What typically defines a company as a startup is its ability to scale, meaning to grow rapidly. This implicitly refers to young companies, not that a mature company cannot scale and grow exponentially, but it is much more challenging due to the natural resistance to changes that could compromise the stability already achieved.
Another definition is that startups are companies in a stage of development where the business model is still in the validation, adjustment, and improvement phase to find the path to viability.
Especially due to these characteristics of youthfulness and experimentation, startups are often associated with innovation.
However, the concept of a startup is recent, and history is full of innovations, from the wheel, iron plow, gunpowder, paper, printing press, compass, electricity, etc. Therefore, although startups are associated with innovation, they are not synonymous.
This leads to the first provocation of this article: curiosity that drives experimentation is the movement that precedes innovation, not the mere creation of startups.
What has been observed in recent years is startups being created solely with the objective of attracting investments, often to develop solutions similar to existing ones, without any innovative differentiators. In a few cases, it may be a viable business model, but it should not be "sold" as innovation.
This behavior often generates an excess of competition among similar products, competing for the same customers, cannibalizing the market to such an extent that no one survives. Here is a direct provocation, especially to investors, who are partly responsible for saturating markets with investments in various startups that have the same market objective without significant competitive differentiators.
Another provocation is that not all innovations are scalable. Scale refers to sustainable growth, i.e., growing without proportionally increasing costs. Generally, highly regulated markets with very low profit margins, sensitivity to favorable economic cycles, or dependence on trust between parties have great difficulty in scaling.
All of this may seem obvious, but the widespread simplification in recent years has gradually led to misconceptions and misunderstandings about startups and innovation, trivializing the terms and even the concept itself.
One proposed reflection is that if innovation is primarily encouraged, the emergence of startups tends to be a natural consequence.
Encouraging innovation depends on a favorable environment based on education focused on critical thinking, which stimulates the constant search for knowledge and its practical application to solve real-life problems. As the saying goes, "one swallow does not make a summer." Another pillar is collaboration: innovation hubs, integration between companies and universities, integration between corporations and small businesses, and other initiatives that encourage the sharing of ideas and promote innovation as a means for development and productivity gains.
In addition to this favorable environment, it is desirable for the "State" to interfere as little as possible and focus on ensuring a fair regulatory, legal, and tax environment that encourages the transformation of innovations into products and companies.
In the Western world, the most successful examples of this vision are the "Silicon Valley" in the United States and the "Mittelstand" in Germany. The main difference between them from a macro perspective is that the American model is based on accelerated growth, supported by a dynamic network of venture capitalists, while the German model is based on small and medium-sized family-owned companies focused on specific niche markets with highly specialized products. Another difference is that German companies have a long-term vision and prioritize profitability and profit over accelerated growth. This also results in a higher retention of talent, reinforced by the training and development of professionals within the companies themselves.
In both examples, another fundamental component is a mature capital market because it allows companies to raise funds at a low cost for investment and, on the other hand, connects these companies to savers, whether large or small, offering diversification opportunities.
A mature capital market especially involves legal security provided by the state, transparency, and governance by companies, as well as ongoing financial education so that savers can evaluate and choose the best investment opportunities that suit their profile and investment thesis.
With all of this being said, the world is currently facing a dilemma that seems to only be solvable through increased productivity because, in addition to being deflationary, it promotes an improvement in quality of life. The fastest path to increased productivity is through innovation.
Innovation lowers production costs, attracts new competitors, encourages existing companies to improve their products and services, creates new markets, and promotes healthy competition that results in lower prices and better services. There are several concrete examples, the most recent being in the banking sector worldwide.
Artificial intelligence (AI) has recently regained attention, but it is not new. Much has already been achieved in sectors such as agriculture with the use of IoT sensors, drones, GPS, and the efficient use of resources such as water, fertilizers, and agricultural chemicals based on the collected data. It has also been applied in industries to predict failures and perform predictive maintenance on equipment and machines, reducing unplanned downtime. In logistics chains, it helps optimize delivery routes, reducing time and transportation costs, resulting in lower prices, and so on.
Much more can still be done, but time passes quickly. The inequality observed in the world today tends to increase if countries do not address the basics. The production of cutting-edge technology is a space that has already been occupied, and the winners have already been defined. However, every place has its local characteristics and natural national barriers that can be worked on, including taking advantage of what has already been produced by leading countries in technology and innovation, adapting it to local realities and needs.
But it all starts with the basics: encouraging innovation at all levels.