Main elements involved in the startup scalability process: a study on Brazilian agtechs.
| Autor | Ramos, Paulo Henrique Bertucci |
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Introduction
Regardless of their areas of activity, organizations undergo a series of development phases during their trajectory, which are called the organizational life cycle (OLC) or development cycle (Silva, Jesus, & Melo, 2010).
For a startup company, the importance of understanding the phases of this cycle, as well as the metrics that start or finish each stage, is derived from the need to gain operational efficiency (Hoffman & Yeh, 2018). In these companies, the first phase of the OLC is marked by an ideation process, where the entrepreneurs seek to generate innovative ideas to resolve potential clients' problems (Vianna, Adler, Lucena, & Russo, 2012), and the last phase is characterized by the generation of recurrent revenues and maturation of the company (Croll & Yoskovitz, 2013). The steps involved between ideation and the company's maturation vary from author to author. Croll and Yoskovitz (2013), for example, report the intermediate stages of "stickiness,""virality," and "revenue." Blank and Dorf (2012) consider the stages of "customer validation" and "customer creation." For Hoffman and Yeh (2018), the intermediate stage is called "tribe." However, there is a consensus between the authors that the transformation of a startup into a mature company is marked by the scalability of its business.
Organizations that are undergoing scalability are known as "scale-up" companies (Blank & Dorf, 2012; Hoffman & Yeh, 2018). Their determinant characteristics are 20% annual. growth, for at least three consecutive years, and at least ten employees (OECD, 2017).
The scalability process occurs in startups from all areas of knowledge, including those in agribusiness, which are called agtechs. Their value proposal is to resolve rural producers' problems, ranging from crop implantation to the interface with the final consumer (Bertucci Ramos & Pedroso, 2021).
Recent studies indicate a global market for agtechs worth US$ 6.8 bn in 2018 (Agriculture Founder [AgFunder], 2019). As for investments, in 2018, US$ 80 m were invested in Brazilian agtechs in all stages of development (Vasconcelos, 2019).
Although agtechs can contribute to increasing technification and the adoption of information technology strategies in agribusiness, very few studies have been developed with a focus on this new type of agricultural business (Dutia, 2014). Moreover, there are few studies on the elements that directly impact the OLC of these companies and contribute to them reaching the scale-up (scalability) phase (Monteiro, 2019; Brown & Mawson, 2013; Love, 2016). In light of this, this article aimed to analyze how Brazilian agtechs have evolved from the initial conception of the business model to becoming scale-up companies.
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Theoretical framework
2.1 Concepts of startups
Startups can be referred to as a group of organizations conceived to develop new products or services in the face of situations of uncertainty (Ries, 2011). Considering the organizational approach, Blank and Dorf (2012) conceive a startup as a temporary organization, engaged in finding a business model that has scalability and recurrence.
For Kon, Cukier, Melo, Hazza and Yuklea (2014), a startup is a cluster of people that enables the conception, implementation and development of innovative or disruptive ideas in a quicker and more agile way, compared to traditional companies.
According to Bacher and Guild (1996), startups seek to sell technologies, which are generally disruptive, with a view to achieving competitive advantage. Roure and Keely (1990), in turn, consider a startup to be a company that presents technological advantages as a cornerstone of its initial strategies. Nardes and Miranda (2014) define a startup as a new venture, with a business model that is still to be fully validated and that is positioned in a market with many hidden variables.
Regarding a company's life cycle, the startup phase is the initial one. If the company encounters favorable internal and external conditions, it can advance to the scalability phase (scale-up) (Zajko, 2017). That phase is the moment in which startup companies create and refine the conception of the idea up to the first sale (Paternoster, Giardino, Unterkalmsteiner, Gorschek, & Abrahamsson, 2014).
According to Kohler (2016), startups are currently inexhaustible sources of innovation as they use emerging technologies to create products and reinvent traditional businesses. Their capacity for innovation, speed and flexibility mean that these companies are excellent partners in the corporate environment (Moschner, Fink, Kurpjuwet, Wagner & Herstatt, 2019).
2.2 A company's life cycle and the scale-up phase
According to Croll and Yoskovitz (2013), a startup's development cycle traverses five phases: the first, called "empathy," aims to identify the client's problem; the second, called "stickiness," seeks to build a prototype solution for the problem; the third, "virality," aims to validate the prototype created; the fourth, "revenue," seeks to monetize the solution and conquer the initial clients; and the fifth, "scale," aims for growth in the market and the acquisition of new consumers.
According to Blank and Dorf (2012), startups experience four moments: discovering the client, characterized by the identification of market opportunities; validating the client, which seeks to identify the essential component of a business model; obtaining clients, which aims to establish the firm and validate its value proposal; and developing the company, which represents the phase after successfully launching the product or service.
Hoffman and Yeh (2018), in turn, indicate that a startup company traverses five milestones. In the "family" stage, the entrepreneurs must endeavor to devise the product. In the "tribe" phase, they must think of creating and launching the product. In the "village" phase, sales need to be scaled up with the creation of a growth plan. In the "city" phase, it is necessary to gain efficiency, maintaining speed. Finally, in the "nation" stage, the creation of global strategies must be sought with local alignment.
Although with various denominations, the scale-up phase is characterized as the phase in which the entrepreneur needs to add significant resources and leverage processes and partnerships to expand the business within the structure of the validated business concept and a sustainable business model (Picken, 2017).
We can view a company in the scale-up phase as seeking to develop sales and marketing processes at scale, as well as building an organization based on managing various groups of people. The aim of a firm in the scale-up phase is rapid growth, seeking to acquire a competitive scale and establish sustainable market leadership (Zajko, 2017).
In monetary terms, an organization in the scale-up phase has recurrent financial revenues, which range from 50 to 100 thousand euros for companies with a business-to-business (B2B) focus or from 500 thousand to one million unique monthly visitors for online business-to-customer (B2C) companies (Hoffman & Yeh, 2018).
Considering the number of employees, a firm in the scale-up stage has at least ten employees (OECD, 2017); this number must increase quickly to match the growing number of sales. According to Endeavor (2015), a scale-up company absorbs around 31.3 new employees per year. As for annual growth, scale-up companies present 20% growth for at least three consecutive years (OECD, 2017).
Using resources, both financial and human, it can be concluded that scale-up organizations aim to increase their market share, revenues and number of employees and, thus, to add value, as well as identifying and exploiting opportunities for collaboration with established companies (Thiel, 2014).
2.3 Elements involved in the startup scalability process
Advancing in the organizational cycle is a task with high uncertainty for startups. Few studies explore the elements associated with the evolution of startups, ranging from the initial conception of the business model to the scale-up phase. However, some hypotheses can be raised based on papers already published.
According to Monteiro (2019) and Brown and Mawson (2013), startups in the scalability phase of their development cycle have received the support of incubator, accelerator and mentoring programs. These have actively participated in the entrepreneurial ecosystem, sharing information and training. Specifically studying the entrepreneurial environment linked to agtechs in the region of California, Mikhailov, Oliveira, Padula and Reichert (2021) highlight that the entrepreneurial environment helps to promote the creation, sale and large scale spread of new sets of solutions and technologies, which are very important for the third agricultural revolution. According to Ferasso, Takahashi and Gimenez (2018), integrating an environment that fosters innovation brings advantages, such as obtaining access to complementary resources and capacities, which are necessary elements for scalable growth. These characteristics lead us to the first hypothesis:
H1. Startups in the scale-up phase are participants in the entrepreneurial environment and benefit from it.
For Cavallo, Ghezzi, Dell'Era and Pellizzoni (2019), proving constantly rising demand or greater interest in the value proposal by clients is commonly perceived by organizers of entrepreneurial environments and investors as a sign of traction and, more importantly, as a sign of validation of their business model. According to Monteiro (2019) and Love (2016), this validated business model characterizes scale-up startups, as this validation enables an expansion of the client base (Reuber, Tippmann, & Monaghan, 2021), generating recurrent revenues and the search for financial equilibrium (Sullivan, 2016). A validated business model also gives these startups the competitiveness needed for sustainable development (Piaskowska, Tippmann, & Monaghan, 2021). Their market gain...
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