Sunday 15 March 2015

What is a startup?

What exactly is a startup? Most people in Hong Kong equate startups with entrepreneurs, and more specifically many think that startups are newly established businesses. This should not be the case.

Startups should be able to provide an innovative solution to a real problem. They should have a scalable business model and carry high growth potential. The innovation does not necessarily have to be technological, it can be innovation in the business process, business model, customer experience or even in the way the business is managed. Yet technology very often plays an important role in enabling the startup business to scale.

Startups are growth engines of every society, as they create substantial economic and social benefits. Cities around the world are vying to be the next Silicon Valley or the next Startup Nation (Israel).  Hong Kong is the freest economy in the world with rule of law. It is fast and efficient. It is a compact city with a small but sophisticated market, which is ideal for prototyping innovative solutions. All these attributes are very favorable to the development of startups. Many people attribute the high rental in Hong Kong as the major barrier to the development of startups. This is actually an exaggeration. If we understand the nature of startup business, the rental is never a major cost component. The high rental will only be an issue if one aspires to open a retail outlet in the main commercial districts – yet these are not startup businesses.

In moving up the value chain, Hong Kong has good potential to become a startup hub of Asia Pacific – not just for the home grown ones but also as the platform for Mainland and overseas startups to scale their businesses globally. The Financial Secretary has announced a package of measures to support the growth of startups in Hong Kong. The Government does have a role to play in enabling the development of startups. However, money (or the lack of it) is not the the crux of the issue. Investors are hungry for deals and money will come where there is a critical mass of good deals. The Government should not play the role of investors.

Yet the Government has the responsibility to provide a startup-friendly policy, notably a visa policy that can enable startup talents to come to Hong Kong easily.  Given the disruptive nature of startups, Hong Kong needs a regulatory regime that can allow innovation to happen. Equity crowd funding is a case in point.  Whilst the Singapore Government is facilitating the development of equity crowd funding, the Hong Kong authorities have yet to adopt a clear policy. The Government should also step up its marketing role with unifying messages across all departments and quasi-government agencies – in promoting home grown startups with high growth potential and also Hong Kong as a startup hub in the region. 

Finally, Government has a vital role to play in strengthening entrepreneurial education in our schools. Our children need to understand from a young age what it means and takes to be a startup. It does not mean that every child will grow up to run startups. But a good entrepreneurship education will enable our next generation to become more innovative. To become a startup hub, we need not only innovative founders but also innovative clients and employees. Hong Kong will become a true startup hub if a 10-year old can tell the difference between a startup and a small business. The child will know that opening a small coffee shop is not a startup!