literature review on business startups

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Startups: a systematic review of literature and future research directions

Revista de Ciências da Administração

The objective of the research is to map the literature based on a Systematic Literature Review on the theme of startups and to highlight some theoretical gaps based on publications of high-reputation scientific journals. The period from 1990 to 2019 was defined for the elaboration of this study. We use the excel spreadsheet, in addition to the HistCite ™, VOSviewer, IRATUMEQ, and R Studio packages. The results show that the typology of the startups evaluated, after reading 68% of the articles, organizations are characterized as a group of new companies, that is, relatively young and inexperienced when compared to the most stable and mature in organizational development. They refer to those that are in the initial stage and are susceptible to the influence of various factors, such as investors, supplier customers, partners, etc., and should think strategically about how to act and, this concerns a group of dynamic startups that work with innovations.

Related Papers

Aidin Salamzadeh

Startup companies are newly born companies which struggle for existence. These entities are mostly formed based on brilliant ideas and grow to succeed. These phenomena are mentioned in the literature of management, organization, and entrepreneurship theories. However, a clear picture of these entities is not available. This paper tries to conceptualize the phenomenon, i.e. “startup”, and recognize the challenges they might face. After reviewing the life cycle and the challenges, the paper concludes with some concluding remarks.

Economics of Grids, Clouds, Systems, and Services

Somayeh Koohborfardhaghighi

World of export

Amirhossein Roshanzamir

The global wave of startups fueled by digital technologies and the internet has caused the emergence of new ventures and business models. These startups are the engines of growth everywhere, including developing economies by addressing local problems, including economic development, employment, human well being, and sustainability through creative solutions and innovative technologies. Yet, launching a startup from scratch is very challenging, while the chance of success is very small. This paper briefly introduces some of the startup characteristics and reviews the Harvard survey on important skills entrepreneurs need to have to succeed.

Sinergie Italian Journal of Management

Alessia Pisoni

Frank de Langen

Frank De Langen

The purpose of the article is to determine which factors are most important for the success of a startup with a radical innovation in the first three years. First a conceptual model is designed in which three main factors determine the success of growth: the uniqueness of the advantages of the innovation, the startup organization characteristics and the person of the entrepreneur. A survey was setup with startup companies which are not older than fifteen years and which are active in a diversity of segments. A correlation analyses was done based on 75 respondents.Growth was operationalised in two ways: the growth in turnover and the growth in employment. We found different factors correlating in a different way with the different growth concepts. Both growth in employment and in turnover are positively related to a thorough business plan and more than 75k Euro seed capital. The uniqueness of the advantages of the innovation, customer pro-activeness, multiple founders and a relevant social network have a positive influence on turnover growth but not on employment growth. For turnover growth t he uniqueness of the advantages of the innovation and more than 75k Euro initial capital had a high significance. There is a positive relation between employment growth and external advice and investor capital but not with the turnover growth. Only a thorough business plan, external advice, 75k Euro initial capital and using investors capital had a positive significant influence on employment growth. Other conclusions are that depending on the used criterion for growth the significant factors differ and that in general the employment growth is a factor 4 smaller than the turnover growth.

IJAERS Journal

Never before in the history of India, a successful initiative was taken by Government of India by announcing a campaign by Indian Prime Minister, Shri Narendra Modi at Vigyan Bhavan Auditorium in New Delhi during his speech on 15 August 2015. Even No-one would have been thought about its huge success at that moment. But now, just look at the magical moves taken by this unbelievable movement in the business world of India. Success is not the result of a single stroke. No doubt various parameters were fixed at different levels to encourage Startup journey. So many convincing factors worked diligently to ensure its success. However, it has covered a long journey of success despite of various hurdles. Not only it has been promoted in India but also it has been cherished globally. Huge population, Hidden talent in educated youth, Readiness of Investors, Technical advancement and different Government schemes like DIGITAL INDIA, STAND-UP INDIA, MAKE IN INDIA AND SWARAJ and many more pushed it enough to flourish around the world. A startup defines us to be our own boss and of course meeting the demand for employment by others that requires a lot of patience and tactics. It is a well-organized and disciplined way of using several factors like basic idea, market strategies, level of competition, and Techno-Pro attitude especially in the present scenario of entrepreneurship before putting huge steps to accomplish the journey. Different and severally important elements play an effective role in entrepreneurial success like availability of Infrastructural facilities, government rules and regulations and funds availability during various phases of growth. History shows the ups and downs of this journey by revealing various examples of its success or failure within a short span of time after mentioning the actual causes responsible for .The paper titled 'STARTUPS-A NEW PARADIGM FOR YOUNG ENTREPRENEURS' depicts the entire story of its coming into existence with the current status.

Open Journal of Business and Management

Marcelo Fukui

This study maps and analyzes the academic literature regarding the main startups’ valuation methods by means of a bibliometric analysis and systematic review. The adoption of both methods requires the use of software such as RStudio, VOSViewer or Rank Words. In bibliometric analysis, the verification of its main laws—Zipf, Bradford and Lotka is also adopted. As a bibliometric analysis result, the most frequent keywords appear to be performance, innovation, entrepreneurship and venture capital. Most of the authors are associated with institutions located in Germany and in the United States. Concerning the systematic review results, the topic of identifying funding sources is urgent, considering the fact that startups are companies with high levels of uncertainty and risk. Another concern refers to the way of obtaining the types of data for inputs in the valuation models. Regarding the valuation methods, the ones of multiples are highlighted. As for future paths for further research, ...

woa.sistemacongressi.com

Gilda Antonelli

Przedsiębiorczość Międzynarodowa

Joanna Szarek

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Please note you do not have access to teaching notes, pivot decisions in startups: a systematic literature review.

International Journal of Entrepreneurial Behavior & Research

ISSN : 1355-2554

Article publication date: 26 February 2021

Issue publication date: 27 May 2021

Entrepreneurs' pivot decisions are poorly understood. The purpose of this paper is to review the existing literature on pivot decisions to identify the different conceptualizations, research streams and main theoretical building blocks and to offer a baseline framework for future studies on this phenomenon.

Design/methodology/approach

A systematic literature review of 86 peer-reviewed papers published between January 2008 and October 2020, focusing on the pivot decision in startups, was performed through bibliometric, descriptive and content analyses.

The literature review identifies four research streams concerning the pivot concept – pivot design, cognitive, negotiation and environmental perspectives. Building on previous studies, this paper provides a refined definition of a pivot that bridges elements from the four research streams identified: a pivot comprises strategic decisions made after a failure (or in the face of potential failure) of the current business model and leads to changes in the firm's course of action, resource reconfiguration and possible modifications of one or more business model elements. This study proposes a framework that elaborates the pivot literature by identifying four stages of the pivot process addressed in the existing literature: recognition, generating options, seizing and testing and reconfiguration.

Originality/value

This study provides a comprehensive review, enabling researchers to establish a baseline for developing future pivot research. Furthermore, it improves the conceptualization of pivots by summarizing prior definitions and proposing a refined definition that places decision-making and judgment at its center. That introduces new contextual and behavioral elements, contributing to a better understanding of how entrepreneurs assess alternative courses of action and envision possible outcomes to redirect a venture after failure.

Decision-making
Entrepreneurial judgment

Acknowledgements

The authors would like to thank the editor and the anonymous reviewers for their guidance and insightful comments. Funding : The research was funded by grant from 436877/2018-0, National Council for Scientific and Technological Development (CNPq-Brazil), 2015/26662-5, São Paulo Research Foundation (FAPESP), and PD- 00068-0045/2019, Isa Cteep-Aneel.

Flechas Chaparro, X.A. and de Vasconcelos Gomes, L.A. (2021), "Pivot decisions in startups: a systematic literature review", International Journal of Entrepreneurial Behavior & Research , Vol. 27 No. 4, pp. 884-910. https://doi.org/10.1108/IJEBR-12-2019-0699

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A Systems View Across Time and Space

Open access
Published: 01 October 2020

Literature review on business prototypes for digital platform

Shrutika Mishra 1 &
A. R. Tripathi 1

Journal of Innovation and Entrepreneurship volume 9 , Article number: 23 ( 2020 ) Cite this article

48k Accesses

26 Citations

Metrics details

In today’s world, many digitally enabled start-ups are budding all over the globe because of the fast enhancement in digital technologies. For the establishment of new business, it is necessary to adopt a proper business model which needs to define the way in which the company will provide values and the ways in which the customers can pay for their services. This paper aims to study the various business models being used in today’s marketplace and to provide a better understanding for these business models by having an insight on the attributes.

Introduction

Digital platforms are connected businesses that enable commercial interfaces between at least two different assemblies—with one normally being suppliers and the other consumers (Lestan et al., 2017 , Shrutika, 2018 , Mishra & Tripathi, 2019 , 2020b ). It is useful for digital expertise, technologies and devices in current openings for enterprise leaders and frontrunners to change of mind their business to generate enhanced understandings for clients, workers, and ecosystem associates to lower costs (Porat, 2008 , Hein et al., 2019 ). When businesses act to take benefits of these breaks through digital revolution, they take on two prime events: building a digital platform and building a new operating model (Nambisan et al., 2019 ). The sketchy digital platform ecosystem can be elaborated as below (Hein et al., 2019 , Nambisan et al., 2019 ) (Fig. 1 ).

Digital Platform Ecosystem

In other words, a digital platform is a web cantered platform for offering content (things like Facebook, Twitter, Blogs, Websites, and sometimes SMS). This is in contrast to an analogue platform (like billboards, direct mail, telemarketing, events and word of mouth). A promotion is the messaging that you would use platforms to communicate. This could sponsor a manufactured goods or facility and could interconnect it over both digital and analogue platforms. Digital platforms are a new generation of customer/employee/partner-focused, internal and external platforms that need to measure elastically and compromise a range of entry touchpoint. It consists of (Nambisan et al., 2019 , Mishra, 2019 , Mishra & Tripathi, 2019 , 2020b ):

Upkeep one to billions of customers

Empower worldwide, distributed enormous and lesser establishments

Associate billions of devices and sensors and connected internet of things (IoT) devices

Participate and integrate with the business models and processes of growing number of associates, suppliers and even competitors and participants. The following diagram shows the players in a platform ecosystem and its internal and external functions (Parker et al., 2016 , 2018 ) (Fig. 2 ).

The Players in a Platform Ecosystem

The players connect, integrate, inspire, stimulate with catalytic approach put to work and upkeep society, businesses, governments and engagements in cogent and progressive manner.

They have a boundless number of software products inside, which in turn have millions of features that can be merchandises of sorts, and they hinge on progressively on data that is liquid, directly available and is used to get-up-and-go insights, whereabouts and consequences (Parker et al., 2016 ).

Mutually, these happenings must occur simultaneously and that present a pitfall: a business is incomplete in how far it can go in fluctuating its operational model unless the digital platform flourishes. Impending this consequence erroneously causes many digital platform revolution enterprises to fail. Success with a digital platform does not need to be contingent on the technologies encompassing the platform execution. Success depends on users accepting the platform. To cognize how the escalation of platforms is renovating competition. We need to survey how platforms differ from the conventional “pipeline” businesses that have conquered business for years in the state-of-the-art business technology (Parker et al., 2016 , 2018 ). Pipeline businesses produce value by monitoring a linear series of events—the classic value-chain model. Inputs at one end of the chain (say, resources from brokers) go through a sequence of steps that transmute them into an output that is substance more: the finished product. We can illustrate it through Apple’s handset business. Apple’s handset business is essentially a pipeline but combine it with the App store. The flea market associates with App developers and iPhone owners, and we have got a platform (Parker et al., 2018 ).

There has been a sharp rise in start-ups building software-based platforms (SBP) for industries that once seemed unaffected by digitization (Nieborg, et al. 2018 ). An important feature of this digital platform (DP) is that their reach is much further than the fields of communication and information, and they do so by making the transportation and hospitality industries better (Abdelkafi, 2013 , Ardolino et al., 2018 ).

For example, OYO Rooms is a start-up found in 2013 by Ritesh Agarwal. It provides a service like online booking of budget hotels to customers based on their needs (Alt et al. 2018 ). Since then, it has grown all over India by raising funds from big investors such as Softbank Group, Light Speed Venture Partners (LSVP) and many more (Spieth et al. 2014 , Autio et al., 2018 ).

It raised series round of funding of $24 million from Light speed Venture Partners , Sequoia Capital , Green oaks Capital and DSG Consumer Partners (DSGCP) (Smith et al. 2001 , Barwise et al., 2018 ).

In late 2017, OYO launched OYO Home, an Airbnb -like marketplace for short-term managed rentals ( https://www.techcircle.in , 2019 , Sinha et al., 2015 ). OYO Home has presence in more than 10 leisure destinations of India including Goa, Shimla, Pondicherry, Udaipur, Kerala, (all in India) etc. In April 2018, OYO launched its first international OYO Home in Dubai (de Oliveira et al., 2019 ).

In year 2019, Google generated about $25 billion in revenue. The vast majority of that revenue, well over 95%, originate from advertising via its search engine and its AdSense program, which places ads on billions of websites.

A firm can differentiate from its competitions even if it provides same or similar services in the marketplace if it has a good and unique business model (Chesbrough et al., 2002 , Cawley et al., 2007 , Bucherer et al., 2011 , Speranza et al., 2018 ). For example, Paytm is a company that provides online payment system and digital wallet to its customers but before Paytm came into the market, there were companies which already existed such as Mobikwik and Freecharge, and they were providing customers with digital wallets and even then, Paytm outperformed its competition and took over the marketplace (de Reuver et al., 2018 ). Also, success of a start-up does not completely depend on the efficiency of a business model; for a start-up to succeed, it must have a proper and practical solution to the existing problem (Circenis et al., 2009 , Büyüközkan et al., 2018 ).

A business model is a company’s strategy for making earnings and profits (Agostinho et al., 2016 , Allee, 2000 , Vikas, 2012b ). It classifies the products or facilities the business will sell, the bull’s eye market (Antikainen & Valkokari, 2016 , Ordanini et al., 2004 , Li, 2018 , Weinhardt et al., 2009b , Shrutika, 2018 ). It should be identified and the expenses it anticipates. A new business in enlargement has to have a business model, if only in order to fascinate investment, help it recruit faculty and encourage organization and workforce. Conventional businesses have to re-examine and bring up-to-date their business strategies regularly, or they will be unsuccessful to get ahead developments and challenges in advance. Stakeholders need to analyse and evaluate the business plans of corporations that concentrate on them (Azodolmolky et al., 2013 , Santhanam, 2014 , Täuscher & Chafac, 2016 , Täuscher & Laudien, 2017 , Mishra & Tripathi, 2020b ). Although there is no acquired definition of business model, it can be defined in various ways depending upon the attributes that are being considered while defining it; however, it should be kept in mind that its definition should consider company’s internal and external attributes and should layover the ways in which the company will be providing services and values while converting those values into profit (Burgess et al., 2018 ). “The business model has been referred to as a statement, a description, are presentation, an architecture, a conceptual tool or model, a structural template, a method, a framework, a pattern, and a set” (Büyüközkan et al., 2018 ).

Literature review

With the advent of the new economy, business models (BM) have become an increasingly popular unit of analysis to explain differences in firms’ success (Cearley et al., 2012 , Büyüközkan et al., 2018 ). However, digital business model (DBM) differs from business model on the basis that it can provide a two-way revenue model for both the customers and the sellers, so we need to lay emphasis on both sides (Bocken et al., 2014 ). A good digital business model should make sure that the seller as well as the buyer gets benefited (Evans et al., 2009 , Yin et al., 2018 ).

With the evolution of technology and data, business model, it is not only the area that experienced transformation while other areas which experienced transformation are business strategy, workforce, customer interaction and business operations, and these areas are dependent on each other for their growth and success (Gawer et al., 2007 , 2014 , Werth et al., 2018 ).

According to authors A. Osterwalder and Y. Pigneur (Osterwalder, et al., 2002 , 2004 , 2005 , 2010 , 2011 , Wu et al., 2015 ), in their book “Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers, Hoboken, New Jersey: John Wiley & Sons, Inc”, a business model can be described by nine building blocks which further wraps the four main segments of business: customers, offer, infrastructure and financial viability (Timmers et al., 1998 , Clark et al., 2012 , Xu et al., 2018 , Wirtz et al., 2010 ). To understand how the rise of platforms is transforming competition, we need to examine how platforms differ from the conventional “pipeline” businesses that have dominated industry for decades. Pipeline businesses create value by controlling a linear series of activities—the classic value-chain model (Luby et al., 2006 ). Inputs at one end of the chain (say, materials from suppliers) undergo a series of steps that transform them into an output that is worth more: the finished product. Apple’s handset business is essentially a pipeline but combine it with the App Store, the marketplace that connects app developers and iPhone owners, it becomes a digital platform (Table 1 ).

As Apple exhibits, partnerships need not be only a pipeline or a platform; they can be both. While sufficiently pure pipeline productions are still highly modest, when platforms enter the same marketplace, the platforms effectively continuously landslide. That is why pipeline titans such as Walmart, Nike, John Deere, and GE are all cross-country to incorporate platforms into their business models (Watanabe et al., 2018 ).

Furthermore, in a study on role of the business model, Chesbrough and Rosenbloom elated a more detailed definition of business model as (Chesbrough et al., 2002 , Yoo et al., 2010 , 2012 , Sabatier et al., 2012 ):

The functions of a business model are to:

articulate the value proposition, that is, the value created for users by the offering based on the technology;

identify a market segment, that is, the users to whom the technology is useful and for what purpose;

define the structure of the value chain within the firm required to create and distribute the offering;

estimate the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen;

describe the position of the firm within the value network linking suppliers and customers, including identification of potential complements’ and competitors;

formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals.

This definition points out the important blocks of a business model on which it should focus and suggests a proper way of interacting with them so that the business model can function efficiently which leads to a sustainable way of doing business (Azodolmolky et al., 2013 , Balodi et al., 2014 , Coase, 1937 , de Vasconcelos Gomes et al., 2018 ). The priority of these attributes may vary in different businesses according to their needs and the condition of the marketplace, so there is no compulsion on treating them in a same manner in every other business as some attributes may require much more focus than other attributes in a particular business (Grewal et al., 2018 , Hamari et al., 2016 , Baldegger et al., 2016 , Bason, 2018 , Mishra & Tripathi, 2019 , 2020b ).

Various frameworks have been laid down by different authors which further help in development of business models as required by the business, these frameworks describe relationship of important components and also give an insight on how they can be beneficial to our business, and there is no single perfect framework defined for all business types so its choice can vary from business to business (Kurt et al., 2017 , Baporikar, 2015 , Benlian, 2018 ). These frameworks can help to utilise the business model to its maximum potential. Some of these existing frameworks are Business cycle framework, Innovation radar etc. (Li et al., ( 2018 ), Lockamy III et al., ( 2011 , 2012 ), Berman et al., ( 2012 ), Antikainen, et al., ( 2016 )).

Business cycle framework (BCF)

Author Teece gave this framework in his journal article “Business models, business strategy and innovation” (Teece et al., 2010 ). This framework focuses of important components of a business model in a cyclic manner (Tian et al., 2011 ). It is rather a step-by-step guide to develop a business model, starting from selection and identification of value preposition then to determine the customers who will get benefit from and segmenting the market accordingly which has to be targeted (Tidd et al., 2018 ). Further analysing the revenue streams which are available and develop the procedures to use these available resources in a cost-conscious way, hence developing a mechanism to capture the value from the entire process (Weinhardt et al., 2009a , Watanabe et al., 2016 , 2018 ). However, this framework does not include channeling of products to the markets efficiently, and neither it included focusing on making partners for the expansion of business in the marketplace (Ordanini et al, 2004 , Spiess-Knafl et al., 2015 , Zott et al., 2011 , Skog et al., 2018 , Shrutika, 2018 ) (Fig. 3 ).

Business cycle framework. Source (Tian et al., 2011 )

The innovation radar (IR)

This innovation radar framework was given by Sawhney, Walcott and Arroniz in “The 12 Different Ways for Companies to Innovate”. This framework lists various components which are important in innovation of sustainable business model, and this framework provides a efficient solution to four basic questions like “WHAT services/products are being offered to the customers?”, “WHO will get the benefit of these sevices/products?”, “HOW the company will be making profits by providing these services?” and “WHERE these services/products needs to be delivered?” whose answers will give some insights in developing the business models. This framework consists of 12 dimensions (O’Reilly, 2011 , Ghazawneh et al., 2013 , Standing and Mattsson, 2018 ) which are described briefly in the table below (Fig. 4 ).

Innovation radar. Source (Solis et al., 2014 , Speranza, 2018 )

In spite of studying various components and frameworks of a business model and also after reading and observing the marketplace carefully, there are some risks for which a business should always be prepared to face it anytime as they are not in one’s control, and these market risks as stated by Porter in journal “The Five Competitive Forces that Shape Strategy” are caused by five competitive forces (Porter, 2008 , Reynolds, 2011 , Sutherland et al., 2018 , Pisano et al., 2015 , Goerzig et al., 2018 ). These competitive forces can be a threat to the existing business but also, it can raise the quality of value preposition offered to customers at better prices. Also, customers will have more options to choose from; hence, we can say that it can be beneficial for the customers too. The five competitive forces stated by Porter (Porter, 2008 , Richter et al., 2017 , Silva et al., 2018 , Kingsnorth, 2019 ) can be described as:

Threats of new entrants: Whenever a new competitor enters in a market, it brings worthy potential to gain market shares which eventually affects the prices, which also has the potential to disturb a well-established customer base which will affect the revenue flow.

Power of suppliers: A powerful supplier can be a threat to a company or a customer if it is hugely dependent on the supplies which can be anything like labours, raw materials and car components. In this case, the supplier can easily manipulate the prices of supplies according to its needs.

Power of buyers: This threat is just opposite of the powerful supplier’s threat as in this if leverage lies with the buyer, then he can negotiate for more service for relatively lesser price, which puts a company back on foot and may have to make the deal for lesser profit.

Threats of substitutes: A new and better solution for an existing problem can be a threat to the old solution as the company is providing, it may soon go out of service if it does not improvise or innovate its solution.

Existing competitors: There is a constant sense of rivalry among existing competitors as they compete for market share by advertising, by offering discounts, by doing promotions and organising events which in turn are activities which require a lot of funds, hence should be planned accordingly.

The effects of these five forces can be minimized on a business if that business has a well-established business model (Frison and Kirchberger, 2000 , Jain et al., 2012 Enkel et al., 2013 , Santhanam et al., 2014 , Kleis Nielsen et al., 2018 , Joshi et al., 2018 , Del Vecchio et al., 2018 , Faraj et al., 2018 ,) (Fig. 5 ). Lüttgens and Diener ( 2016 ) studied the Porter’s five forces and were able to identify the trends, and they gave five steps to counteract the business pressure from these five forces in their journal “Business Model Patterns Used as a tool for creating (New) innovative business models, Journal of Business Models” (Del Vecchio et al., 2018 , Gimpel et al., 2018 ). These five steps given by Lüttgens and Diener ( 2016 ) can be described as below:

First, identification of those forces should be done which pose the high risk to the business model, then start looking for various solutions available and pick the best one.

Such business patterns should be chosen from the list of business model innovation which can best handle and counteract the pressure from the identified porter’s force.

Select different business patterns and make different combinations of business models from available patterns and do brainstorming session to identify the best combination.

Do more research on business model patterns if necessary, in order to find new possibilities.

Analyse the model by using various business tools such as CANVAS (Oskam et al., 2016 , Romero et al., 2016 , Schallmo et al., 2018 ) to see the pros and cons of the new business model and implement accordingly.

Five forces of competition. Source (Baldegger et al., 2016 )

Business models of digital platforms

Free as a business model (fbm).

This business model is also known as a freemium/subscription model. This model was proposed by Osterwalder and Pigneur ( 2010 ), and they described this model as a business model in which one customer segment can continuously enjoy the benefit from cost-free services. The most important concept of this model is to provide free of cost value preposition to the customers, and this concept of providing something for free leads to the generation huge demands as compared to something even offered at nominal cost (Tsai et al., 2006 , Feng et al., 2009 , Dierksmeier et al., 2018 ).

As described by them, one of the ways of revenue generation in this business model is possible because of companies which adopt this model earn profit by showing advertisements to the customers using their free services; also, they provide an option to their customers to purchase the premium version of that service which they stop getting ads as well as they get additional services which are not available in the free version, by paying a required amount which again generates revenue. For example, Spotify is a free music streaming service which allows their users to stream from vast number of songs anytime, and they can even create a playlist of their favourite songs and share them with their friends too, and it made Spotify very popular specially among millennials, but this free streaming of songs gets interrupted when advertisements automatically start playing while changing the songs, but users can buy subscription for premium on daily/monthly/half-yearly/yearly basis; by paying the required amount, they become the premium member and enjoy the add-ons like they can download any song and listen them offline, they do not get to see advertisements anymore and they get three times better sound quality, so these add-ons lure more customers to buy premium and hence, they generate revenue (Cennamo et al., 2013 , Hall et al., 2001 , Lindgardt et al., 2009 , Lee et al., 2018 ).

Many start-ups are emerging these days with free as their business model so that they can attract large number of customers to create great demand of their value preposition. Also, this model helps them to take over the existing competitors present in the marketplace. Furthermore, this model can be categorised in three patterns as stated in Tables 2 and 3 .

Pay-per-use business model (PBM)

As the name suggests, in this business model, the customer must pay each for each time they use the services. In this article “Apply pay-per-use business models to your industry”, author Uenlue (Robitzsch et al., 2014 , Lüttgens et al., 2016 , Plantil et al., 2018 ) wrote that pay-per-use model was only limited to few industries like phones and electricity; however, it has been observed that this business model is being adopted widely by many industries such as transport and software (Radanliev et al., 2018 , Holm et al., 2018 ). One of the reason that this model is being widely used and is an efficient model is that it can be combined with subscription model to create more revenue, for example, there are many mobile talk-time package offers for customers to choose from like 1000 min plus 3 GB data per month (Doz et al., 2010 , Kumar et al., 2013 , 2018 ).

Customers get benefits from this model as they only had to pay for what they use, and there is no additional expenses where as companies get benefits from this models if they have well estimated the expenditure-per-use and have fixed price-per-use while keeping the track of the profit-per-use (Hwang et al., 2008 , Øiestad et al., 2014 , Kane et al., 2015 , Boltan et al., 2018 , Meeker et al., 2018 ).

Challenges faced in this model are (Boudreau et al., 2010 , 2015 ):

Unpredictable use and revenue: It is difficult to predict the need of the customers as they use the service only when they feel like, which in turn makes it difficult to calculate the revenue.

Frequent users may give negative response: This model will not be suitable for frequent user of the service/product offered if their repetitive billing amount is more than the one-time cost of the whole service/product.

Ability to meet the demands: It is important that a company should provide its products/services to its customers whenever the demand is made without failing.

This business model can be a very good opportunity for new start-ups and small companies to attract new customer segments and capture the marketplace from lower end (Bossert et al., 2016 ).

Google Business Model (GBM)

Google uses a promotion business model, where enterprises take part of an ad network called AdWords. In short, they can bid and attempt on keywords (such as “insurance” and “pen drive”) to sell their products and services (Jarvis, 2011 ).

Google generated about $25 billion in revenue in year 2019 using his business model. The vast majority of that revenue, well over 95%, originate from advertising via its search engine and its AdSense program, which places ads on billions of websites (Vise, 2007 , Google Business, 2020 , Mishra and Tripathi, 2020a ).

The contemporary pre-dominant business model for commercial search engines is advertising (Alpdemir, 2003 ). This can also be eminent that Google has become tantamount with web search (Watanabe et al., 2018 ).

The other side of Google’s tremendously efficacious business plan is innovation (Ferreira et al., 2013 ). This is established in the products, consumers and services that Google integrates into its brand. Let us survey the technology behind the product and trade (Orton et al., 1990 , Parker et al., 2018 ).

Google technology (GT)

Google’s search technology is dependent upon computer algorithms to regulate search sitting.

The technology that Google uses to underpin its data centres are of extreme significance in certifying Google has the scale, speed and efficiency to serve its promptly budding number of users (Weber, 2008 ). Google also uses two advertising amenities to gain substantial income: AdWords (places applicable ads together with Google’s search results) and AdSense. Google’s context-driven flyers are on third-party websites (Weber, 2008 , Metallo et al., 2018 ).

Google AdSense

Google believes relevant advertising can be as useful as search results or other forms of content (Google Business, 2020 , Mishra and Tripathi, 2020a , Metallo et al., 2018 ). To this end, Google has developed the AdSense program to enhance the user’s experience to a website. While utilising the technologies behind Google Search, AdSense uses keywords to precisely target results so advertising content is delivered based on page content. Google believes advertisers, publishers and information seekers all profit as a result (Google Business, 2020 , Metallo et al., 2018 ).

Google AdWords

In amalgamation with AdSense, Google developed the “AdWords [program] for advertisers who need to influence a competent viewers as professionally as prospective” (Google Business, 2020 , Mishra and Tripathi, 2020a ).

The PageRank and Hypertext-Matching Analysis seems to function to yield the best potential competitions for a user’s search request. AdWords and AdSense supply content-appropriate advertising centred on the publisher’s content. This effectively produces an association between content producers and advertising producers, spawning sense of grid economy, value and outcome (Watanabe et al., 2018 ).

Customers have needs and nice-to-haves and traditional business models fulfil these for their customers. Google offers its customer’s needs, wants and nice-to-haves for free. In return, whether knowingly or not, users create data whilst using Google amenities and yields which produces statistics and information that is recorded in the Google Search Engine; advertisement is then made-to-order based on the content delivered (Afuah, 2014 ).

The most important for its business model is the billions and billions of websites that make available Google with information and statistics for free. They permit or offer Google to go through the information and statistics on their website and index it. Deprived of this uncooked data, Google does not have a business (Baden-Fuller et al., 2010 , Bucherer et al., 2012 ).

Google’s complete business model rotates about one unpretentious concept—relevancy. The more relevant and appropriate its products are, the more persons use them. More users and consumers invite more advertisers (over 82% of Google’s 2019 revenue was resultant through advertising). And the more money it makes, the more relevant it gets, and the circle goes round and overweight again. The Google’s preoccupation with relevancy fuels a so-called “flywheel effect” (Google Business, 2020 , Mishra and Tripathi, 2020a ).

The flywheel effect states to an honest cycle of improved relevancy. The value-added functionality and usability of all Google merchandises service the tech colossal cultivate robust and smoother over time fascination with relevancy fuels what we call “the flywheel effect”.

Let us discuss a quicker look at about key examples of relevancy in the interior Google’s business model.

Google AdWords and quest advertising

Google is really a meritocracy and practices “Quality Score” to exuberant the direction of connected and network connected advertisements based on relevancy. Ads that have an advanced CTR (i.e., they are more clickable) are supposed to be more relevant to a consumer’s search request and consequently remunerated with a higher ad rank at no extra price tag.

YouTube, as the global ecosphere’s largest video distribution platform, practices relevancy algorithms and quest to create tailor-made consumer involvements. While YouTube is free for community use, YouTube premium is a subscription-based facility with over 30 million participants. In 2019, premium memberships accounted for over $20 billion of Google’s revenue.

Google Map (combined with Google’s attainment of Waze) resources the tech colossal can accumulate data from billions of strategies to design the most efficient directions, paths and routs. Google acquires from past excursions and outings to recommend the most significant and appropriate end point for specific customers and users (Figs. 6 and 7 ).

Google business model (Google Business, 2020 )

Inside Google’s business model

A hidden revenue business model is a conformation for income and revenue group that preserves consumers out of the balance so they do not pay for the amenity or manufactured goods presented. For example, Google‘s consumers do not reward for the search engine. As an alternative, the revenue streams come from advertising currency disbursed by commerce request on keywords (Gatautis, 2017 ).

In past two decades, various business frameworks have been developed, and many business models have been innovated. This state-of-the-art analysis has explained many important attributes in Tables 1 , 2 and 3 that are needed to define business model effectively. Innovation of new technologies has changed the way of doing business over the years, which has made the study on business models in digital marketplaces an important area of research as to do sustainable business in today’s digital marketplace. New business model innovations are required with proper risk management; hence, new frameworks are also needed for development of analysis of these models. We suggest that the challenge of management two different and contradictory business models concurrently can be outlined as an ambidexterity challenge. This implies that ideas and conjectural thoughts from the ambidexterity writings can be used to discover issues applicable to the business model writings. We put on this idea to reconnoitre explicit areas where the ambidexterity works could guide research on the contest of managing business models simultaneously and classify more than a few insights that can guide upcoming research on business model innovation.

A business may do well without any structure or model in the marketplace for a while if the conditions are in its favour but as soon as it starts facing any competition or any of those Porter’s five forces, then it may soon collapse if it does not have a proper plan to counteract these competitive forces or it does not have a business model which if the business has, then it can not only counteract against these forces but also can run sustainably and efficiently for longer period of time.

In this way, digital marketplace keeps innovating, and the experimentation of new business models can be observed; earlier, only industries like electricity and phone used this model but now many companies like Amazon web services and pay-per-view television industries are also using these models. Further, a very unique model which has been reviewed is FREE as a business model which is a very popular business model in the digital marketplace as many start-ups as well as many tech giants try to attract customers with initial service which then may make these customers want for more for which they have to pay. This remarkable change in way doing business led to innovation of new business ideas and better models which can attain more efficiency and sustainability. Google’s hyper-focus on relevancy will carry on to fuel the flywheel outcome and reinforce the company’s label as one of the utmost cherished and efficacious companies on the globe due to his innovative business model.

Availability of data and materials

Not applicable

Abbreviations

Software-Based Platforms

Digital Platform

Business Intelligence

Light Speed Venture Partner

DSG Consumer Partner

Business Model

Digital Business Model

Business Cycle Framework

Innovation Radar

Free Business Model

Google Business Model

Google Technology

Pay-per-use Business Model

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The first and corresponding author is responsible for literature review, analysis and critical comments. The second author is responsible for the writing skill and supervison. We have studied various literatures and Literature Review on Business Prototypes for Digital Platform. The literature review will be very useful for working in this area and connecting fields. This paper will be useful for learning researchers and middle level researchers also. The authors read and approved the final manuscript.

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Failure of Tech Startups: A Systematic Literature Review

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José Santisteban ORCID: orcid.org/0000-0003-4526-642X 11 ,
Vicente Morales ORCID: orcid.org/0000-0001-5830-5024 12 ,
Sussy Bayona ORCID: orcid.org/0000-0001-7133-9106 13 &
Johana Morales ORCID: orcid.org/0000-0001-8572-8970 14

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Tech Startups are exposed to multiple challenges and are known for being inserted into uncertain and risky scenarios. Initially, new businesses face great uncertainty and have high failure rates, but a minority of them go on to become successful and influential. The purpose of this study is to determine the main causes of failure of Tech Startups in their early stage, for which a systematic review of empirical studies regarding why Tech Startups fail was carried out. The search strategy in the databases: ScienceDirect, IEEE Xplore, SpringerLink, Emerald and EBSCO identified 1996 studies of which 36 were identified as empirical studies and after applying the inclusion and exclusion criteria, 23 primary studies were selected that classify to the factors in 3 categories: organizational, technological, and environmental. Among the main factors for failure are the characteristics of the owner, poor location of the business, products/services that do not meet the needs, high costs of ICT, lack of skills in the entrepreneurial team, external and competitive pressure, few benefits perceived ICT use, low resources, low government support.

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Acknowledgments

The gratitude for the support provided in the research to the Technical University of Ambato, Research and Development Directorate (DIDE), and to the Norbert Wiener Private University.

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Santisteban, J., Morales, V., Bayona, S., Morales, J. (2023). Failure of Tech Startups: A Systematic Literature Review. In: Garcia, M.V., Gordón-Gallegos, C. (eds) CSEI: International Conference on Computer Science, Electronics and Industrial Engineering (CSEI). CSEI 2022. Lecture Notes in Networks and Systems, vol 678. Springer, Cham. https://doi.org/10.1007/978-3-031-30592-4_9

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What’s Behind the Success of Some Tech Start-Ups?

Their corporate culture often focuses on unconventional solutions to hard business problems.

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The secret to success for many Silicon Valley tech companies isn’t necessarily that they’re ultra-nimble start-ups, or that they’re led by tech-savvy geniuses. Andy McAfee says their success often has more to do with a specific type of corporate culture that focuses on finding unconventional solutions to hard business problems.

McAfee is a principal research scientist at the MIT Sloan School of Management, and he’s the author of The Geek Way: The Radical Mindset That Drives Extraordinary Results .

In this episode, he explains why business leaders need to think more like geeks and explains why it’s important to center your culture on company norms, rather than organizational structure. He also offers tips for finding that delicate balance between human judgement and data-driven insights.

Key episode topics include: strategy, technology, start-ups, innovation, competitive strategy, Silicon Valley.

HBR On Strategy curates the best case studies and conversations with the world’s top business and management experts, to help you unlock new ways of doing business. New episodes every week.

Watch the original HBR New World of Work episode: How the Geeks Rewrote the Rules of Management (2023)
Find more episodes of the New World of Work series on YouTube
Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .

HANNAH BATES: Welcome to HBR On Strategy , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock new ways of doing business.

You might think that t he secret to success for many Silicon Valley tech companies is that they’re ultra-nimble start-ups, or they’re led by tech-savvy geniuses.

But Andy McAfee, a principal research scientist at the MIT Sloan School of Management, corporate culture. One that is all about finding unconventional solutions to hard business problems.

McAfee outlines the pros and cons of that approach to management in his book, The Geek Way: The Radical Mindset that Drives Extraordinary Results .

In this episode, you’ll learn why it’s important to center your company culture on norms rather than organizational structure.

McAfee also explains how to build an organization that can get things right even when the person at the top is wrong. And he has tips for finding that delicate balance between human judgement and data-driven insights.

This episode originally aired as part of HBR’s New World of Work video series in September 2023. Here it is.

ADI IGNATIUS: Welcome to Harvard Business Review’s The New World of Work. I’m Adi Ignatius, Editor in Chief of HBR. Each week on the show, I interview a CEO, a thought leader, or somebody to inspire us, to educate us on the changing dynamics of the workplace.

Our viewers come from all over the world. And they work at everything from Fortune 500 corporations to fledgling startups, from family businesses to nonprofits. The aim of this show is to give insights for everyone as they navigate this transitional moment in how we organize ourselves in the business world.

So, on tonight’s episode, we have another great guest, Andrew McAfee, a Principal Research Scientist at the MIT Sloan School of Management. His research focuses on how information technology changes how companies perform, how they organize themselves, and how they compete.

He’s a frequent contributor to HBR and is the author of the forthcoming book, The Geek Way, the Radical Mindset that Drives Extraordinary Results. The book is out in mid November. But you can pre-order it now wherever you pre-order your books. So, Andy, welcome.

ANDREW MCAFEE: Adi, it’s great to be here. Thank you.

ADI IGNATIUS: Yeah, it’s great to have you. It’s exciting about the book. So, I’ve read the book. It is a great read. It lavishes fulsome praise on geeks and business, not just for their technological innovation, but also for developing an approach to business itself that you’ve come to respect.

So there’s a lot to talk about. Let’s start with definitions. So how do you define a geek?

ANDREW MCAFEE: Yeah, so I’m walking away from the computer-based definition of a geek, which was kind of where it started. And my definition is two-part. For me, a geek is somebody who gets obsessed with a hard problem and is willing to embrace unconventional solutions.

And for me, the patron saint of geeks is probably Maria Montessori, who about 100 years ago, got obsessed with the problem of, how do you educate young children best and came up with the Montessori educational method, which is this radical departure from industrial-scale model of schools that was dominant then and, sadly, still dominant now. So, think about Maria Montessori when you think about a geek.

ADI IGNATIUS: So, there’s a definition. Then, how do you define the Geek Way that you’re talking about in the book? What is the Geek Way?

ANDREW MCAFEE: So, the particular geeks that I got excited about that led me to write the book were not educational geeks like Maria Montessori. They were business geeks. They were a group of people, concentrated but not exclusive to the West Coast of the US, who got obsessed with this problem of, how do we run a company in an age of really fast technological change and lots of uncertainty?

And in particular, how do we avoid some of the classic dysfunctions of the internet era? And the Geek Way is what they’ve come up with. It’s the business model or the culture or the set of norms that they’ve settled on to try to accomplish that really hard goal.

ADI IGNATIUS: So, if you’re watching this if you have questions yourself for Andy McAfee, put them in the chat. We’ll get to as many audience questions later as possible.

So really, the way you’re defining geeks, the way you’re defining Geek Way, I mean, it seems to be– I’m trying to think of other terms that we might have used, other coinages. Lifelong learner, but that’s not quite it. It’s people who nerd out on, in this case, management, right?

ANDREW MCAFEE: Obsessive maverick is my preferred phrase for a geek. And the obsessive mavericks that I got really interested in were the ones who dove. In again on this problem of how do we run a company, and keep doing well in our markets, and avoid the dysfunctions that seem to plague so many successful companies as they get older and bigger?

How do we avoid those dysfunctions? How do we do something that’s higher performing, more sustainable, and a better place to work?

ADI IGNATIUS: So, as I read the book, some of those attributes you talked about, they had to do

with speed. They had to do with experimentation. Is this just another term for being digital or for applying design thinking in the business? Is that– are we talking the same thing here?

ANDREW MCAFEE: No, I don’t think. You remember Quibi, right? The Jeffrey-Katzenberg-led video startup– it was going to do short form videos and was going to change the way we consume entertainment. It was going to be entirely digital. It was a completely digital enterprise. It was a miserable failure. They raised $1.75 billion.

They shut down within 200 days of their launch. It was just a catastrophe. It was a completely digital enterprise. Netflix is a geek company. They follow all four of my great geek norms of science, ownership, speed, and openness. And I think the results speak for themselves.

So geek for me is entirely separate from digital. You can be a non-m digital geek. And you can certainly be very digital and not geeky at all.

ADI IGNATIUS: When I meant digital, I meant more of a mindset than a product. So it sounds like– so the Quibi thing is an interesting example. I guess what was missing in terms of from your framework was the openness, right? I mean that you had a powerful guy who had been successful, Katzenstein, who wasn’t listening to–

ANDREW MCAFEE: Evidence, to his peers, to his colleagues, to his advisors– he didn’t appear to be a great listener, which is this kind of archetypal, stereotypical trap that a lot of industrial-era companies fall into. And tech leaders also fall into this trap quite often. You become enamored of your own success and you really stop listening.

It’s incredibly common. And one of the things that I really think is powerful and respect about people like Reed Hastings at Netflix is he was able to build a business that got important decisions right when he, himself was wrong about them. And in the book, I talk about a couple of them. He was dead flat wrong about the utility of downloading to the Netflix app.

He thought it wouldn’t be very useful at all. It’s incredibly useful. He was wrong about the importance of kids programming for Netflix. And he admits this in the book No Rules Rules that he wrote with Erin Meyer. But he successfully worked hard on building a company that would correct him, the boss, the high-status, prestigious person at the top of the organization.

It’s part of this great geek norm of openness that I talk about, how do you build a company that will get it right when the person at the top of the org chart is wrong? Man, that’s a hard problem.

ADI IGNATIUS: It’s a hard problem. And I’m sure some people are going to read your book and think, hang on, a lot of these companies we’re talking about are– not exclusively– but are Silicon Valley startups or somewhere in that realm. The popular perception, I would say, is these are not cultures that you necessarily want to emulate, that they’re often male-dominated bro cultures that you may have the boss– frequently, in these cases, is a kind of overly-demanding bully individual.

So how do you how do you square all this?

ANDREW MCAFEE: And there clearly is some of that going on in the Valley, right? There are toxic cultures. You mentioned the bro culture. I would say that Theranos is one of the most toxic cultures I’ve ever heard about, was headquartered in Silicon Valley. So, I don’t think those are geek companies at all.

They might be in the right geographic location. But they’re not following the Geek Way, which is, again, about these norms and about creating a culture that is fast-moving, free-flowing, argumentative, autonomous, evidence-driven and pretty egalitarian. That’s the goal of the Geek Way.

Now, you point out some of these companies that I do think follow the Geek Way are still too pale, stale, and male. And I think that’s absolutely true. The evidence is pretty clear on this. I hope that gets better over time. But you said something that I disagree with is that a lot of these cultures, that they’re not good places to work.

That’s true in some cases. You remember when LinkedIn did its top attractors survey, I believe, in 2016. They said, look, we’re just going to look at objective criteria. We’re going to look at which company pages get viewed the most often by LinkedIn members, which companies get the most interest from LinkedIn members, the most applications, and where do people stick around when they take their first job?

The top 11 attractors in the LinkedIn list were all companies headquartered on the West Coast

in the industry that we loosely call tech. The geek culture is an extremely attractive culture to work in.

ADI IGNATIUS: So again, if you have questions– if viewers have questions for Andy, please put them into the chat. I’ll get to them later. So, one thing I’ve always wondered is some of these, let’s say, founders, entrepreneurs who got into whatever they got into because they wanted to make the world a better place.

And Sergey and Larry in their garage trying to systematize our access to all the world’s information, these sort of great ideals– when they are actually running companies, they not only are trying to run a company great. They become killers, wanting to wipe out the competition, to foster monopolistic practices, to just grab up as much market share as possible.

ANDREW MCAFEE: Is any of this new? No, I’m serious. Were the businesses of previous eras cuddly? Did they want their competitors to succeed? Were they trying to rise all boats? I don’t need to tell you that capitalism is an inherently competitive process. These companies are very, very good performers.

If you want to use the adjective “killer” for them, yeah, I think that’s by design. You’re not in business not to succeed. You want to grow your market share. You want to grow your profits. You want you want to grow. That is often at the expense of somebody else.

I think it’s for the courts to decide whether they meet the definition of monopolist. It’s a word we toss around a lot. I think the courts so far have tossed out a lot of the recent lawsuits against some of these giant tech companies. I don’t think they meet the definition of “monopolist.”

I think, in general, for a lot of these companies, the competition is one click away. And is Tesla a monopolist in the auto industry? You simply can’t make that case. SpaceX has become pretty close to a monopolist in the rockets and satellites industry.

But they didn’t start that way. And they’ve become so large and influential because they do the job better.

ADI IGNATIUS: All right. So, let’s talk about companies that are doing it right. As you say, this is not this is not universally. For digital companies, some follow the Geek Way, as you’ve laid it out. Some don’t. You mentioned a couple. Or maybe a different question is, how many companies– large, small, digital, otherwise– live into these principles, do you think?

ANDREW MCAFEE: I think that’s a really interesting question. And I don’t have a great way to answer it yet because the only way that I can think to answer it is to administer a survey to everybody and get them to fill it out. But that’s just not going to work. They’re not going to fill out that survey.

ADI IGNATIUS: Well, roughly.

ANDREW MCAFEE: But you can look at what we know about the cultures at these companies. You can also look at the fantastic culture 500 research that Don and Charlie Sull did published in a competitor magazine of yours, Sloan Management Review, where they grabbed all of the LinkedIn reviews and they put them through a machine learning analysis to see what companies’ own employees said about them.

And the three areas that I was most interested in were execution, agility, and innovation. And wow, the scores for companies clustered on the West Coast, clustered in Silicon Valley, clustered in industries that we call “high tech,” those scores are off the charts. There’s not any real competition for them.

So there’s something brewing on the West Coast in industries that we label “high tech” for reasons that I don’t very much. There’s something brewing that’s new, that is different than what’s going on elsewhere in the economy, and that’s pretty demonstrably powerful. The label that I hang on that is the Geek Way.

ADI IGNATIUS: So, was Steve Jobs a geek? And did his Apple follow the Geek Way? Or was that a different model?

ANDREW MCAFEE: And Jobs has some really classic non-geek characteristics. He believed that he knew best right. He had a very, very large ego. He also screamed at his subordinates all the time, which I think is absolutely not what an open leader does. However, I interviewed Eric Schmidt for the book.

And I brought this up to him. And he said, look, I was on Apple’s board for a while, I knew Steve pretty well. He said Steve was a tough person in all those ways. But he learned that if you want to stay on top, you have to listen to the people around you. You have to stop thinking that you have all the answers.

We see a really clear example of that with the App Store. And Adi, like you probably remember, Jobs did not want to open up his beautiful, perfect, walled garden iPhone to outside developers. He had to be talked into it. He eventually realized that he was wrong about that. So, there is a little bit of that openness going on.

One thing that Apple is pretty fanatic about, as I understand it, is they make decisions based on evidence. And whether or not that’s a A/B testing infrastructure is one thing. Apple loves to demo features and gets everybody in the room to look at this and say, for example, is it better to have blurry portrait photos where you can adjust the blur before you take the picture?

The instant they did a demo, they had the answer to that question. They did not sit around and argue from their different points of view. They said, OK, let’s run an experiment. Let’s do a demo here. That’s an extremely geeky approach.

ADI IGNATIUS: I mean, one of the interesting things about Jobs, and certainly something he would say about– he would have said about himself, he did say about himself– was that he didn’t and that one shouldn’t slavishly follow the focus groups, that people don’t know what they want.

So in a sense, yeah, the data, but not necessarily and a combination of, let’s get input. But there is a lot of personal touch, personal feel. It’s like it’s sort of like Moneyball versus the old school. And maybe the answer is a combination of skills.

ANDREW MCAFEE: Absolutely. And Ted Sarandos, who’s the co-CEO of Netflix says, our decision making is pretty algorithmic. It’s 70%/30% algorithmic versus human judgment. But he said, if anything the human judgment is on top, if that makes any sense.

And I think that makes a ton of sense because this norm of science that I talk about in the book, and that the geeks are pretty passionate about, it’s not just dry analysis and do whatever the data says. That’s an inaccurate caricature. Science is about settling arguments with evidence. It’s a ground rune for how you’re going to come to a decision.

You’re going to do a test. You’re going to do an experiment. You’re going to sit around in a group and argue about it. And if you can’t agree, what evidence is going to settle this issue? Science is this inherently deeply social, deeply argumentative process with a ground rule.

Evidence is the queen here. And that’s what we’re going to follow. And a lot of the geek companies that I respect do that as naturally as breathing.

ADI IGNATIUS: So one of the examples in your book of geek culture triumphing is Microsoft,

and specifically when Satya Nadella came in to and kind of rekindle that early success and more. Talk a little bit about what he got right, particularly in the framework that–

ANDREW MCAFEE: Adi, can you think of a more impressive corporate turnaround story in living memory?

ADI IGNATIUS: No. Microsoft went from the tech company we liked least to maybe the one we like best.

ANDREW MCAFEE: And if you were an investor, you really didn’t like it for about a decade. The stock price was flat as a corpse’s EKG. And then, Nadella took over. And it’s become one of the most valuable companies in the world. It’s an astonishing comeback story. So, I got to interview Nadella for the book.

And he made brilliant strategic moves, a bunch of them– Microsoft embracing open source, wow. But I was interested in the cultural changes that he made. And he did a couple of things that I think are straight out of the geek playbook. Some of them are obvious. He embraced agile development methods as widely and quickly as possible inside Microsoft.

He did a couple things to reduce the sclerotic bureaucracy that was in place at Microsoft, which was just hamstringing their ability to do anything important out there in the world. One of the brilliant things he did was say, look, you cannot own a digital resource inside Microsoft. You cannot own the data. You cannot own the code.

And what he meant by that was, you can’t be the gatekeeper. You can’t say yes or no to other groups who might want to use it. So, with that one simple move, he said to the company, look, if the group wants to go grab all of the GitHub code to train up a model to help to provide assistance to programmers, you don’t have to ask permission.

Just go do that, subject to all the right constraints and safeties on it. Man, that is an astonishingly good bureaucracy-reduction mechanism. I think maybe the deepest thing that Nadella did, though, was he pulled off this amazing feat of helping Microsoft become a less defensive organization.

And what I mean by that was he says in the book and he said in his interview with me, we had a culture where it was not OK to be wrong to show any weakness, to not hit your numbers, to not be the smartest person in the room. He said, we just had that culture. And it had to change.

And so he did a number of really brilliant things to move from a culture of defensiveness to a culture of openness. And when I used to hear this word vulnerability in connection with leadership or business, I thought it was just the most kind of buzz phrase, hand-wavy nonsense business.

The company is not a therapy group. It’s not there so you can sit around feeling vulnerable all the time. I was just wrong. Now, the company is not your therapy group. However, a company is a place– a successful company needs to be a place where it’s OK to be wrong, to fail, to not have the answer, to show that you’re uncertain.

And Nadella helped get Microsoft down that path. And it was an absolutely fundamental thing to do. I also interviewed Yamini Rangan, who’s the CEO of HubSpot here in Cambridge, who took over a culture that had an amazing culture and has strengthened it through a really difficult time, through the pandemic.

And she said one of the things that she learned and that she was good at was saying in this unbelievably uncertain time of the pandemic, where tech companies were growing like crazy, and then they were shrinking, and it was all weird, she said to a lot of her constituencies, look, I don’t know.

I don’t know what the future holds here. I’m going to be honest with you. She also shared her board performance review with her direct reports– not just the good parts, but the stuff that she needs to work on too. These are all just great moves to start to show the rest of the organization, it is OK not to be perfect, not to put on the brave front, not to be winning all of the time.

Adi, Jack Welch’s autobiography was called Winning. And it was just kind of epitomized this industrial-era view of what you have to do all day, every day. I love the geek view, which is, hey, man, we’re going to launch some rockets. And they are going to blow up.

Now, we’re not going to kill anybody. But we’re absolutely going to launch some rockets that are going to blow up on the launch pad. Bezos said a few years back in a shareholders letter, we are incubating multibillion dollar failures inside Amazon right now.

That’s appropriate for a company of our scale. And you look at Alexa, and I think maybe he was right about that. But the point is, this obsession with winning, and being on top, and being right, and being dominant– that has to go away

ADI IGNATIUS: Those are great examples. I do want to get to audience questions. And there’s actually a couple. One came from Shabana in Pakistan, the other from [INAUDIBLE] in India. Similar questions, and it’s really getting at what kinds of organizational design, organizational structures do you need to foster this geek culture?

ANDREW MCAFEE: I don’t think org structure is the key because the companies that I surveyed have very, very different org charts. They also have very different formal practices. Netflix is fairly famous for having the no-vacation-days policy. Amazon has extremely strict vacation policies for different levels of employee.

So, I think it’s not a matter of the org chart or the org structure that you have. It’s not so much a matter of how formal a lot of your policies are. It’s a matter of your norms. And I love that book. And Adi, like you know, I use it– I love that word. And I use it in the book all the time.

A norm is a behavior that the people around you expect. Maybe it’s written down in the employees’ manual. Very often, it’s not. It’s community policing. It’s what the people around you expect. And if you go out of line and you violate a norm in a community, you will know that fairly quickly.

And you will either come back into line. Or you’re just not going to stick around very long. So, for me, if you can work on these norms of science, argue about evidence, of ownership, push authority and decision making down to an uncomfortable degree. Speed, iterate, don’t plan, don’t analyze, build stuff, get feedback, learn from reality.

And then, openness, don’t be defensive. Be willing to pivot. Be willing to admit that you’re wrong. They show a little vulnerability. Those are the norms that are critical for the Geek Way.

ADI IGNATIUS: So, I think our audience is impressed with you and with your argument. Maybe it’s the glasses. But we have a question.

ANDREW MCAFEE: It’s probably the glasses.

ADI IGNATIUS: It’s probably the glasses. It’s always the glasses. Bob, if you had an English accent, it would blow it away.

ANDREW MCAFEE: Damn. I need a posh British accent, don’t I?

ADI IGNATIUS: So, Bob Jernaki is asking, is the stack of books on your right your reading list for the week?

ANDREW MCAFEE: So, these are from all over the place. But there was a stack of books that I kept referring to when I was writing The Geek Way. And they were not business books. I’m sorry to admit this as a business book writer. They were books from this relatively new field called “cultural evolution,” which gets at this fundamental question, why are we the only species on the planet that builds spaceships?

Nothing else is even close. We’re really the only ones out there. The octopuses are not going to do it. The ants, the bees, the chimpanzees are not going to do it. Why are we humans, the only spaceship-building species on the planet? And this field of cultural evolution, to me, has come up with the best answer to that question.

Which is, we are the only species that cooperates intensely with large numbers of people that we’re not related to. And we are the species that learns the quickest, that improves its tool kit, its technologies, its cultures most rapidly over time. Now, you can take that. And man, you can put that to work in a company.

A company is a large group of mostly unrelated people. And the goal of a company is to improve its culture, its artifacts, its technologies, its practices over time. So the goal of a company is to practice very rapid cultural evolution. Now that we a bit about how cultural evolution happens, we can put those insights to work.

And I think there’s this massive unexplored opportunity to take the insights from this field and put them to work inside the company. I think it’s so massive because I haven’t heard anybody talk using cultural evolution’s terms inside even very geeky companies. This is very, very new stuff. And I think The Geek Way, I think my book is the first applied business book of cultural evolution.

ADI IGNATIUS: I think I just figured something out. You’re a total geek.

ANDREW MCAFEE: Adi, we’ve been working together for years. It took you this long to realize this? But the thing that I got obsessed with was in my career, I’ve spent a lot of time in the– I hate these labels– the old economy and the new economy, lots of industrial-era incumbents and then a lot of companies clustered in the tech space, clustered on the West Coast.

And for my whole career, I have just been trying to pattern match and figure out what the real what the deep differences are between the two. Is it the foosball tables? Is it the hoodies? Is it bring your dog to work? No, obviously not. Where the action is in the economy, where the excitement is in the economy, what are they doing differently?

And The Geek Way contains my answers to that kind of career-long, geeky, head-scratching question.

ADI IGNATIUS: So, let’s get practical now for our viewers and HBR, I hope, stands for practical, useful, suggestions and inspiration. So, for our viewers who aren’t in classically geeky, say, startup culture or something, how can they apply the approaches that you’re championing at their own companies?

ANDREW MCAFEE: Here are a few things you can start doing tomorrow that are extremely geeky practices. And I think they will get some traction. When you’re in charge of your group or you’re a team member or you’re leading a team, if you say things like, that’s a good point.

I hadn’t thought of that, let’s go that way or I was wrong about, that that’s really good to know. You have just demonstrated openness and vulnerability instead of classic defensiveness. Now, that’s hard to do. We human beings are inherently defensive people.

We don’t like being shown to be wrong in public. It’s deeply uncomfortable. But if you model that behavior, it will start to spread. And I’ve seen geek leaders do that over and over. You can start to push decisions and responsibility down to a place that makes you uncomfortable and to get out of the, let me just run that by me first or, make sure I’m included on that– to try to get rid of the hard and soft bureaucracy that gets in the way.

I was talking to Sebastian Thrun, who’s an alpha geek and all kinds of things. And he said, one of the things I try to get my teams to do is to stop so much communicating. And he had this great image. He said, a team works on something. And then, they kind of run it up the flagpole.

And he said, the really natural tendency is for the people at every layer of the org chart to add something to that because they want to be part of the solution. They want to be part of this winning idea. And he said, by the time that idea gets back down to the originating team, it’s kind of unrecognizable.

Get out of that business. Again, this is uncomfortable stuff to do. But it’s a big step toward the Geek Way. And then, finally, you can start to say, well how are we going to make this decision? Can we agree on what evidence we’re going to look at to make this decision?

As opposed to saying, well, I’m the boss, I got it, or I got it right last time, so you should listen to me this time. All these other ways, we have to make decisions– credentials, hierarchy, charisma, excellent PowerPoint, all these things. Get out of that business and start asking for the consensus on how are we going to settle this argument, what evidence are we going to look at?

These are all super geeky practices you can start doing tomorrow.

ADI IGNATIUS: Yeah, that’s great. I should have mentioned before, when you were in praise of Satya Nadella so he was our guest on this show. And if you want to see a really good interview that I did with Satya Nadella, go to YouTube, The New World of Work, HBR interview with Satya Nadella.

ANDREW MCAFEE: Just go listen to Nadella whenever you can. He’s got this wonderful, cheerful demeanor. He’s always got a smile on his face. And the amount of knowledge that he laid on me in one interview was fantastic. You see from the book, Adi, I had this amazing experience of getting to interview a lot of my favorite alpha geeks. And I learned a ton from them. It’s the kind of thing that makes this geek very happy. So, they’re in the book. And I thank them.

ADI IGNATIUS: So, here’s another audience question. This is Laurie from North Carolina. And this is another very practical kind of question. How can organizations get leaders to unlearn the idea– who think that failure is bad? How do you–

ANDREW MCAFEE: I see we’re just about out of time.

ADI IGNATIUS: Nice try.

ANDREW MCAFEE: This is a super hard question. This is a super hard question. And I fall back on something that I learned from Clay Christensen– Adi, you know, the late, great scholar of management and organizations. One of the things Clay taught me is that managers are voracious consumers of theory.

And he said, don’t be afraid to tell them why this needs to change, what the principle, what the framework is. And he said, if you want to get people to change, there’s a kind of a tripod. There are three things you have to do over and over again until you’re absolutely exhausted.

He said, first of all, tell them a vivid story. We humans respond to narratives. Second of all, give them some evidence. Give them some numbers to show that it works. And then, third, give them a theory explain. Why it works. And you’ve just got to go through all three of those legs.

Why can’t we make decisions this way? I’m a pretty smart person. I reached this place on the org chart because of my excellent judgment. What do you mean, we should be relying a lot less on my judgment? Again, three-part answer to that question, keep iterating on it. It is not an easy process.

I think a lot of companies who get interested in what Silicon Valley does differently or might want to embrace the Geek Way are going to find it hard going because a lot of it is unnatural and uncomfortable. Challenging your boss in a meeting in most circumstances is uncomfortable until it becomes a norm, until it becomes what people around you expect.

ADI IGNATIUS: All right, Andy. We’ve run a little bit long, so we’re going to cut you off here. I could talk all day with you about all these topics. And our audience is clearly into it and engaged. So, thank you very much for being on the show.

ANDREW MCAFEE: Adi, always a pleasure. Thank you for having me.

HANNAH BATES: That was Andy McAfee, a principal research scientist at the MIT Sloan School of Management, in conversation with HBR editor in chief Adi Ignatius. He’s the author of the book, The Geek Way: The Radical Mindset that Drives Extraordinary Results .

We’ll be back next Wednesday with another hand-picked conversation about business strategy from Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review.

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