The Influence of Digitalization on Industrial Startups in the Netherlands

Abstract

90% out of all startups fail, which is the cause of several reasons like lack of funds, lack of market need and bad management among other things. Digitalization can help startups to solve these problems, by performing processes more efficient than when they are performed manually.

The objective of this research is to build a model to estimate the average influence of digitalization on the success of a startup in all phases during their lifecycle among other established factors, according to their own input. Moreover, this research will investigate the current use of digitalization at industrial startups and how digitalization can help industrial startups to accelerate their innovations. Additionally, this will result in a few examples of how digitalization is used today at startups and a number of recommendations for further research.

This research focuses on industrial startups that are located in the Netherlands, because the Netherlands is a leading high tech country with a world class technical university and science hub and for the reason that similar research has been done in several other countries, only no research has been found on the impact of digitalization (on industrial startups) in the Netherlands. This research will answer the following main research question and sub-questions:

Main RQ: How can digitalization help industrial startups to accelerate their innovations?

SQ1. What are the obstacles that industrial startups in the Netherlands run into during the startup and transition phase?

SQ2. How do startups evaluate their digitalization strategy?

Employees from eight startups have been interviewed during qualitative exploratory expert interviews. These eight startups are divided in two groups. The first group will entail five startups that are currently in the early stage startup phase and the second group will entail three startups that are currently in the scale up phase. During the analysis of the data, the startups (and their data) in the first group are compared with each other. After this, the startups (and their data) in the second group are compared with each other and at last, (the startups in) both groups are compared with each other.

The different obstacles from startups resulted from different research methods. The obstacles that were found during a literature review are: a lack of funds, lack of market need, lack of experience, bad management, premature scaling and a strong competition. From the interview with the investment director of YES!Delft the following obstacles resulted: lack of long term vision, producing everything in-house, going to the market too late, not separating main and side issues & not clearing obstacles in the near future before they run into them. The startups came up with some similar obstacles, but also different ones, like finding (new) people, sales and/or customer acquisition, cybersecurity, lack of funds, big geographical distances, strict/heavy legislation, finding suitable (scalable) software programs, maintaining high quality standards, long negotiation times with customers and decisions of widening/narrowing the product portfolio.

All startups stated that digitalization is very important (one even called it a key success factor), however only three startups could give some kind of definition of what it is exactly and only two startups have a digital roadmap. Even though several startups stated that they would recommend to other startups to start as early as possible with digitalization, they all stated that digitalization is the least important in the first two phases of a startup compared to the last two phases.

The examples of applications that startups mentioned, range from the more simple examples like online meetings and 3D modelling software, to the more advance examples like an ERP system, MES system, machine learning models and newly created API’s. With the help of these applications of digitalization, startups can save time and money in the long run.

During this research it became clear that digitalization can accelerate the innovations of industrial startups, but it is not the most important factor and cannot carry a startup on its own. Digitalization is a tool to get somewhere and not a goal on itself.

The contribution of this research to the literature is a conceptual model that has been used during this research to measure the influence of digitalization (among other variables) on the success of industrial startups in the Netherlands. The practical contribution of this research for startups is to create awareness among startups about the influence of digitalization, the fact that startups can read about the obstacles that they could encounter and some possible solutions for these obstacles as well. Companies that offer applications of digitalization can use this research as orientation for the creation of tailormade digitalization solutions for startups.

Recommendations for further research are: to dive deeper into the phenomenon digitalization, to investigate why some startups say that digitalization needs to be used early, but then contradict themselves with filling in the conceptual model, the influence of digitalization at startups in other sectors and the influence of digitalization among larger corporations.