A startup can be defined as "a human institution created to deliver a new product or service under extreme uncertainty." (REIS, 2011) This is a type of business that creates an immediately innovative product, most often the technology and is associated with a high degree of uncertainty.
To develop a particular form of primordial unique vision requires a long-lasting effort, where the result is uncertain. Their international operating‟s showing an extremely fast growth due to innovations as the main building element of the company. The size of international competition has been growing and the competitive advantages in different areas can provide a unique value for both the customer and the business inside.
In general, a startup can be seen as a company in the early stages of its business activity or a newly established business that seeks to push its product into the market and ensure its smooth operation in the future.
Since a startup is not every newly established business subject, the true meaning of this word is significantly different from the literal translation. A startup requires a prompt connection with excellence and innovation. Information, knowledge, and creativity are the integral parts of it.
Even though many global experts and organizations have defined the concept of a startup business, they have not yet been consolidated and there is no official definition. Thus, its characteristics are slightly different depending on the authors:
"Startup is the early stage in the life cycle of an enterprise where the entrepreneur moves from the idea stage to securing financing, laying down the basic structure of the business, and initiating
operations or trading." (BUSINESS DICTIONARY, 2017)
Startups are entrepreneurial initiatives with high growth and innovation potential that can boost and sustain smart and inclusive economic growth and also attract foreign long-term investment. They contribute to the development of sectors with high added value, regional and global competitiveness and employment creation of skilled labour.
They also make a significant contribution to building Slovakia's image as an innovative economy abroad. (STARTUP 4 DUMMIES, Digital Visions, 2015)
According to Farlex Financial Dictionary (2017) is startup a starting company focusing on product development and capital accumulation. At least initially almost all startup companies work a deficit. Some of them go through a period when they have no income.
Startups spend their time improving their business plans and developing products that will eventually be sold on the open market. Most startups rely on venture capital or loans to continue their business. Also, a startup is an activity or process of putting something into motion and newly established business. It is a problem-solving company where a solution is invisible, and success is not guaranteed. (FARLEX FINANCIAL DICTIONARY, 2017)
The notable American entrepreneur Erik Reis from Silicon Valley has divided the definition of a startup into 3 following statements (Figure 1.3).
As a general rule, a startup is not and cannot be every business. This kind of company must meet certain characteristics that distinguish it from other businesses. Main characteristics are (GRANDO, online, 2017):
1. Company - new, recently created.
2. Innovation - their product is a unique invention or improved existing product.
3. Growth - startups need to grow fast.
4. Product - the company's activities are focused on one single product or service.
5. Team - the business environment requires a small team that usually includes some recent graduates with little experience, but creative thinking, skills, speed, and the ability to work usually under pressure.
6. Structure - at the beginning of the business is experimentating and learning with an unstructured organization and practically without hierarchy and managers.
Figure 1.3 Startup definitions according to Reisa, E.:
Source: Reis, E. (2011). The Lean Startup: How Today‘s Entrepreneurs Use Continuous Innovations to Create Radicallz Successfuk Businesses. New York:
Random House. 228 p. ISBN 978-03-078-8789-8.
7. Resources - In the emerging economic (human and physical) resources are usually very limited. In general, they need financial support from investors and without them, it is not possible to ensure their functioning.
8. Partnerships - by careful presentation of the company's product, it's needed to convince third parties to offer product-building components: platforms, API1, open source software outsourcing of some activities and more.
9. Uncertainties - their success is never certain and a high percentage of them will not overcome even the early stages of development.
1 Application Programming Interface
10. High risk - linked mainly to uncertainties that can be eliminated through quality risk management.
11. Adaptability - startups are very dynamic and able to respond quickly to market changes with new technologies and competitive products.
3. Methodology
Innovation development is one of the characteristic features of developed economies. In today's globalized world, where the speed of information often exceeds the capabilities of businesses, the startup has the extremely strong competition. The so-called hyper-competition causes several interacting factors that affect all market players. The main consequence of this trend is a growing and increasingly high-quality product range due to increased demand and living standards growth. Considerable attention has also been paid to environmental issues in recent years. The highest competition in the mentioned area is observable among the startups, as they are the main producers of eco-innovations.
In a knowledge-based and borderless innovation environment, competitiveness is a prerequisite for business survival. If a startup fails to cope with the competition, it may not have reached its expansion phase.
Assessing Competitive Advantage (Competitiveness) in Innovative Enterprises by IEEE Model
At the same time, the competitive advantage of startups is created by simultaneously acting and interacting with internal resources. Together, they lead to a competitive position and improve business performance.
In addition to physical resources, we also include personal resources - the skills and knowledge of employees and other actors involved in the business. Marketing and technology skills make it possible to use them properly and efficiently.
In 2010, IEEE experts (BENEDETTO, Di at all., Online, 2010), the world's largest technical organization, created a competitive advantage model to study the development of the first product of the new enterprise. They identified and explored the capabilities, resources, and knowledge needed to achieve advanced market positioning as well as the successful development of the first product. By professional
questioning from the Chinese market, they expressed an approximate level of competitiveness based on individual responses and set the general recommendations for new businesses.
Figure 1.4 Potential sources interconnection of competitive advantage
Source: own processing according to: Benedetto, D. at all. (2010). Competitive Advantages in the First Product of New Venture. IEEE [online]. Available at:
https://www.vcexperts.com/buzz_articles/664
Research has focused on 3 core groups of resources that could potentially provide a competitive advantage in newly established businesses (BENEDETTO, Di at all., Online, 2010):
Potential sources of positional competitive advantage
Several global experts define key marketing activities that enable businesses to achieve competitive advantages. It includes not only advertising and overall communication, but also a thorough forecast of
Marketing Resources Technological Resources and Capabilities Suppliers
Positional Advantage: Product Differentiation
Relative Sales Relative Market Share Relative Profitability
Marketing Skills
Market Potential
Timing Sector
sales volume, marketing plan development, marketing research, distribution, and purchasing power. (SONG, 2008)
As startups directly produce innovations and inventions, technological resources and capabilities are their fundamental components. Ultimately, they create the final product and are helping the company to create its first uniqueness. Supporting activities related to the main product, such as product research and development, the development of a prototype and the full use of production resources, also bring significant value.
Marketing and technology resources and capabilities give the company the power to develop a sufficient level of product differentiation to best meet customers' needs. The tech stuff doesn't have enough information for the best feedback possible for costumes without marketing sources.
The market advantage of the product is significantly influenced by suppliers and their capabilities. The scale of their impact depends on the quality of the partnership with the new enterprise and on the extent of involvement (including investment) in the product development process.
Research has shown that the greater its involvement in these processes, the higher is the uniqueness of the product. The new company always has a sufficient amount of material, tools, and equipment to distinguish itself and last but not least, can gain extremely valuable information about its competitors on the market. This effect is multiplied if the supplier is a major startup investor.
Positional advantage through product differentiation
The positional advantage is usually defined through the corporate value chain. This includes creating value through product design activities, marketing, support activities (such as procurement), management, and system infrastructure. The most important elements are those which directly affect product differentiation and thus lead to customer loyalty and satisfaction. Research has also shown a positive relationship between product differentiation and product success or between new product projects on the market.
According to several experts, product differentiation is considered to be the most important source of competitive advantage. It has an extremely positive impact on the customer, which ultimately determines the positive state of the underlying financial indicators determining the success as well as the very existence of the business.
These factors are also influenced by marketing resources and capabilities, in particular, the provision of the right distributor and the creation of excellent marketing communications.
Control variables as base of competitive advantage
The market potential is defined by the attractiveness of the target market for the customer, the size of the market and the rate of market growth. It is based on the recognizable customer needs, market potential, the timing of product placement on the market and current sectors' position. As one of the sources of competitive advantage, it can indirectly affect sales, market share, and profit.
The timing of product placement and the complex nature of the industry also make great sense in terms of competitive advantage. The market situation is not always favourable for the new product and many times it is the cause of startup failures on the market. However, markets are changing dynamically that's why correct timing is needed.