Starting a business: a social venture?
Prof. Dr. Christine Volkmann, Chair of Entrepreneurship at the University of Wuppertal's Schumpeter School of Business and Economics, talks about the rise of the Gucci family business and an extensive support project for female founders in the 21st century.
In 1921, master saddler Guccio Gucci founded a small leather workshop in Florence that was to develop into a global corporation. Are founders actually more willing to take risks than other people?
Volkmann: In the past, the risk attitudes of founders in relation to non-founders have often been examined by economists. The question of the risk propensity of founders is complex and has not yet been answered unambiguously in entrepreneurship research. In society, start-ups are perceived as a risk, so that founders are often considered to be more risk-averse than other people. However, different studies show that it cannot be clearly proven that founders are more risk-averse. In this sense, entrepreneurship research has examined other trait dimensions, such as courage, willingness to compete, and self-confidence and self-efficacy. According to this, courage, for example, is an essential aspect of a start-up. Guccio Gucci had the courage to implement his own idea. However, he did not do so lightly, but rather in a planned manner, based on in-depth observation of the environment and the market. For he observed the consumption habits of the upper class in London for several years before opening his leather goods store in 1921. From his observations, he knew that he had to manufacture products of the highest quality in order to meet the buying interest of the wealthy merchants and, at the same time, to address a gap in the market.
From the scarcity of resources in post-war Europe, Gucci first developed a women's handbag with a bamboo handle in 1947, called the Bamboo Bag. He integrated inexpensive natural material into the luxury world in this bag. In the 1950s and 60s, the golden age of the international jet set, countless celebrities wore this handbag, including Ingrid Bergman, and Vanessa Redgrave. How innovative do founders have to be today in order to adapt to the ever-changing market?
Volkmann: The mentioned Bamboo Bag is a good example of how entrepreneurs "recognize entrepreneurial opportunities" and use them to create additional value. An entrepreneurial opportunity is characterized by the fact that its value is perceived differently by different market participants. Guccio Gucci recognized that despite their low price, the materials were perceived as high quality and exotic by customers, who were therefore willing to pay a higher price. The importance of innovation for companies has not changed since the 1950s and is strongly linked to important success factors such as sales and profits.
Ever shorter product life cycles, triggered by ever new customer needs and trends, represent an opportunity to implement new business ideas on the one hand. On the other hand, however, they also imply that companies must innovate ever faster, and product development processes must be greatly shortened. This can be achieved by evaluating customer needs, creating prototypes and testing them in the early stages of product development in order to counteract time-consuming undesirable developments. This early adaptation of product development to customer needs ensures product-market fit. This contributes significantly to the scalability of a business idea. In order to ensure innovative strength and to adapt to an ever-changing market in the long term, the focus on core competencies in the founding team also plays a central role. Thus, organizing within the team or outsourcing tasks is a core element to be able to adapt as a company to the implementation of the idea and the market. The Gucci company did this by Guccio Gucci taking his sons into the company, thus distributing competencies and allowing the idea of the famous Bamboo Bag to emerge.
It was not until 1960 that the company's symbol, still known today, two stirrups connected together or the intertwined G's for Guccio Gucci, was created. How important is the right marketing strategy for a start-up company?
Volkmann: The success of a start-up depends, among other things, on its marketing strategy and is therefore of fundamental importance. For several years now, and not just since COVID-19, digital marketing strategies have been important in most industries, including the luxury consumer goods market. Positioning in the market through a detailed market analysis in advance and the identification of the target group is elementary for the long-term acceptance of the product or service by the customer. The unique value proposition and the benefits for the customer should be clearly identified. This is necessary to differentiate from competitors. The elaboration of the positioning of the start-up, for example with quality or cost leadership, and the analysis of which competitors are already present in the industry are essential.
Gucci defines quality leadership for itself with the help of emotional stories that are stored in customers' memories. This positioning is important in the luxury consumer goods market. The use of holistic brand visibility and the integration of the brand story defines the value of the brand for customers. Gucci clearly lets people know what values the brand represents and what customer group is being targeted. Nowadays, online marketing of the luxury brand is playing an increasingly important role. The company works with testimonials, people who are usually known to the target group and whose appearance increases the credibility of the advertising message. Social media channels in particular are used for communication. For example, the advertising message is conveyed by influencers or celebrities with whom customers can identify more closely, thus ensuring the authenticity of the brand positioning for customers. Instrumentalizing collaboration with influencers, holistic marketing strategy and market identification are important factors for startups to promote awareness of new products and services. Startups can benefit from free social media activities at the beginning of the launch and choose platforms that have a large and active audience. Channels that already have a large reach can be approached to promote the product or service in question. The important thing here is that the start-up stays true to its values and communication strategy. Consistent wording, corporate identity, and cooperation with channels that match the start-up's authenticity must be taken into account. In addition, start-ups should emphasize the innovation factor of the product or service and use the first-mover status in communication.
Furthermore, it is possible to participate in networking events and trade fairs in order to make new contacts and increase brand awareness at the same time. In the online area, targeted search engine optimization (SEO) can be used to classify the start-up as valuable and, with the help of the keywords searched for by customers, rank it higher in Google, thus increasing the start-up's visibility.
As a result of ownership disputes, 50% of the business, which was originally run as a family business, was sold to the US-Arab investment company "Investcorp International" from Bahrain in 1998. There are still family-run companies in Wuppertal, too. What are their advantages?Volkmann: Family businesses account for more than 90% of all companies in Germany. This illustrates the high economic importance of family businesses. The advantage of family businesses lies in their long-term strategic orientation. This is due, among other things, to the importance of non-financial success factors, the so-called "socioemotional wealth". Examples include employee satisfaction, reputation, identity, the ability to exert influence on the company, and the perpetuation of the family dynasty. In the long term, these factors also have an impact on the achievement of financial performance indicators. An expression of this orientation is, for example, the long-term employment of employees. A high level of employee loyalty also means high social capital and high workforce productivity. However, family businesses enjoy trust not only in the circles of their workforce, but also in the perception of other reference groups (stakeholders). One reason for this is that family businesses make less risky decisions than large corporations. This enables stable returns and growth. Another advantage is the often high equity ratio, which is considered an indication of long-term robustness in the face of crises and market fluctuations.The success of family businesses in Wuppertal can be illustrated, for example, by the Jackstädt family from Wuppertal. 100 years ago, Wilhelm Jackstädt founded the Jackstädt fine paper wholesaler, which was developed into a global corporation by his son Werner Jackstädt. Today, the positive impact of the Jackstädt family is marked by the work of the Jackstädt Foundation and the Jackstädt Center for Entrepreneurship and Innovation Research. The Gucci range, which now includes leather goods, fashion, fragrances, eyewear, jewelry and watches, is not only sold in the company's own stores worldwide but also in Gucci spaces in department stores. How do companies generate new target groups and markets?Volkmann: Following a textbook approach, companies generally develop new target groups and markets on the basis of systematic market and competition analyses. These serve to identify trends and opportunities in the company's target market segment. Based on this, new business models can be developed with a view to the customer groups to be addressed or existing products can be adapted to changed market conditions. In addition, the comparison with competitors enables the observation of the reaction of customer groups to new products or services. These observations can be used for the own market entry. The individual case must always be considered. For example, it makes a difference whether it is a start-up that is newly entering the market or a corporation (such as Gucci) with an internationally known brand name. In addition, the industry is also a relevant factor. In the fashion or luxury goods industry, for example, once a brand has been successfully established on the market, a successive expansion of the product range across other product categories is the logical strategy with the help of this branding. Typical products in these sectors include fragrances and eyewear. Gucci's range of products and services primarily appeals to women. When it comes to setting up their own businesses, women are still very hesitant. At the end of 2020, the ministry provided around 2 million euros in funding for the "Women Entrepreneurs in Science" project that you initiated. This funding is to be used to set up a NRW-wide network for female founders, women interested in starting a business, mentors and supporters. What measures do you use to encourage women to start up their own businesses?Volkmann: Female founders are still underrepresented in Germany and in NRW. In 2020, the proportion of female founders was around 30%. In the area of fast-growing, innovative start-ups, the figure was as low as 15%. The project, which is funded as part of the Start-up Center.NRW initiative of the state of North Rhine-Westphalia (NRW), addresses female founders from NRW universities (students, employees and graduates) with the aim of sensitizing potential female founders to business start-ups and supporting them in their start-up. The project Women Entrepreneurs in Science establishes a NRW-wide university network for women, which creates suitable role models and provides the necessary attention and support - before, during and after the start-up. The University of Wuppertal acts as initiator of the network and as organizer of various NRW-wide event formats. The expertise of the project team is supported by cooperation partners such as the bga, FRAUEN unternehmen and fe:male Innovation Hub. The following measures will be developed and established throughout North Rhine-Westphalia within the 4-year funding period with the support of the Ministry for Economic Affairs, Innovation, Digitalization and Energy of the State of North Rhine-Westphalia in the amount of approximately 2 million euros:
- At Women Entrepreneurs in Science Circles, successful female founders from the respective region report on their founding experiences. In subsequent discussion rounds, women interested in founding a company have the opportunity to exchange ideas with female founders and receive recommendations for a successful start-up process. The aim is to establish close female role models.
- Female founders are accompanied through an incubator programm on their way from the first idea to a prototype and finally to the start-up. Each team is assigned a mentor who provides professional and personal support based on their own expertise.
- In addition, the Unversity of Wuppertal invites teams of female founders and mixed teams from NRW universities to the "Women Entrepreneurs in Science Summit" once a year in order to pitch the female founders' ideas to an expert audience. This provides access to investors and increases the visibility of female founders in NRW.
During these events, women interested in founding a company can exchange ideas with other founders, role models, mentors and investors, and can present themselves, network and increase their visibility during speed dating or workshops, for example. The Women Entrepreneurs in Science Award also offers the opportunity to present your own idea.
Uwe Blass (Interview on January 16, 2021)
Prof. Dr. Christine K. Volkmann has held the Chair of Entrepreneurship and Economic Development at the Schumpeter School of Business and Economics at the University of Wuppertal since 2008. Since 2010, she has held the UNESCO Chair for Entrepreneurship and Intercultural Management at BUW.