Why atomic startups are better than digital

Bits are beautiful, light and fast. But atoms represent the real challenge – and great opportunity – for a startup today in Italy. For those who want a new entrepreneurial challenge, the bearable heaviness of atoms, in fact, is very attractive economically these days – and possibly even more so than the impalpable lightness of… Read more »

Atomic Startup

Bits are beautiful, light and fast. But atoms represent the real challenge – and great opportunity – for a startup today in Italy. For those who want a new entrepreneurial challenge, the bearable heaviness of atoms, in fact, is very attractive economically these days – and possibly even more so than the impalpable lightness of bits.

Taking a closer look behind their bright facade, bits do have a few economic defects: their characteristic of being easily “scalable”, that is, they offer the dynamics for strong growth potential because of network effects and the low cost variables. It’s a shame that bits, electrifying as they are, are sometimes “too scalable” and can cause theHighlander syndrome:  on some digital platform businesses the economic space is such that, in the end, there is only one winner. In technical terms this is the tendency to create natural monopolies.
More simply put, startuppers of “pure digital” initiatives often spend a large part of their time in encounters with venture capital trying to explain their business model because, either the earnings source is not clear or the economic demand is not easily measureable.
If, on the other hand, a startup decides to concentrate on the logistics of atoms there are three clear advantages:
·      A business case that is easier to define
·      The availability of objective operative measurements
·      Access to capital through clients in circular and debit forms, not just in equity forms.
For startups that confront a real world made up of atoms in movement, the business case is almost always more evident and explicit. Therefore, the entrepreneurial project can intervene on a structure of existing costs, and aim towards liberating efficiencies. Basing one’s business plan, at least initially, on the challenge of cost efficiency for clients is always more pragmatic, especially in times of crisis, rather than offering incredible growth.
As well, in the face of the specificity of the assets used in the logistics process and of the presence of significant factors of variable cost, market fragmentation effects are created. In other words, within the technological innovation of the logistics of atoms infinite market niches can be found, instead of just aiming towards becoming the next Amazon.
And for a startup, especially an Italian one, it is much easier to chose to confront someone from the many micro-markets of logistics because the level of risk is distributed and diminished and the horizon of a return on investments is much closer.
In fact, on the atoms market there is space to make many small enterprises economically sustainable and it is not necessary to hope for a lucky break in order to become the next Google or Facebook, that is, a natural global monopoly.
So, while on the web, the structure of the market allows only about one in a thousand startups to become successful, logistic processes can help even the other 999.
The other advantage of logistics is that, since it is often part of an already existing process, it is easier to identify and, above all, quantify the operative measurements and therefore the underlying economic demand. In this setting, indicators of other businesses generally already exist so comparisons can be made: service levels, time and costs of a logistic cycle.
This makes it possible to have more solid elements both for who wants to draft a business plan as well as who must evaluate it initially and during the course of its development. The presence of already consolidated process measurements must not constitute a prison for innovation, it must, instead, be used intelligently by startuppers who want to confront the logistic challenge: in learning how to compare oneself with existing indicators, in fact, there will thus be occasions to put in a word with various actors within the logistic chain. The lack of confrontation, personal and direct, with various experiences already operating on the field is one of the most dangerous things that can be lacking in the cultural and organizational aspects of a “full digital” startup: those who want to enter into the world of atoms cannot afford the luxury of making a business plan sitting in front of a computer screen, but must present oneself to financers with their hands “dirtied” by real processes and operative measurements.
And here we come to the third advantage of “atomic” startups in respect to “bit” startups. In a business of logistics it is probable that in regards to demand there are not just the numbers derived from global forecasts by Gartner Group to which a generous tax must be applied for local conversion. On the contrary, it is possible that the potential clients of a project already have a first and last name, and, better yet, an allocated budget to assail with a worthy proposition based on its efficiency.
The digital innovation in logistics, in fact, opens numerous opportunities in B2B markets, where there is often a more complex process chain, but also a more measurable worth. As well, the B2B market offers opportunities to count on the best financer that a market can offer, those who don’t ask for a spot on the directive board nor forced exit strategies: the buyer. The buyer company that often sponsors the prototype and/or the circulating capital necessary to create the first service nucleus. If the buyer is solid and the project well documented, it is easier to hark back to the tried and true custom of offering a discount on billing at a friendly bank, guaranteeing a fill up of the financial reserve in a much shorter amount of time than those foreseen by lavish five-year business plans.
The buyer is then also the best reference for trying to replicate the business on other markets and with other processes, especially if a measurable reduction in costs can be demonstrated. It must be clarified that acting solely on costs could constitute a limit to the potential of the startup since the curve of the expected effects naturally has an asymptotic effect, while there is often no natural limit when acting on earnings. But digital innovation in logistics is not only about costs: the great challenge of servitization, in fact, almost always implicates the capacity to transform atoms into service bits. Thus, reconducting the logistics to a virtual flow, in an eternal cycle of contamination between fiscal and digital. Because Internet, in the end, was created to distribute “packages”.