Inventions or innovations? (ep23)
INTRO:
This is Chair, a place where we discuss innovations.
Oftentimes inventors dream about creating the next big thing, the next Facebook, Amazon, or Google. But they are just fixing problems that already have proven solutions. In other words, they are reinventing the wheel. While they might have grand ideas with even greater potential, they often go in a totally wrong direction. That is a direct consequence of following their solitary vision for the product, instead of listening to the needs of the final users.
Today our guest is Pavle Krivokuća, Senior Business Developer, Managing Partner & CRO at Impact Hub Belgrade. He is the perfect candidate to talk about which innovations entrepreneurs should focus on. He found himself working with startups since 2014. Pavle has overseen the rise and fall of over 400 different startups.
Pavle: Thank you for having me.
N: In the beginning, I want to start with a personal question: How did you end up in this part of guiding the startups.
P: That’s an interesting one. I’ve been working since, I don’t know, my 12th or 13th year. I was quite active in youth activism at the time. It was in high school. It was by an incident like I was working with different projects and programs for youth and I started developing it then. Because I’m coming from Ivanjica, for those of you who don’t know, a small town in Western Serbia and everybody has raspberries, so everybody’s picking raspberries as a summer job and earning money like that. Then my family doesn’t have raspberries, they’re not particularly fond of it as a way of additional income. And I was thinking: “Okay, well, what can I do?”. So by accident, I started finding myself writing different projects and programs for youth activism and earning money. And I started earning money better than my friends who were picking raspberries for a couple of months. Hmm, there’s something in this. And when I moved to university, I already had like four years of project development experience and I started working as a consultant at a very, I would say, young age at the time. Helping companies and NGOs and big and small systems to apply for different kinds of funds and develop project cycles and the whole thing. And quite, I would say fast, like in a year or two, I was fed up with it. Like the life of a consultant was not one for me.
I’ve seen the corporate lifestyle as well and I was like: “Okay, not my cup of tea. I don’t want to do this for the rest of my life”. And I actually founded my own startup. It was a logical thing to do.
I was studying IT back then and I had a couple of friends from university and let’s do a startup. So we got in the first incubator in the city and we failed of course as all people do with their first startups. But I quite liked the approach and the whole lean kind of way of thinking and the philosophy and the testing and applying what you learn and kind of moving faster to things rather than developing complex projects that nobody’s going to care about in a couple of years when you start to implement it. That’s by accident, how I found myself actually meeting impact hub founders — ICHT Belgrade founders and joined the team before the start. Because I kind of had that experience, working with startups, had a failed startup, did hear and there, a consultancy, and kind of business model, developing a business model behind that. Then I started working with, as a part of impact hub. That kind of just accelerated the whole thing of me living the lean way of thinking and also approaching different problems that we tackle in business life, but also like in your personal life. That’s how I ended up in the whole thing.
N: Before we move to startups, I wanna ask you a question regarding a difference and that’s our subject today here. Difference between innovation and inventions. They exist separately and to what extent do they thrive on each other? I want you to elaborate on that a bit.
P: So I would say there are two perspectives. So by default, people like to have that romantic view of innovation. It’s like: “Oh, we’re going to make the next big thing!”. Whatever the big thing might be. Is it the next Facebook, next Google, or the next telephone or whatever? And people have to create things that are going to make an impact on other people, life, environment, speaking, society speaking, whatever. But the thing is those innovations are so so so rare. It’s super hard to find something completely new and different that somebody hasn’t already thought about it.
N: In a specific moment.
P: Yeah. And if you think about it, it’s kinda logical because if you think there are 7 billion people on the planet currently, and we pretty much have the same hardware. So we have similar minds and capabilities to a certain extent of it, plus and minuses. People already thought of a bunch of different things and they tested it out and saw. And so it’s quite connected to the proper timing.
So if you look like, I don’t know, mobile technology for instance, and everybody has a mobile phone today, but mobile phone technology is 40 years old. So we started in the ’80s, and it started as a geek side project of a bunch of engineers and it went on for 10 years like that before it became a posh thing to have in the ’90s with the Yuppies, they like installing their first mobile phone in the cars and speaking with their brokers or lawyers. Having that big brick in your hand and antenna sticking out of your car. But the mass-market mobile phones came in the 3rd decade of mobile phone technology. So even though the inventor of mobile phone technology had the big innovation, they didn’t have the commercial breakthrough till much later on. So by default, a bunch of things that we call innovations are actually inventions. So like using the existing either technology, or solution, or specific kind of, I would say, physical product in a different way. So if you look at Airbnb, for instance, if you take a look at them, they had that innovation on the level, they approach the same problem in an obviously a bit different manner.
But if you kind of dissect it they didn’t create a completely different platform and a new language for coding it. They used the existing ones. They did build up on existing models.
So you already had people posting space rental and room rentals on Craigslist, Reddit, on different kinds of platforms back in the day offering that. The visitor said, okay, there is this opportunity that we can solve by providing a dedicated place for people to rent out their home, or room, or whatever when they are not there, or if they have it at its space, that’s it. So I would say by definition, it’s not innovation per se, but it did impact a whole bunch of people. And we know how big Airbnb today’s, or Uber, or Facebook, or any different network. People often forget MySpace and all the other social networks before Facebook, because they existed. They just didn’t make the kind of proper formula to become so mass market and so popular and commercially successful so they become today. So by default, I would say that the space for entrepreneurs, the space for innovators is in actually finding that invention space because that can make a drastic difference. Either you’re going to make it or break it down the line. Because for the sake of innovation, you can always innovate, you can always find a new way to make a cup. It will still be a cup. And it’s fine. If it’s giving you any value. If it’s a recyclable cup or a cup made of, I don’t know, coffee beans of, or whatever. But it’s still a cup serving a certain function and then giving some additional value. You need to kind of balance out different aspects of it and understand the market on the other end. So what can actually be made happen in this time and space that we currently face?
N: Let’s apply this analysis to your experience and the experience with the startups that you’ve worked with. It’s more than a 400, right now. Give me some examples that we can use for this analysis.
P: So, a short intro to that is, I would say, it applies to the general. I would say the population of the world, but obviously, people in the Balkans are different, they have like a twist on it. As I said, everybody likes to innovate. So when we get connected to that big idea, everybody’s: “Oh, this my baby, I really want to make it happen”. What we’ve seen, and the short stories I’m going to share, what we’ve seen is that journey of actually people understanding and feeling on their skin. That context of actually finding themselves, working on a specific invention rather than a complex innovation.
So one of my, I would say definitely favourite, and I would say oldest cases that we have since we were working with a founder and he gets up for six years now, and we follow him on and support him on different journeys. So he started in 2015 and the platform was called “Zeleno”. So it was basically the first platform for people to order and buy organic food in Serbia. So they didn’t exist before In that case. You have people trying to sell it on like small Facebook groups or by putting a stand near supermarkets or whatever, trying to offer their food. But for small organic food producers, back in the day, there was no kind of one-stop-shop for them to help to distribute their product. So he built that. He’d built the first e-commerce store for buying organic food in Serbia. So what happened there? He raised some investments, he hit traction. He had, I think at one point 50 weekly users buying, in Belgrade alone, from him. The platform works as you had, I don’t know 20, 30, 40 different organic producers. You pick your products, add them to the cart. They would make a tour on Thursday, collecting all the things and on Friday it will be delivered to your doorstep with everything that you ordered. He figured out a bunch of, along the way, logistical problems with that. With him building a system, he was on, I would say, on a front of the customers’ bad feedback of the specific products. Which are not intentional, but, I had the cheese that I ordered, but the cheese wasn’t properly packed and it actually went bad in the transportation because it was packed poorly. They wouldn’t complain to the producer, but rather to “Zeleno” as a platform. So Nikica along the way, figured that he likes to pivot from that. There were some logistical problems that he just didn’t feel personally invited to solve, or they were too big to solve now because the market was still super young, super small. So what he did, he pivoted from that because he saw a very interesting point, which is kind of ironic. And he was packing all the organic food there in the styrofoam boxes, which is stupid.
N: You’re selling organic is completely non-organic.
P: Completely non-organic. So what he said: “This is super, super crazy, we need something different. Why don’t we offer something different to the market”. And he learned that a bunch of sheep wool, that is being actually produced here, is second or third quality. So it’s not good for your attire or like jumpers or whatever you are building from it but rather it’s usually being thrown away or burned because nobody’s buying that up. So he figured out a way to buy that, wool that is just going away and being wasted away. Wool is amazing thermal material. And he started building a kind of material out of it, like pressed foam that had better thermal properties than the styrofoam. And it was actually cheaper. So he started building wooden boxes with the foam, and then he pivoted from that to the only kind of wool, kind of fillings. And he is now selling to Austrian post. He raised a bunch of investment. He has his manufacturing plant here near Belgrade, and he’s collecting that wasted wool and buying it from the farms and putting it in the end product.
So he shifted from e-commerce in food to logistics supply chain, specifically for kind of sustainable logistics and supply chain here.
He’s learning, he had, I think like four or five different big pivots for different companies along the way testing it out until he found something that really is connecting to the market, but also has a big buyer to it and is connected to some kind of big problem. Because styrofoam has a very limited kind of lifespan. And it’s also kind of super problematic because it’s ended up as microplastics in oceans and yadida yadida. He completely kind of figured out a new way to solve it, but not coming with: “Hey, how can we solve these big logistic issues? And now let’s do it like this!”, but rather from listening to his customers and seeing what’s happening in practice and then finding his niche there, so he can kind of jump there and solve this problem. So that’s one of the stories.
An additional one, again interesting, would be the story of “Sportifico”. Again, completely different, completely different industry, completely different thing. So they started as a local startup building a social network for professional athletes. So different kinds of athletes, football players, basketball players, whatnot. They had quite a nice couple of thousands of users of professional profiles built up there, with all the juicy logistics, interesting for potential coaches for recruiting agents or whatever. And they figure out the bunch of their users quite active on the platform were actually female soccer players, professional female soccer players. They understood that at one point they were gathering a huge chunk of the complete, total global number of female soccer players. And they were wondering why this is happening? Why were they coming in such a big number to our platform? Actually, they figured out that there is no dedicated platform for female football/soccer players to actually come and build their profiles, be their visibility they’re using either regular social media or old channels to kind of build up their profiles. And they did a complete pivot. And now they are pivoting towards building a completely dedicated platform for female soccer players to provide them with the voice and platform to raise awareness of the specific sports and, more importantly, the fairness of the wages or kind of promoting the whole sport to young girls.
And they were able to build nice partnerships with big sporting companies from there and they have the completely big perspective and potential of that market.
Because nobody was doing that at the end, again, they didn’t come from saying: “Oh, let’s be something amazing for female soccer players!” But rather seeing that from practice as a niche, they can kind of tackle and, and go to. The bottom line is to understand the opportunity, but I would say it’s quite important to understand it by practising it daily, as what our customers are telling us, what is the market telling us? And coming back with that feedback to actually build this solution they are looking for. And I would say that’s the biggest kind of switch in the mindset. You’re not building the solution, you’re trying to solve the problem and then build whatever solution you want to be here.
N: It’s not about technology or platform, it’s about solving the problem.
P: Because technology it’s our priority, you can always build it. You can always innovate with the new technology.
N: Especially lately with all the technologies that have been arising.
P: Yeah, but it’s quite hard to kind of find the usable cases for it right away. You need time to kind of let it breathe. And it’s kinda the same story with the blockchain. The technology to build it existed in the theoretical framework, it existed for a couple of decades. But it needed time and it needed the community to stand behind and say, this is an amazing thing to do, let’s do it and test it out together and see what happens. And now it’s becoming a regular part of our lives. It can also, to the point of it being mature enough, but also you find a smart way to use it correctly to solve somebody’s problem properly.
N: So you gave me those two great examples. But I want to ask you from a different perspective because usually, a goal for the young entrepreneurs for innovators can sometimes be to push their invention to merge with some big corporation. What do you think about that? Can you share with me the pros and cons of this?
P: Definitely. I think it’s one way to do it. It’s a natural thing to do, but maybe a step before is debunking the perspective. So if we’re speaking about the startup growth model, you have generally like two, I wouldn’t say opposing, but two approaches you can build your business. You can kind of mainstream your innovation into a kind of being. So first one, it’s a regular business. So in a regular business, what you do is you basically say: “Hey, we have this idea. We are approaching this market and we need an investment for it”. Usually, you need one round of investment to make it happen. And then you’re looking for profitability in like a year and a half — two years tops usually. And then you achieve a certain market and you have a steady, healthy growth rate annually, 10–15%. Not more than that, because you’re either over scaling and then you cannot follow with the quality and you have a completely different set of problems. So that’s a, I would say a regular business model, give or take a couple of factors. The startup model, and then not speaking about people who started up because quite often people say: “Oh, we are a startup because we just started up”. No, it’s not a startup. A startup model is connected. You are solving a specific problem for a specific audience market. And you say there is a big global potential to be served with a relatively small team. Again, a classic example of a startup is Instagram. When it was acquired by Facebook, it had 70 something employees serving 30 something million people on Instagram and they were acquired for some billions of dollars.
Yeah. So that’s, that’s a successful model. The logic behind this was, the startups where we rarely become profitable, but they are serving a specific need for a bunch of people, through our digital platform, app, community, whatever.
And the potential behind that is seen by somebody big, it can be a big corporation. So now, these days, big buyers of startups are Amazon, Google, Facebook, you know, whatever Amazon is buying, I think something like 10 or 20 startups a day, something like that. But the logic there is, you know, of course, you can get acquired and you are building a startup to be bought by somebody big, down the line. What startups usually make as a mistake, they do the acquisition or do the sales of their business concept, IP, whatever too early. And they sell it for a couple of hundred of thousands of euros or tens of thousands of euros early on because they didn’t kind of build-up. But somebody came in and said, oh, this is amazing, we need this, we would like to invest that, and they will take 20%, 30%, 50% of your startup and you become uninvestable in later stages.
And we see those examples on the market. Like people jumping in, they found a big, even corporate investors, they would say: “Yeah, amazing! We love the serviceability for us”. And then when you start approaching different customers, they figure out, oh, you build a perfect solution for one big guy and it’s not relevant. You know at that point, you just build, internally a super nice project that is adding value to a bank or a company. And that’s it. And you’re done there. So usually if you are speaking about acquisitions and the big kind of startup exits it’s down the line, you raised a couple of rounds in investments, you’re serving a relatively big global market and somebody big is going to buy you for big money, you know? And there were examples like that happening here, you know, “MVP” and “GoDaddy” and stuff like that.
So those things happen. But if you look at those startups, they were building quite a big user base. They were building and had really nice traction. They had even hundreds of employees before actually getting bought by somebody big. And that’s, I would say that the startups make the mistake. They jump into making a partner of or selling a piece of their business to a big player early on. And they, by default fade out, they become a really nice and cheaply bought internal project of a company that is, you know, being bought by a couple of hundred of thousands of euros, which is nothing for big players. And they’re yeah, fine. We did some innovation, we added some value and that’s it. And usually, founders don’t see the bigger perspective.
So they need to learn how to play that game of actually building your profile, down the line. So you are buying and building it for somebody big and some big exit, down the line. So whoever it is you say, we are now trying to build a completely different, I don’t know, let’s say social network for sports players or female soccer players. So who’s your buyer, is it Nike or Adidas or, you know, something like that, but down the line, like you’re speaking three, five, seven years timelines. So you’re building from the ground up, the numbers, the indicators, the cases so that somebody big can acquire down the line, but there’s the, I would say the key point there because it’s a natural thing to do as a startup. Otherwise, if you’re not going towards a big exit the option is to go for a small exit, the case that I mentioned, or you can go to the digital business, so it can become a really nice digital business.
It turns a quite nice profit and margins, but then you’re stabilizing. You have a smaller number of clients. You have a limited number of team members. So you’re locking up your margins, you are locking up your market and that’s it, you are not coming or, spreading big to different niches to different markets, whatever is happening there. So yeah, kind of just thinking about, who’s going to be interested in buying that and how can we build it from grounds up in that manner? So it’s buyable, by somebody big down the line, otherwise, you’re just kind of playing by the ear and seeing what happens, which is again a fine strategy. It can be good because quite often, even the biggest kind of business gurus don’t know where the market is going to go or what’s going to happen. But then you need to kind of be checking on your pulse each now and then, and saying, what are we doing and why are we doing that?
And we’ve seen along the years, a number of start-ups actually breaking out, not because only they had bad products or bad market fit. They did have good potential and good growth, but the founders in between themselves, had different why`s or where are we going? And somebody wanted to be sold to a local corporation in six months and be done with it. Somebody wanted to go and drive the big growth in a couple of years. And somebody wanted just to have a nice service digital business, which is making money, making profit and that’s it. And it changed. It changes along the way between the founders. So, the communication, I would say there is key, but also kind of understanding the market’s reality, you know, what’s and how’s and where’s, what can you expect of, because for a startup it’s quite hard to say, oh we’re going to be the next Instagram.
There are tens of thousands of startups each year saying they’re going to be the next Instagram. But don’t be the next Instagram, be the next company that solves a very specific niche problem in a different and quality and a cool way for your users and find the big guy or the big guys, or whatever who have that problem, or whose audience have that problem. So, solve those kinds of problems in a proper way, and then you’ll be able to kind of buy it because like the Instagrams of the world, they’re outdated, it’s a 2010 thing to do. Like then you don’t build a new Instagram in 2021. It’s too late now. Yeah
N: You gave me so many good examples of pivoting. And I like that because we’ve pivoted our talk today from invention and innovations to start-ups. And let’s, let’s finish with this. And I want to ask you regarding your opinion from your experience. You’re like six years in this ecosystem, right? Six, seven years, something like that. What is your perspective, especially for the region Southeast Europe here, where we are now, and we are talking about the ecosystem of course, where we are now and where we are going to be in five or 10 years from now?
P: Yeah. So maybe also, then wrapping up from the first part of the conversation and then just connecting it back to it. So, we have really great engineering talent. That’s a known fact I would say now on the market and people see that people from abroad, investors from abroad, the market is getting traction and potential, and there are more and more investors coming in, looking for a solid team they can build on. The thing is we all collectively need more business development insight and more business development experience to make these kinds of deals. And people don’t know that the engineers who build amazing innovations are not able to transfer it into usable inventions that can be usable, you know, for those buyers, for our customers, for those markets and grow it sustainably.
The thing is like, the ecosystem is gaining traction. There are more and more investors and there is more and more money coming into the market. The trick is not even in the money, but finding the proper money and a proper partner to grow your idea to the next level, with that bigger perspective. And I would say the risk-taking, I would say it’s getting better and better each year. Like more and more people are trying and doing and testing and seeing what happens, what we still lack are those big, I would say successes on the whole market level like things are happening, people had some exits, things are moving, you know, stuff is happening, but we still need some big stories. As you know, Estonia had Skype or whatever, somebody big who is going to break the ice and say, this is a new big success. But, otherwise, then that, I think that the whole ecosystem is getting many opportunities now. And you can actually find a bunch of, you know, people, organizations, VCs, angel investors, stuff like that. To kind of help you grow properly is just a sense of you understanding what you need and navigating through that complex landscape and knowing where you’re going from that point on
N: Pavle. Thank you so much for this conversation today. I enjoyed it a lot. I hope you did too.
P: Thank you for inviting me!
N: And for you out there. If you liked it, subscribe and see you next Thursday. When we talk about some innovations.
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