The startup environment and the use of innovative techniques, such as growth hacking, are often considered to be the solution to the problem of the low level of digitalisation of Italian companies.
In particular, one of the most widespread buzzwords in the labour market is “growth hacking”, which is often linked to the new ideas of young and new graduate start-uppers.
However, in such a disruptive context, are digital and “young” businesses really able to develop solid foundations in the “offline” world and to bring added value to businesses and the labour market?
According to the report “DESI – Digital Economy and Society Index,” published in May 2018, Italy comes 25th among 28 European countries.
This is a significant failing with respect to the other similar countries, such as France and Germany. Moreover, Italy has been in the same position since 2015.
The situation is similar on other fronts: the DMI – Digital Maturity Indexes – developed by the Digital Agenda Observatory, analysed 118 indicators, dividing them into four areas: infrastructure, public administration, citizens and businesses.
Out of 28 European countries, Italy is ranked 22nd for its efforts to implement its Digital Agenda and 25th for the results of digitisation initiatives adopted in recent years.
Operating within this bleak picture, businesses are nowadays investing in startups, growth hacking and hackathons: the drivers are creative minds, innovative ideas and interesting tax benefits – which never hurts.
The data shown by the Annual Report to the Parliament on the state of implementation and the impact of policies to support innovative startups and SMEs in 2017 are clear: registered start-ups have had an impressive growth – a 122% increase with respect to 2014.
But how many startups survive long enough to generate real value?
Assistance, tax benefits, investors, mentors: this structured apparatus encourages the emergence of startups, especially innovative ones.
But how many startups manage to grow and find a role in the business world?
If we analyse the situation in the medium to long term, the figures may encourage us to reflect on the results achieved by startups in the current Italian situation.
According to the data provided by Infocamere, the survival rate of innovative startups is on average 95% in their first two years of trading, with the number of terminations increasing over periods exceeding three years.
For example, among startups established in 2013, there was a survival rate of 89.3% by June 2017, with terminations accounting for around 10%.
The 4-year survival rate for start-ups established in 2012 was around 10%.
Infocamere considered the revenue and production of startups in the 2015-2017 period, which showed profits to be less than 43%, with a correspondent added value of 33 euro cents.
But the most important factor to take into account is certainly the exit of startups, which is one of the most effective methods of verifying success since this is often the main objective for those who establish a company and those who decide to invest in it.
According to research conducted by the Startup Hi-Tech 2018 Observatory, there were only 8 startups who made an exit in Italy that year.
“The most successful startups are those that respond to a real need in the market with disruptive innovation”
Conti – Eit Digital business developer
Data confirms the hypothesis which states that creating a startup is easier than surviving into the medium to long-term and making it successful.
Only those who are really innovative and bring added value to the market are able to exit with a profit.
By contextualising the 8 exits with respect to the total number of existing startups, we are able to realise the degree to which they constitute an exception: at the moment there are almost 10,000 startups registered in Italy.
In fact, according to the data of Registroimprese.it – the official website of the Chamber of Commerce – in Italy there are 9,797 innovative startups (data obtained on 21 January 2019).
Most of them are located in Lombardy (more than 2,400) and Lazio (more than 1,000).
Do these startups really create value for the Italian economy?
According to an article on this subject drew up by Il Sole 24 ORE, the value created by startups is low. Actually, too low.
The results of the analysis of the data provided by the Chambers of Commerce of Italy are as follows:
- Only a few more than 500 startups have a turnover exceeding 500,000 euros,
- More than 7,700 startups are in the seed phase – an entrepreneurial phase in which the service/product is still under construction and the business plan is being drawn up,
- The capital of 2,150 startups is worth less than 5,000 euros,
- The production value of 3,667 startups is less than 100,000 euros.
Growth hacking: the most used formula for Italian startups
The term growth hacking is one of the current buzzwords in the digital world. We often hear it, especially in relation to startups and innovation, but what do these two words really mean?
The first definition, first used back in 2010 by its creator, Sean Ellis, helps us to get a more precise idea:
“Growth hacking is a process of rapid experimentation through a series of marketing channels to identify the most effective ways to grow a business. “
Besides being a marketing expert for startups, Sean Ellis was the first growth hacker. In fact, he created the word “growth hacking” and the guidelines for the process.
Why did he do this? Ellis was looking for a figure that could replace him at work. But none of the curriculum vitae he received was sufficiently relevant for the person to take his place in his startup.
The candidates had the right credentials; there were, for example, several marketing experts with brilliant careers, but he thought that nobody was sufficiently skilled in the startup world.
So Ellis decided to modify the job announcement, inserting the term growth hacker: the person he was looking for had to be focused on the growth of the startup. Hence the term growth.
Growth hacking sounds as if it would be useful for all companies, but then why do we hear these words mostly in association with startups?
Sean Ellis, whose main focus was company growth, believed growth hacking was the best approach for startups: something different and unique, able to combine new techniques and different modus operandi with really tight deadlines.
Time is an essential element for startups: they must be able to evolve quickly, create their customer base and start making money in order to survive in a highly competitive market. Moreover, investors and supporters should be able to see startups’ growth clearly.
Why are survival rates and exit values so low?
Growth hacking fosters rapid growth in startups but, on the other hand, Italian statistics and results record a poor performance over the medium to long term.
Given the fact that 60% of startups don’t generate profits and less than 1% achieve an exit, how can we solve the problem of digitisation by using growth hacking as the basis for development?
What are the real benefits of such a disruptive approach?
It is helpful to take into account the fusion between two worlds that in Italy are still too distant from each other:
- The new generation of growth hackers and startups with a disruptive approach.
- The old offline generation with experience in the real world.
These two worlds hardly communicate with each other: on the one hand, the new generation produces innovation and surplus technology compared to what companies need in the real world, whilst the older generation thinks it can stay completely offline, without realising that their reality is soon destined to disappear.
“The value of an idea lies in having it put into practice.”
What is often missing is a solution that can create a positive dialogue between these two worlds, so that innovative ideas can be implemented in a truly practical way, and thus become a tangible asset for the company.
This means finding a point of connection between the startups’ growth hacking codes and the actual processes found in companies.
Gamification, when it is used well and has a defined structure, can constitute a stable bridge between the two realities by providing a method that allows the most innovative ideas to be adopted in a practical way.
It promotes digitisation, without necessarily distorting the business processes. It provides the necessary tools to deal with the technological developments of the future.
An example is the bottom-up social recruitment model developed by Whappy.
By using a gamification application, employees of a company have the opportunity of informing HR personnel of names they deem valid for vacant positions in the company.
What are the benefits? The employee will become co-responsible for the choice, he/she will try to find a candidate who is capable of performing a given task, and who is also suitable for the current work environment. It will be easier to work with a new member who is inclined to be integrated into an existing group.
Not only will the HR department receive significant help in their search for new personnel, but the proactive approach of the employee can also be rewarded by the company. This process will clearly reduce the sense of “top-down” decision making.
Are Italian startups so innovative after all?
When it comes to innovation and startup, Italian Law is clear.
According to articles 25 and 32 of Law Decree n. 179 of 2012, the necessary requirements to register a company as an innovative startup are as follows:
The startup was established no more than 60 months before the date of submission of the application and carries out business activities,
- It has its principal business area and interests in Italy,
- Starting from the second year, total annual production must not exceed 5 million euros,
- It does not distribute or has ever distributed profits,
- Its exclusive or prevalent corporate purpose is innovative products/services with high technological value,
- It was not constituted after a merger, a company spin-off or the sale of a company,
- R&D expenses are superior or equal to 15% of the total cost/production value or 2/3 of the workforce have a master’s degree or the startup owns a specific patent.
Nevertheless, the Italian Chambers of Commerce’s database found that as many as 2,007 “innovative” startups do not have a website, despite declaring to be in possession of all the requisites necessary to fall within the category of the technological avant-garde.
Data published in the Startup SEO 2017 report, written by Instilla in collaboration with Nuvolab, SpazioDati, Semrush, Emil Abirascid, have confirmed the blurry digitisation status among Italian startups.
Out of 7,568 companies registered as innovative startups in July 2017, only 3,760 (49.7%) had a functioning website in September 2017:
- more than a quarter of companies didn’t claim to have a website,
- more than 20% of those who claim to have a website, actually have a non-functioning website
- nearly 90% of working websites are also optimised for smartphones,
- websites with a good mobile loading speed account for only just over 30%,
- less than 100 innovative startups have a website that respects the basic parameters for good SEO ranking factors.
The fact is that it is possible to self-certify that the requirements of one’s own startup have been met in order to have it registered it as innovative. This makes it more difficult to achieve a high level of real technological innovation. Moreover, this is not a fair procedure, especially given the facilities reserved for this special category of business in Italy.
“In the special section of the Companies’ Register dedicated to innovative startups
there are also companies that have absolutely nothing innovative:
self-certification by company owners has been chosen to streamline access practices.
In fact, the list should be sorted.”
Marco Bicocchi Pichi, president of Italia Startup – Business Insider Italia
How startups and Italian companies can face the challenges of digitisation
Digitisation can represent both an opportunity and a challenge for startups and companies: the important thing, however, is to be able to take into account not only the theoretical but also the practical aspects.
It is important that the staff are well-trained and properly prepared in order to seize the opportunities offered, and that nothing is left to chance.
It is typical for students or new graduates who join a startup to have gaps in their practical knowledge. We need to be able to fill these gaps with structured business systems.
Although the existence of such gaps might be understandable, the resultant lack of reaction is unacceptable: we should all be proactive in finding a way to overcome it.
Having the right mindset in the digital world is the basis for starting successful businesses and startups: this means being able to adopt a model for changing the business, which is a benefit for both customers and employees.
Startups should pay particular attention to aspects of the corporate model such as:
- business based on experience,
- management and processing of big data for customisation purposes,
- employee and customer-centric orientation,
- digital skills, both vertical and horizontal
We will talk about how gamification can create value for the company and for the customer, along with other topics dedicated to digital industries at the seminar HR Gamification – Milan 2019.