In last month’s edition of Bahrain This Month, Business Consultant Pria Masson shared her tips for your start-up’s success. Here are her thoughts on why the start-up ecosystem is important.
For a long time now, some of the most often heard phrases are ‘start-up’ and ‘start-up ecosystem’. A robust start-up ecosystem is a clear sign of progress and development. Every country wants to promote and develop this apparently key component of economic development. Have you ever wondered why this is? Also, what exactly does it all comprise? If you have been curious about this, hopefully, this month, I can answer some questions.
What is this start up ecosystem everyone talks of?
Very simply, a system, is a series of processes that ensure that a desired output is achieved. For any business, this roughly boils down to a series of very critical sub-businesses. The first of course is the lifeblood – money. This has three broad stages that intermingle. First, the core funding, the sources of money that will allow the business to begin, to procure the basics like an office space, computers, basic equipment, license costs etc. This usually includes operating expenses for a year or until revenue starts to come in. Second, the operational money or the money that comes from revenues. Finally, we have the payments due to vendors or suppliers, staff, etc. Any software, technology or process that eases this flow of money to any entity, that is a key part of the ecosystem of the business.
Let’s expand this idea, to suppliers, to vendors, to how goods are transported, disturbed, stored. The logistics chain, the warehouse facilities. The list also includes human resources who can provide the skills needed for that specific business.
What makes the startup ecosystem so important?
Startups operate on very thin or even no margins initially. This means that every single cost adds up. It also means that the lack of any one prong of support, or if any single prong is even marginally more expensive than planned, the business can be derailed. A well-planned startup plans for unit economics. And for this, everything adds up. The fuel consumed for every delivery, the salary of each driver, the fees shared with the payment system being used (visa, Mastercard, Tap, Benefit, etc.), the fees payable (if any) to app hosting platforms. The list is long and a bit daunting. The daunting part is because if a certain threshold for any component is breached, the unit economics and sometimes big picture economics, can get impacted quite adversely. The system needs to work coherently – almost all of it – for the business to succeed.
Why is the startup ecosystem so important to a country or an economy?
The answer lies in volumes, systemic indicators and growth potential. When a country has volumes for a particular product, a lot of businesses can break even. Services can be provided easily. However, for the same systems to be able to provide margin efficient services, to small or very small players, that indicates a far deeper strength. Complimentary to this, for the services to be able to provide to small players, they must be able to access funds and have clients. This is an intricate interplay between interest rates, returns and economic indicators. The result is a system healthy enough to cater to the lowest (almost) paying or performing players. Finally, a very miniscule percentage of startups turn into large businesses, I am not speaking of unicorns here (1bn+ valuations), but just companies large enough to become SME’s or MSME’s. A robust startup ecosystem improves those odds significantly, which, has an upward impact on the economy.
The beauty of a system is that it feeds itself often. For startups to succeed, they usually rely on other startups, and they work in a delicate balance in tandem. Whatever the format, the startup ecosystem indicates entrepreneurship ability, a healthy risk appetite and belief in the economy. That’s strength at a whole different level.
Pria is an experienced business consultant who works as a business coach and advisor helping clients with their strategy, business plans and idea assessments. You can follow Pria on Instagram - @guide_my_idea.
