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November 2016

It was January 11, 2000 when American online (AOL) bought Time Warner the largest media company in the world.
The new economy, that is the economy based on new technologies and internet sales, was about to win over the Old Economy now considered obsolete, the one based on traditional schemes, on the transformation of raw materials or on the marketing of goods and services through traditional channels. .
In that period the most disparate business models were growing and it was enough to add the suffix “dot-com” to set aside the evaluation schemes of companies based on the analysis of profits, the level of indebtedness, and potential market shares; the new assessments were instead based on the ability to penetrate the internet channel (then practically not considered by the mass of consumers).
The dot-com companies, which earned next to nothing and certainly could not cover the costs, financed their expenses with underwriting and capital increases. Most of the investors had abandoned all prudence, adopting the new investment valuation criteria and aiming for unexpected results only until some time before. In fact, in some cases this actually happened, favoring what a short time later would have turned out to be a speculative bubble. In that period those who tried to warn of the dangers were immediately branded as "ancient" and unable to perceive the epochal change that was taking place.
In October 2003, after the definitive deflation of the speculative bubble, Time Warner canceled AOL from your name. A period of global economic crisis was about to begin that would leave deep scars. While few were celebrating unexpected results, even revising estimates of the number of High Net Worth Individuals (the richest in each country) upwards, most of the dreams of new entrepreneurs seemed to have faded.
Back then, however, no one would have imagined that only after ten years there would have been a wave of new acronyms, websites, apps, business models and quotes. If in 2000 the new economy was driven by the introduction of the internet channel that would have brought supply closer to demand, now startups are assigned the task of innovating. It matters little in which sectors, for which market segment or by exploiting which technology.
What matters is to bring new things to the market. The role assigned to innovative startups for the system is so central that a Register regulated by a specific law was quickly established, measures were introduced to simplify the operations of setting up new companies and to allow them to access the capital market. (crowdfunding, venture capital, etc). In a very short time, a large number of operators appeared on the market ready to offer incubation services and financial assistance to the best startups.
The goal is to create a local “unicorn” that, like Facebook or Twitter, could upset the behavioral habits of citizens from all over the world, reaching mind-boggling prices in a very short time. Today no one knows how it will end and whether the Italian system will actually be able to directly or indirectly produce results in line with the investments and efforts made; although there are many similarities between the current period and the new economy, it would be too simplistic to warn that history should be expected to repeat itself. However, it is necessary to treasure the lessons that come from the experience of the past, remembering that even innovative startups will be forced to repay their accounts in order to move forward through the necessary resources generated independently, through the placement on the market of the product of their business and not resorting to infinite to increases in capital.

The MF-Leanus Observatory, which analyzes all the budgets of the startups regularly registered in the special section of the Business Register, has highlighted not only the actual state of the art of what the sector has produced to date, but above all the profile of startups that survive. Over 6.500 companies, a billion euros in revenues, over 32.000 people involved in various ways in the creation of innovation either as entrepreneurs or aspiring entrepreneurs or as employees. An army of people who certainly cannot be said to lack the good will or the desire to get involved. The numbers seem to be those of the best proclamations but a careful rereading can only stimulate some doubts. Only 232 startups exceed 500.000 euros in revenues, 565 exceed 100.000 euros in revenues.
Only 5 have exceeded the threshold of 5 million euros, remaining however far from the numbers of unicorns both in terms of turnover and capacity to produce income. The MF Leanus study also linked the startup sector with the rest of the business economy, highlighting that the entire turnover of startups is equal to only one third of the turnover of 45 medium-sized enterprises and that the proportion between the turnover of startups and that of Italian companies is equal to 1 in 2000, that existing between the height of Juliet's balcony and Mount Everest.
The same study also shows the meager earnings that new entrepreneurs have to put into account. Considering that the average revenues per person (Entrepreneurs or employees) amount to just over 20.000 Euros and that it takes at least 5 years to start a startup, it would seem that the profile of the successful entrepreneur is much more similar to that of the "Iron men ”Able to run for 100 KM in the desert, than to that of the enterprising kid able to change the world from the basement or garage at home. The numbers therefore lead to reflect on those who have started or are starting an entrepreneurial path without solid foundations; he can be sure that he has invested in the possibility of living a highly formative experience useful for the continuation of his career, but which will hardly cross the line of success, at least equal to that imagined.
So who makes money with startups? Who should feed the dream of short-term success as an alternative to study and apprenticeship? One could think of investors who would have identified a new “Asset Class” in the segment, that is a category of investments alternative to traditional ones which are now not very profitable. Even if the official numbers are not accessible, considering the average gestation times necessary for a startup to consolidate, it is reasonable to imagine that even the category of investors, with some exceptions, could remain dry-mouthed. The same reasoning applies to the Banks, which are also attentive to the segment but without any expectation of a significant return, at least in the short term, neither on investments nor on the loans granted which currently amount to just under € 300 million.

Although all the numbers, experience and common sense push towards a revision of the expectations on the segment both as an economic policy tool and as an alternative to the workplace, fund managers, consultants, service companies, continue to distribute awards, to tell successful cases and announce the winners of prizes for the best idea or for having won a crowdfunding round of a few hundred euros. The one available to professionals is a micro market that is worth around 700 million euros in expenses for various services by startups. A modest value, but certainly sufficient to remunerate the few hundred professionals who most likely manage to obtain a remuneration far higher than that of the startuppers themselves from their service offering activities. The hope is that what happened in the early 2000s will not happen again when the promoters of the new economy had to surrender to the evidence that traditional models could not be overcome with just a few good ideas.
In the case of startups, the hope is that the Italian system will gain thanks to the innovations that will be able to break through and contribute to the development of the country; Italian system that perhaps it would do better to invest in the thousands of companies already started that have already demonstrated that they know how to stay on the market, to produce wealth even in the short term and to be able to guarantee a job and a profession to the thousands of talents that the school system and Italian university is able to produce and, why not, its distribution and commercial capacity to startups that have actually been able to produce innovation and that, to introduce their products on the market, need the brand and the commercial organization of successful businesses.

Startup. Milan Finance Observatory Leanus II edition (2016) from Alessandro Fischetti


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