alchemy-businessman
Business Management

Wanted: A model for startup success that doesn't rely on alchemy

For I am troubled, I must complain, that even Eminent Writers, both Physitians and Philosophers, whom I can easily name, if it be requir’d, have of late suffer’d themselves to be so far impos’d upon, as to Publish and Build upon Chymical Experiments, which questionless they never try’d; for if they had, they would, as well as I, have found them not to be true. — Robert Boyle, 1661

Generations of schoolchildren are familiar with Boyle’s Law, that is, how the pressure of a gas is inversely proportional to its volume. The less volume available, the greater pressure there will be — as also experienced by anyone who has tried to blow up a hot-water bottle.

In 1660 Robert Boyle co-founded the Royal Society with a purpose to further the scientific method — “We encourage philosophical studies, especially those which by actual experiments attempt either to shape out a new philosophy or to perfect the old.”  Less familiar to schoolchildren, though recognised as a seminal work was his 1661 exposé of alchemy, 'The Sceptical Chymist’, which has positioned him quite rightly as the father of Modern Chemistry. 

Some examples of technology company success appear to have that alchemic quality of turning lead to gold. Instagram, for example, which was launched in 2010 and sold less than two years later for a reputed $1bn. Or think of the Chinese e-commerce site Alibaba, which last year raised some $25bn. 

Who wouldn’t look at examples such as these and try to replicate their success? It’s clearly not easy, and sometimes downright strange to understand how some great ideas work, while others flounder. For example, why should Vodafone's M-Pesa mobile payments system have been so successful in Kenya and Tanzania, whereas similar schemes have not been widely adopted in Western countries, despite years of trying? For that matter, why aren’t we all using Bitcoin? Why was Facebook so successful when its forerunners — Friends Reunited, MySpace and the like — were not?

Even as innovation cycles shorten, we appear none the wiser about where the next successes will come from. The models most widely used to explain mass adoption tend to see the journey from the point of view of the product, service or trend. Geoffrey Moore’s Crossing the Chasm, for example, or Gartner’s Hype Cycle work on the basis that all good things will eventually emerge, once the bad stuff has been filtered out. 

Such models worked well when everyone was trying to do much the same thing, and when most technology was corporate — indeed, they still have validity in big-bucks enterprise procurements. However they do little to explain small ticket, big-impact phenomena such as mobile apps, social networking platforms or cloud-based services. Right now the Internet of Things is top of Gartner’s hype list, but we are still brainstorming what that means.

This absence of a magic formula is frustrating for anyone wanting to make it big. Experience pays off, as numerous articles on the subject express. But while the general themes — relentless focus, resource management, the right relationships — may appear to be an art, they could have more to do with science than we think. 

Robert Boyle was one of the first to document the chemical process of synthesis — in which a substrate of compounds react to form something new and, sometimes, remarkable. In the decades that followed and with the support of organisations such as the Royal Society, his progenitors and progeny tried every possible combination of options, often risking their own health (or, in the case of Carl Scheele, life,) in the process. Even so, progress was slow; indeed, we are still making new discoveries today. 

While the risks to life and limb may be smaller, tech company founders exhibit similar behaviours to the scientists of old; it is no coincidence that technology parks are attaching to universities in the same way that pharmaceutical companies are funding campus environments for scientific research. 

For tech startups, the good news is that the substrate is expanding all the time. Compute, storage and networking costs are reducing through a combination of Moore’s law and supply/demand economics, while investment in skills, availability of open standards, freemium platforms and accepted norms make it easier than ever to create something new, enabling a brainstorming approach with hindsight as the arbiter of whether or not it is a good idea.

Often it isn’t: in a recent poll of founders, the greatest reason cited as to why startups fail was a lack of market need. All the same, the approach pervades.

“You won’t have all the answers about the space, but you should have an educated and defensible opinion about it… [which] is what you bet your company on: ‘Yes, people want to share disappearing photos.’ ‘Yes, people want to crash on other people’s couches instead of a hotel room.’,” says startup founder, Geoffrey Woo. But who knew in advance that Snapchat or Airbnb would be, or remain, a success?

The fact is that even venture capitalists — who should be good at this, if anyone — have not become any better at spotting future success. And the elephants’ graveyard of startups is only a blink away. What is a startup, asks Closed Club, set up to analyse why startups fail, but “a series of experiments, from conception of an idea to researching competitors, running Adwords campaigns, doing A/B tests…”

Well, indeed. 

In chemistry synthesis terms, the try-it-and-see-what-sticks model for technology innovation is inherently endothermic in that it draws, rather than releases energy. The term ‘burn rate’ was adopted during the dot-com boom (even spawning a card game) to describe the uneasy relationship between sometimes cautious capital supply and hungry startup demand, with many companies floundering and even failing when on the brink of success. 

Energy does not have to be linked to capital alone, but is better considered in terms of positive value, either real or perceived. Facebook’s growth, for example, is more linked to how it tapped into a latent need — the village gossip post — and used this to demonstrate its worth to advertisers. Amazon’s continued reputation as a loss maker has done nothing to dampen investor enthusiasm or quell market fears about its voracious appetite, given how people keep using it. And the adoption of Google and Skype [now owned by Microsoft] as verbs demonstrates an old tactic which has assured a stable future for both. 

This links to a common tactic among larger companies: the ‘embrace, extend and extinguish’ technique, originally honed by Microsoft in the 1990s, is one of many ways to ensure both new entrants and established competitors are starved of energy. Other examples include the promotion of open source equivalents to draw on resources against established competition, just as IBM did against Microsoft and Sun Microsystems in the early Noughties, so is Google doing with Android to fend off Apple. Attempted strangulation, starvation from energy-giving oxygen, is recognised as a valid business strategy. 

The chemistry set analogy bears a number of additional comparisons. The reaction rate, for example, which can depend on latent temperature, pressure and so on - we can thank Robert Boyle for this understanding. So, just as positive value input can increase temperature, so can latent need and a good marketing campaign positively catalyse pressure. Indeed, crowdfunding models operate on both axes, driving demand while increasing available resources (and it is without irony that crowdfunding sites themselves benefit from the same models). 

The ultimate goal, for any startup, is that its innovation reaches a critical point — that is, where the position changes from attempting to gain a foothold with a product or service, to it achieving ‘escape velocity’, in much the same way that a liquid becomes a gas, which can then spread through diffusion. Reaching such scale may require a level of industrialisation: "You're committing not just to starting a company, but to starting a fast-growing one,” says Paul Graham, co-founder of Y-Combinator. "Understanding growth is what starting a startup consists of."

The chemistry-based analogy is not perfect, none is [YouTube video clip]. However, it does go a long way towards explaining why some segments struggle with technology adoption, (such as UK healthcare, being “a late and slow adopter”, according to The Healthcare Industries Task Force) – while the desire to make use of new tech may be there, a critical level of energy is not.

Wouldn’t we all want to be the next Facebook? Well, maybe we can be. But not by leaving success to the general superstitions of the time — those days should be behind us. Instead, we should turn our attention to applying a more scientific method to how we synthesise new capabilities, based on accurate reporting of resources, energy and other, highly measurable factors. Indeed, given how our abilities to oversee such things are themselves extending, theoretically smart startups are no better off than cobblers’ children.

In 1737, in Leiden in Holland, Abraham Kaau gave one of the last recorded speeches about the dubious nature of alchemy. By this point, some 75 years after Robert Boyle’s ministrations, he was largely preaching to the converted. We can only hope we do not have to wait a similar amount of time before we dispense with less scientific approaches to the creation and adoption of innovative tech. 

 

Read more by Jon Collins:

Looking beyond Big Data: Are we approaching the death of hypocrisy?

Does Berners-Lee go far enough with his Net Bill of Rights?

A Bill of Rights is needed to protect our data

The best of tech is yet to come

 

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Jon Collins

Jon Collins is an analyst and principal advisor at Inter Orbis. He has over 25 years in experience of the tech sector, having worked as an IT manager, software consultant, project manager and training manager among other roles. Jon’s published work covers security, governance, project management but also includes books on music, including works on Rush, Mike Oldfield and Marillion. See More

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