Start-ups: innovation-driven ventures
The traditional start-up model typically emphasises disruptive innovation and rapid scaling, often requiring significant technological advantage and financial capital in its initial phases. It appeals to founders driven by a mission to revolutionise industries and solve problems in the market.
To succeed, founders must not only develop a compelling solution but also convince investors – and eventually customers. Creativity, innovation and product-market fit are crucial.
Start-ups are inherently high-risk ventures. They require patience, resilience and high risk tolerance, often relying on multiple injections of investment capital and guidance from investors. On the flip side, successful start-ups deliver outsized returns, often exceeding 10x, to their investors. Airbnb, for one, overcame regulatory hurdles and scepticism before hitting US$100 billion in market value by 2020, 12 years after it was created.
INSEAD alumnus Tobias Vancura (MBA’06J) is one entrepreneur who has experienced both start-up and acquisition. Vancura co-founded and later successfully exited Nanonis, a nanotechnology venture. “Our start-up was technology-based and came right out of university,” Vancura says. “You do something at university technology-wise, you push boundaries, and then you think that could be a market. We established the company, and that worked out well.”
Vancura is an outlier: 90 percent of start-ups fail by some estimates. Moreover, true product innovation is increasingly challenging. Even where start-ups have a viable product, they need founders who are versatile and able to pivot to succeed. Perseverance is also a must. “While we were starting to do sales, we were there Saturday, Sunday, everyday…” recalls Vancura.
Entrepreneurship through acquisition: optimising operations and strategy
As long as businesses have existed, there have also been businesses for sale, complete with established management, infrastructure, customers and cash flow. A contemporary version of this practice is the management buy-in (MBI), whereby external managers acquire a controlling interest in a company.
Consider the ETA ecosystem an evolution of the MBI. It has structures that are more accessible and appealing to a new generation of entrepreneurs and investors, not least because there is less uncertainty compared to building from scratch.
However, finding and acquiring a good business involves screening and engaging with hundreds, if not thousands of companies and owners – only to be rewarded with rejection and disappointment more often than not. Convincing a business owner that you are the right person to preserve and advance their legacy demands resilience, meticulous due diligence, a strategic approach to identifying viable opportunities, and, importantly, empathy and humility.
But to Vancura, ETA is well worth the effort. After successfully selling Nanonis and spending some time in the technology industry, Vancura decided to become an entrepreneur through acquisition. He bought CO2 Börse, a Swiss car import services and carbon emissions trading firm in a self-funded acquisition. “The risks involved with a start-up are much higher than when you buy a cash-generating business,” he says.
Three most popular approaches to ETA
There are numerous approaches to ETA, some more established than others, with more still emerging. Let’s focus on the three foundational types:
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