A Review of The Literature on The Concept of Startups

Literature Review

1.1. Introduction

The prospect of startups has been studied extensively with volumes of literature being available. Scholars have endeavored to examine the inception process of new companies to determine the intricacies involved in the establishment of new technological companies. Researchers endeavor to provide much data on the subject not only to improve understanding into it but lost also to contribute to the body of knowledge on the subject. In his book, The Lean Startup, Ries (2014, p.4) describes a startup as a human institution developed to provide a new service or product under situations of immense uncertainty. The author explains that the new small tech firms are just a series of small “crazy experiments” that occasionally succeed.

This review of literature critically examines 50 resources to develop a comprehensive understanding of the concept of startups and the development of their strategies. Among the major issues the paper endeavors to achieve is to share and compare strategies from a theoretical as well as practical perspective and find the most efficient strategies for a high-tech startup from a theoretical dimension.

The paper seeks to define the practical conducted strategies of the intertwined and analyzed high-the firms during their startup phase. Additionally, the report shall examine if there is a fit of theoretical argument to the practical investigation and the level to which theoretical statements impact it. The consistencies and similarities between the practical and theoretical perspectives will also be examined with the most preferred of the two being outlined.

1.1. Developing a Startup Strategy

In the contemporary business environment, the occurrence of new businesses is a fairly standard fixture. According to Audretsch and Belitski (2017, p.1030), small companies are increasingly embracing the need for innovation, inspiring the insurgence of new market entrants eager to compete with much established players for the limited market space. Maturation of the corporate environment has allowed for the entry of many new entities, allowing them to offer much needed product and cost differentiation. Smaller firms are immensely more advantaged in the modern environment as there is an elaborate economic and political framework supporting them (Zhang, Yan and Su, 2015, p.471). But while the market continues to provide a supportive framework for the thriving of such firms, there are often a plethora of other factors that determine the survival and the subsequent financial well-being of the corporation. For instance, the adoption of an effective and operational, administrative, and commercials framework often determines the level of success a company achieves.

Startups are new market entrants that offer a unique technological perspective and approach to business. They are businesses that have prospective ideas but lack a sufficient model, human resource infrastructure, and financial resource to fully implement it. Startups are essentially technology firms at their infancy. However, as most observers note, the difference between the levels of accomplishment firm realizes or is any is achieved at all depends on the strategy adopted (Godino, Martin and Romo, 2016, p.14). The companies are often uniquely placed as they are free to adopt any structure they feel is appropriate. However, the selection of a startup framework is often not as simple as is often assumed. There are many factors that have to be considered for an effective strategy to be arrived at. The development of a startup strategy if often the most important phase in the startup experience.

The small companies identify the strengths they present against their competitors as well as the weaknesses that limit their ability to operate optimally. They must leverage their strategic advantages to realize accelerated operational growth (Turner and Endres, 2017, p.3). The firms must often recognize the factors that threaten their wellbeing and survival as well as the opportunities that represent potential for growth. The process for searching for the ultimate successful business model is often tedious and punctuated with many false starts, and crippling challenges, the attainment of a well-suited method often guarantees immense financial success. Many people often wonder why many startups fail if in fact, there is an effective select model that startups. Some relatively small new companies have realized immense achievement while others have note. A person may wonder why newer startups should not simply adopt techniques assumed by older, more accomplished ones.

As most experts intimate, there is often no particular model that suits all new market entrants. While the foundational elements of a business strategy remain relatively unchanged, there are many factors that distinguish every opportunity potentiating the need for a unique startup structure. Porter and Magretta (2014, p.134) demystify the prospect of strategy development for small entities. The authors note the first part includes activities associated with developing the product including its manufacture, design, the procurement of raw materials and other associated processes. The second part includes all activities that concern the product’s sale including the development of a customer base, commercial transactions, and product distribution. (Porter and Magretta (2014, p.135). The twofold approach ensures that all major factors appertained to the business’s operations and its ability to reach its intended market are effectively addressed.

The first phase places much emphasis on the development of the company’s products. The firm ensures that a select specific need is met and that a defined market segment is targeted. An elaborate research undertaking is launched to determine the preferences and consumption habits. (Xu et al., 2016, p.1085). The product is sufficiently differentiated and contains qualities that makes it more competitive. The company must ensure that all its goods serve a general as well as a niche purpose to attract a huge crowd that may then guarantee a sustainable financial framework. The acquisition of raw materials also discussed in start-up product development. The establishment selects a physical resource source that exhibits perpetuity to ensure that its continual production is not halted or affected at any one point. The manufacturing perspective of the start-up is also taken into account during this phase.

The second part of a startup strategy encompasses its product’s distribution and ultimate end use (Szerb, Komlósi and Páger, 2016, p.616). The company must identify its competitive edge and extensively exploit it. Many small companies if often exhibit a limited distribution capacity have not developed the prerequisite infrastructure due to their limited visibility and marketing limitations. The firms must develop a way around such traditional challenges if a suitable financial situation is to be achieved. One way a start-up can achieve this is by leveraging on technology. In the modern business environment, there are many facilities that significantly improve a firm’s market reach. Platforms on which the start-ups can grow their following are abundantly available with many of them being easy to acquire.

The company should establish an effective supply chain to ensure process seamlessness from the production to the distribution phase. As Zaheer, Breyer, Dumay and Enjeti (2011, p.304) add, the strategy must feature an end to end outline that appreciates the tenets of good management, a work-friendly organizational culture and creates an enabling environment for its most prized asset, the employees. This review of literature seeks to investigate the centrality of a suitable strategy for start-ups. The paper endeavours to examine the prospect of developing an adequate strategy for the development of a new tech company in the Cyprus Startup ecosystem.

1.2. Cyprus Startups

The Cyprus Startup ecosystem is an entity that leverages on the creative and disruptive power of innovations and startups. The organization aims to provide network support and network support alongside other international organizations. The entity provides incubation programs, acceleration facilities, VCs, and startup hubs to assist small companies to achieve operational success. The Cyprus Startup ecosystem organizes workshops and trainings on critical issues determining the growth and progress of entrepreneurial programs. The paper endeavours to examine the development of a Cyprus startup.

2.0. Theoretical Frameworks

2.1. Theoretical Arguments to Practical Investigation/ Differences and Consistencies

In the analysis of strategy development in high-tech startups, two major theoretical perspectives that explicitly examines the subject exist. They include game theory and Lean Startup Strategy. The two strategies have real-world implications and are commonly subjects of practical investigation, hence their discussion in this section.

2.11. Game Theory

In the article, Entrepreneurial performance of principal investigators and country culture: relations and influences, Del Giudice, Nicotra, Romano and Schillaci (2017, p.320) define game theory as a branch of mathematics centered on the analysis of situation that feature individuals, groups of entities with contrasting interests. The authors note that the concept not only prefers complete mathematical solutions but also provides principles that can be applied in real-word problems. Game theory is an analytical framework that combines the elements of consequence, players, rules, and payoffs to determine the amount of impact or outcome of a given undertaking. The four tenets features represent the main processes undertaken by companies in their quest for greater market dominance (Zhang, Yan, Xu and Su, 2015, p.4). Startups often operate from a position of limited financial, administrative and operational capacity. The firms exhibit many challenges key among them, inefficiencies stemming from general inexperience. As such, it is imperative and efficient strategy is developed. Game theory offers a suitable structure for strategy development among small companies. The technique’s primary tenets offer a convenient point upon which arguments can be based.

The concept of consequence define the development of strategies in many ways. The feature encompasses the potential positive and negative implications of the exercise by outlining different courses of action and possible outcomes. By examining the consequence of each item on the stratagem, the entrepreneur is able to discern the level and rate of growth the startup exhibits. The attribute of consequence is critical in all levels of decision-making. Due the limitedness of the small company’s resources, the firms must evaluate each process they choose to pursue. All new and standard activities must be vetted and their return on investment determined (Xiao, Jiang, Zhu, Ming, Zhong and Cai, 2015, p.262). The amount of profit an undertaking relishes is paralleled against its propensity to create loss to determine its viability. Consequence provides the startup with a sense of caution, moderation, and premeditation as the company meanders its ways across adversity to noteworthy operational success. The virtue is both theoretical and practical perspective as it is used in the development of the startup’s foundational framework and is also monumentally important in its implementation. Consequence determines the level of progress a small company experiences as it defines the level of interaction with growth factors. The startup’s engagement with facilities such as bank loans, investors, angel programs, shareholding, and the acquisition of assets is descried under the consequence feature of game theory.

Nicolò (2015, p.205)’s Corporate Reputation, Business Plan and Start-up Sustainability. Start-ups and Start-up Ecosystems: Theories, Models and Case Studies in the Mediterranean Area, highlights players as a critical component in the development of strategy in game theory. The author defines game players as the primary participants in a startup framework without whom it cannot properly function or even exist. The group consists of founders, investors, regulators, customers, and competitors. Startup founders conceive an idea and proceed to implement into fruition. Through a series of intricate processes punctuated by numerous decision-making stages, the inventors nurture the project from infancy until it guarantees its perpetuity. Founders are central to the development of their startup’s strategy as they embody its vision. They labor effortlessly to ensure that their idea is correctly implemented and that the company continually works towards the achievement of its strategic objectives. The individuals marshal resources and endeavor to attract top talent to actualize their dream (Gudkov, 2017, p.35). As such, it is imperative that the development of an administrative, commercial and operational framework place emphasis on the perspectives of founders. Investors are an especially critical aspect of the startup dynamic. They provide prerequisite facilitation as well any operating support not availed by the founders. The implementation of technological ideas often require a significant amount of financial resource. The basic infrastructure as well as information communication systems all consume large amounts of money, a quality that founders typically do not exhibit

Customers are an important aspect of the game theory perspective on startups. They are the primary reason such companies exist. Consumers provide a select unique need that companies endeavor to satisfy in the course of their existence. They provide justification for the company’s operations. Customers represent the economic resource needed for the startup’s sustainability (Dayan, Zacca, Husain, Di Benedetto and Ryan, 2016, p.139). Small companies often begin from a position of relative obscurity. With time, they elicit sufficient public interest attracting potentials clients. Game theory recognizes the centrality of consumers to the operations of startups and highlights their preferences as the focal point of the company’s business model. Competitors are yet another immensely important part of strategy development in startups. They provide a competitive framework upon which the firm must fight for market dominance. The number of customers are often limited with the volume of goods and services being in excess. As such, businesses espouse creative demeanors to avoid being phased out. While having competitors provides a healthy business environment for customers, it limits the market base an individual entity can amass. Startups are especially disadvantaged in this regard as they are characteristically smaller than other firms in terms of their operational scale. As such, the competitors represent a significant threat to their existence.

The development of a lean strategy for startups must encompass regulatory requirements. Regulators are a crucial part of foundational decision-making (Duruflé, Hellmann and Wilson, 2017, p.18). They provide define the rules with which market players interact. New tech companies must fully appreciate the oversight topography to ensure that an important part of their operation is not hampered by legal restrictions. The technological front exhibits rapid changes in terms of the legislation (Shafie-Khah and Catalão, 2015, p.860). With every new invention, a law is often developed to regulate its use. Additionally, familiarity with laws governing the sector is paramount to ascertain that they are legally in operation. Cyprus offers a conducive framework for startups. The country appreciates its centrality as an investment hub for small tech companies. The country recognizes the need for massive exploration into new technologies and their growing significance on the current business front (Qi, 2017, p.8). As such, it has developed a suitable framework by which such entities operate. The nation recognizes the unique challenges such establishments face and adjusts its regulatory framework to make their operations more sustainable. Others countries have different approaches on the issue of startups and have a wide range of laws determining their wellbeing. They develop startup incubation programs based on the nation’s spirit of entrepreneurship (Semasinghe, Zhu, Hossain and Anpalagan, 2015, p.242). .Cyprus startups are especially advantaged as they have significant national backing a purposefully supportive regulatory framework.

2.12. Lean Startup Strategy

As Theocharous, Gampfer and Robledo (2017, p.13) note a startup’s success can be engineered by following definite and demonstrated processes, meaning it can be learned, and taught. The levels of operational financial and administrative achievement realised by a small tech firms select best practices provided by firms that had a previous experience with similar market conditions and operating parameters (Rossi, 2015, p.162). New markets entrants typically face the same influences and are acted on by the similar forces. The entry process for all small tech corporations is often standard with the external environmental characteristics experienced uniformly (Henkel and Roende, 2017, p.15519). Therefore, the course of market maturation as experienced by the startups can be documented and learned by the subsequent groups to better advantage them to circumvent traditional challenges. Chiliya, Nieuwenhuizen and Groenewald (2017, p.117) describes the lean startup strategy as scientific technique for establishing and managing startups aimed and addressing key customer concerns including fast and efficient service delivery and better experiences. The Lean Startup approach teaches individuals the prerequisite administrative skills needed in the management of a startup. The method emphasizes the significance of having competent and results-driven leadership for the effective administration of the company (Soualah, Aitsaadi and Fajjari, 2017, p.570).

The strategy assumes a theoretical dimension in defining the elements of the exercise but applies practical investigation with regards to its implementation. The Lean Startups advices individuals on the decisions to make at certain junctures as well when utilizes key resources to realize a key strategic outcome (Peters, 2017, p.16). Additionally, through the framework, startups learn when they should minimize their operational processes as well as the conditions that require accelerated growth and product development. The strategy proposes a set of best practices that small tech companies should consider to realize sustainability (Romine, Turner and Baker, 2017, p.170). In the conventional business environment, many startups enter the market with a product idea that they think people need. They spend years developing the product and retrofitting it for the customer’s use. However, when the commodity is finally ready, the consumers demonstrate indifference leading to the startup’s failures (Munemo, 2017, p.99). The lean startup strategy helps avoid such problems by providing potential preemptive steps a small tech firm can take to avoid total ultimate collapse. The technique seeks to realize higher rates of success by promoting access to information by prospective founders (Grilli, Mrkajic and Giraudo, 2017, p.36) The process has four main tenets including continuous innovation, eliminating uncertainty, working harder not smarter, developing a minimum viable product, and validated learning. Tech startups should endeavor to explore the lean strategy to develop a successful operational model.

2.2. Differences and Consistencies

The game theory and Lean Startup Strategy exhibit major consistencies. The two stratagems placed emphasis on product, people, finances and operation which they explore explicitly. The major difference between the two is the game theory established relationships between a startup’s resources and its potential as well as the effects of changes in the external business environment while the Lean Startup strategy focusses on the past mistakes and events of established firms to provide a useable framework (Dubina and Carayannis, 2015, p.165).

3.0. The Most Effective Strategies for a High-Tech Startup from a Theoretical Perspective/ Practical Conducted Strategies

This section contains a discussion on the practical strategies of assumed by tech corporations during the startup phase. The section determines a fit of theoretical arguments to the practical investigation to determine the application of the statements in a real-world framework. The consistencies and differences will be extensively explored. The game theory is determined to be more theoretically preferred while the lean startup strategy being massively favored for practical investigation.

Extent to Which Theoretical Statement Apply to Practical Investigation

Zaheer, Breyer, Dumay and Enjeti (2018, p.255) explores the concepts of startup strategy development. The authors suppose that the establishment of an operational framework covers five major attributes including people, product, operations, finance and growth. Small tech companies are often uniquely placed in terms of opportunities and well as weaknesses. The startups are thrust into an environment with players significantly larger than them and must compete for the same market space (Carlson, 2016, p.19).They exhibit immense potential while at the same time exhibiting challenges that may fundamentally limit the achievement of success (Rath and Swagerman, 2016, p.154). Researchers note that it is imperative that a strategy that encompasses all primary facets of success are integrated. The following framework examines all the major markings of a highly performing small tech firm.

3.1. Product

Product is the manifestation of the founder’s idea (Faroque, Morrish and Ferdous, 2017, p.875). As has been previously discussed, it is the firm’s major output and is developed to satisfy a select need. The type of product created determines the company’s identity, processes, and engagement with regulatory entities. Tech firms identify primarily by the type of output they present and the market segment they serve potentiating the need for a suitable stratagem. For instance, social media sites mostly endeavor to provide the most comprehensive and enjoyable experience while cyber security entities strive to secure a customer systems (Ortlieb and Weiss, 2015, n.p). The security firm may demonstrate ideals aimed at providing customer service but would not place as much emphasis on it as it would on its primary business objective (Giachetti, 2018, p.120). The company would occasion intense research, newer information management and security systems but not revamp or revise its administrative or management procedures as its product depends minimally on changing the latter. As such, the company’s strategy must focused on its primary objective and major source of revenue (Fotaki and Harks, 2015, p.680).

Conversely, a social networking would focus on lavishing online visitors with good experiences, as that is the basis of their business model. Among the key questions an effective strategy seeks to examine includes (i) what unique features does the company’s minimum viable product include? Which ones are excluded and what criteria was used? (ii) How does the startup intend to identify its customers? (iii) why would the targeted market segment purchase the product? (iv) why do potential customers who prefer competitors’ products opt for them? (v)What would make them prefer the startup’s product instead? (vi)What features should the product exhibit that will win its market? (vii)How does the topography of features appear for both the startup’s substitute and main products within the main market and Value Net, (viii)How does the startup intend to position the product relative to the market landscape? (ix)Why? (x)What are the major concessions and trade-offs from these choices and how will the company mitigate against its implications? (Paço, Ferreir and Raposo, 2017, p.77). In the modern technological scene, companies providing a specific service must offer a given part of their commodity as a concession (Pilz and Al-Fagih, 2017, p.16). For instance, an accounting software firm can chose to offer its customers free malware protection, significantly improving its competitive advantage.

Suitable answers to these and other questions included in the appendix must be developed for the most promising startups strategies to be conceptualized and compared. Stratagems developed by small the companies must identify the product feature that are critical in the initial stage (Halkias, Thurman, Caracatsanis and Harkiolakis, 2016, p.631). Among the characteristics the commodity should exhibit are cost and product differentiation. For a startup to register operational success, it must develop competitive pricing. In situation where the commodities exceed the aggregate market price, the firm must be able to justify the difference. A cost difference is one of the most powerful market strategies as users tend to have a better recollection of cheaper brands than costlier ones (Ben-Hafaïedh and Cooney, 2017, p.12). Additionally, the company should endeavor to differentiate the product from those available in the market in terms of design and functionality. The item can address a unique challenge or can combine several systems that are usually availed separately.

Another common fixture in the most effective strategy should be the minimum viable product. A minimum viable product (MVP) is a strategy in which startups develop new products with sufficient features that satisfy the initial group of customers with the intention of retaining and leveraging on them to attain larger market share. The company only designs and develops the final, complete set of features after eliciting feedback from the initials consumers. The first customers often represent the company’s target group and are often selected based on the characteristics they represent (Roundy, Bradshaw and Brockman, 2016, p14). The early users often determine the product’s adoption. Poor reception almost certainly leads to the abandonment of the idea. The concept was developed by startup consultant and author, Eric Ries (Ries, 2014, p.311). A minimum viable product is essentially the simplest version of a product that can be launched. An MVP has three major characteristics including; the provision of a feedback loop to guide future development, the indication of a sustainable future benefit represented by the early adopters, and the indication that the product has enough value that people are willing to purchase it. The fundamental premise of this startup strategy is that the initial consumers can envision the positive implications of the final product. The technique is based on the belief that the early adopters will provide valuable feedback that will guide the product’s development. An MVP’s success determines if the startup proceeds with or abandons the idea altogether (Chou, Bandera and Thomas, 2017, p.30). Developing fitting answers to these questions advantages the Cyprus startup in better developing an effective strategy

3.2. Finance

Financing is a central component in the establishment of startup strategy as was extensively examined in game theory. Most modern tech startups require extensive fiscal facilitation to fully implement. The initial technological infrastructure required to begin operations are often costly and out of reach for many founders (Villares-Varela, Ram and Jones, 2017 p.35). An effective strategy conceptualizes the acquisition of financial resources by determining viable sources which the company should consider. The framework should identify potential investors as well as other sources of capital such as crowdfunding to enable the idea to come to fruition (Al-Zahrani, Yu and Huang, 2016, p.1524).

4.0. Theories Preferred Theoretically as compared to Practical Investigation

While practical investigation is often imperative in any analysis of adoptable strategies, a theoretical examination is often immensely important. Stratagems such as game theory and the lean startup strategies are often best examined practically. However, others such as chaos theory are preferred theoretically.

4.1. Chaos Theory

According to Salamzadeh and Kawamorita Kesim (2015, p.66), the chaos theory is the study of unpredictable or haphazard conduct in systems or process in a deterministic environment. The theory holds that in a startup environment, one is never fully aware of their destination and can never plans for eventualities but must stick to a given strategy nonetheless and remains hopeful for a favorable outcome. Due to the rapidly evolving technological scene, there are many events that small technological firm at its inception must anticipate include administrative, technological, operational and financial issues. These factors have different implications on a company’s well-being but are nonetheless important to its survival. As such, startups must develop strategies that anticipate all positive adverse parameters in the positive the business environment.

The chaos theory maintains that tech startups should exhibit explicitly designed strategies that ensure the company’s dynamism and high sensitivity to the initial conditions. The startup environment is immensely dynamic. There are numerous companies that offer a given consumer service with the major difference often being product differentiation. Tech firms often place a significant amount of their resources into research making them inch closer towards minimizing the competitive deficit maintained by other firms. As such, startups must develop initial highly dynamic and prescient strategies that foresee challenges and major market changes. Small differences in the initial conditions of often result in huge deviating outcomes for such vibrant systems making long-term predictions nearly impossible. Most giant tech firms were at their initial phase unsure of the success their brands would realize but strategized on realizing massive growth nonetheless (Lévesque, Zhao and Bian, 2018, p.88). In the initial stages, the company has the power to chart a course that in intends to pursue. All possible future success or failure is pegged on the decisions its management makes. The chaos theory observes that startup strategies must be comprehensive yet specific enough to espouse the company’s initial and ultimate objectives. The companies must appreciate the rapidness of change in their environment and adjust their strategies accordingly (Cunningham, 2015, p.4)

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