Startups

Platforms for success: Why this startup model has a fatal flaw

Many successful startups in recent years have one thing in common: They broker products and services from other companies via platforms, rather than producing them themselves. Is this the future of entrepreneurship?

05 Jan. 2017

More startups equals more innovation?

Startups at work
Startups often rely on tried and true models. But is that enough for long-term success?

The German startup scene continues to demonstrate admirable growth. In the second half of 2016 alone, the economy registered some 95,200 newly founded small businesses. They bring the hope of fresh ideas to energize established industry and business structures towards progress and change.

But is this really so?

The reality looks different: According to KfW Startup Monitor 2016 , only a relatively small number of startups stand out for their innovative spirit. The great majority – 85 percent – rely on proven ideas and structures. Many startups' business ideas differ from one another only in the nuances.

Brokering as an international recipe for success

The platform model is particularly popular among entrepreneurs, where young founders take on a mediation role to market others' products and services. This phenomenon is by no means limited to Germany: A look at the Top 15 list of the best financed startups by Inc. magazine shows that this trend holds true worldwide. Airbnb? Brokers rooms. Uber? Brokers rides and taxi alternatives. Spotify? Brokers music. Lending Club? Brokers loans between private individuals. The list of offers like these is almost infinite and covers a massive range of sectors. The platform model is a go-to solution for founders to implement their ideas – and it works.

Both an opportunity and a threat

Why do so many startups rely on the successful brokerage model? It offers a decisive advantage: Founding is much simpler that way. Startups can adopt an established model, be guided by the successes and errors of hundreds that went before them, and build up the necessary technological foundation relatively quickly and at low cost. This makes the platform model attractive and easy to plan for young founders.

But this simplicity is not a guarantee of success. It can reveal itself to be a double-edged sword. The low entry threshold can give good, forward-looking ideas a fairly smooth business launch. However, this very simplicity also means that copycats can jump on successful ideas and business models quickly, and in large numbers. As a result, the founders' scene is flooded with products and services that, instead of being innovative, simply mimic the example of Airbnb and other successful pioneers in the hope of quick revenue.

The path of least resistance

Startups themselves are not the only ones at fault here. Their funders are equally responsible. Investor Chamath Palihapitiya, who made a name for himself in Silicon Valley as the founder of Social Capital, expressed this clearly in an interview with Vanity Fair : "(We have not used) capital as a way to take really big bets on things that just seem totally audacious... and the result is that most of the things we’ve funded are mostly crap and largely worthless". Both sides, founders and investors, have tended to chase after fast successes, and so have taken the path of least resistance. Tried and true approaches like the platform model create a perfect framework for this to happen. Entrepreneurs can save money and resources, and focus completely on their economic success: more marketing, more sales, more investors.

The USP as the foundation for long-term success

A business idea's lack of substance can be easily obfuscated. What can founders learn from this trend? The most important factor for a young company to break into the market and achieve lasting success is its unique selling proposition, or USP. Founders must develop and highlight their USPs to stand out from the startup masses – all the other companies trying to make it in the same market environment. Only when startups are able to present a long-term vision together with a unique idea, will they receive the attention they need to win over strong, trustworthy investors – and establish themselves sustainably in the market.

SCALE11: Where unique ideas unfold

Startups do not necessarily have to vie for the attention of customers and investors from a crowd of hundreds of competitors. SCALE11 2017 , the CeBIT startup showcase, offers entrepreneurs the possibility of presenting their business ideas to interested trade professionals, while simultaneously benefiting from the wisdom of experienced industry insiders. An ideal environment for showcasing ideas and making valuable contacts.

Find out everything about SCALE11 here

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