an incubator, accelerator, venture studio, or cowork space, business assistance can mean applying and qualifying, as well as potentially paying for mentoring and other services with cash, by giving up equity in the business, or both.

Bootstrapping empowers you as a founder to start your business using your own resources, go at your own pace, and reap the rewards without obligation to others when the business takes off.

Author: STAFF

Image Credit: Pexels.com

Most entrepreneurs, especially those looking to start a large scale operation, have considered the value of obtaining funding from a venture or angel investor.  News headlines are filled with announcements of entrepreneurs and startups garnering venture or angel funding, with predictions of skyrocketing business success.

Statistically, however, these notable wins are an exception, with the majority of businesses that seek venture funds failing to secure them.  Far less than 1 in 100 founders seeking an initial investment ever receive it, and a slim fraction of those fortunate recipients are minority founders; for example, only 1.6% of venture funding has gone to black founders in 2021.

The odds of gaining venture investment are slim.  A typical “seed” VC might take 2,000 meetings in a year, making just 10 to 20 investments.  One VC said he took 1,600 meetings, and funded 10 companies.  Some VCs may take up to 5,000 meetings in a year.   To make 10 investments, the average VC firm might review approximately 1,200 companies.

The odds appear to be clearly against obtaining business funding via these capital sources.

The question is:  What can an entrepreneur do, instead?

Bootstrapping is the answer:

Many founders decide to fund their projects out of pocket or with funds they obtain via loans.  This has several advantages; first, the founder maintains equity ownership in the business, and second, because there is no 3rd party involved, they keep control over the direction of the company.  These advantages alone might make bootstrapping the most appealing option for many founders. 

Other founders elect to self-fund after pitching multiple VCs and being rejected, or because they feel they do not have an understanding of how VC works.

Bootstrapping means the founder takes all of the financial risk, and if successful, reaps a greater reward.  The business might be slower to start and get traction, but the bootstrapping founder maintains control and equity, and can grow as an entrepreneur alongside their business.

Instead of chasing venture capital, here are 5 things to do instead:

1. Build up your own funds first

Build up funds to start your business.  These are your own funds from your own earnings and investments, not borrowed funds.  You can trim your personal budget and set money aside, and you can increase your income by working side jobs if possible.  You can choose to work for companies where you learn something useful to your future business.  For example, If your product will be in retail, working in an establishment that could sell your product can be educational.  

2. Forget the "hustle" and think "growth"

Despite the drama portrayed in the media - where some energetic entrepreneur has pushed his company to the top like a rocket, claiming fast growth, big financial gains, while bragging about working all night to get ahead - consider how this course of action will affect you and your future.  You have to move at a speed you can maintain, or you’ll face burnout.  

Instead of chasing rainbows of overnight success, lay the groundwork for growth that will be manageable and sustainable long-term.

3. Hire carefully 

Flying solo might sound romantic, but if you intend to grow, it quickly becomes challenging to do it all yourself.  In areas where you do not possess the required skills or the work does not involve guiding the direction of the company, hiring a pro might free up your time to do more of what you're good at.

This is where you need to apply good judgement.  It is tempting to hire someone to share the work and responsibility, but it’s better to wait until you have refined your vision for your business.  That way, you fully understand your business before you need to explain it to someone else and have them take action based on your direction.

Don’t assume that you need to surround yourself with a C-suite of paid executives.  Look into contracting basic business services, instead.  

When it’s time to hire, bring on employees slowly, even one at a time.  Start them part-time or give them a single project to allow them to prove their value. 

4. When handling money, think strategy first

You will naturally want to get the most for your money, since you had accumulated your business startup funds yourself, and that can lead to two issues:  overspending, and underspending.

The trick is knowing where and when to spend or be frugal.  Prioritize expenses that have a direct effect on sales.  Pay attention to what works and what does not.  Your funds are a valuable tool no matter how big or small your business, and it’s important to cut spending that does not deliver, and focus on activities that do deliver.

Be sure to pay yourself a basic, although not exorbitant, salary, and set aside the appropriate amounts for taxes. 

Be ready to negotiate terms.  Setting shorter payment terms with retailers who sell your product, for example, means your money hits the bank faster.   Requesting longer payment terms with your suppliers lets you sell your ready-to-ship inventory while you still have use of the funds to pay for raw materials. 

5.  Have a backup plan and be realistic

When you start a business, you are taking risks and making sacrifices, and as a consequence, so is your family. Especially in the startup stages, you will experience a time of financial uncertainty.  This is why you will need to have a Plan B, such as an alternative source of funds or a side profession to bring in cash and take care of living expenses while the business grows.

Starting a business with your own money means you will be funneling profits back into building the business, especially at the start.  Have a plan for getting more cash quickly, should you need it.  For example, consider a line of credit or another type of loan, but use judgement here - a loan, when your business is not producing sufficient revenue, can sink the business and your personal finances.  If you have accounts payable or purchase orders, look into funding secured by that pending income.  Strike up a relationship with investors, too, even if you are not currently trying to raise funds. 

Conclusion:

Venture funding is hard to obtain for a new business and few founders succeed in obtaining it.  The vast majority of founders take a self-funded approach via savings, bank loans, and judicious use of credit.  Start by building a nest egg to tap into for business expenses, if possible.  Think in terms of long-term growth even if it is slow, to avoid the potential burn-out of struggling for a fast rise to the top.  Be a do-it-yourselfer where possible, and hire cautiously and with purpose.  Be frugal, but know when spending will move the business in a measurable way.  Prepare for the risks involved and have a Plan B.

Author: STAFF

Image Credit: Pexels.com