Great insights into startup success after IdeaLab founder, Bill Gross, analyzes the differentiating factors between startup failure and success.
If the startup organization is so great, then why do so many fail? — Bill Gross
Many of us yearn to understand what makes a startup succeed.
Is it the execution?
Is it the funding?
Is it the team?
Is it the talent?
Is it the plan or business model?
Is it luck?
Many of us believe that the idea is everything — that the idea is the motivational engine that allows your business to speed forward in top gear.
Many of us even believe that funding may be the most important aspect, that only if you had enough money and time to be allowed to build everything you want to build and hire great talent is what would ultimately be the bedrock foundation of a startup’s success.
While all of the above are of great importance and do contribute to the successful growth of a startup in a plethora of ways, none of those things serve to be the biggest contributing factor of startup success.
Prolific investor, Bill Gross — founder of Idea Lab and starter of more than 125 companies (wow) — conducted his own study of what made a startup successful by looking at the 5 essential elements of a startup and analyzing the impact each element had on successful and failed startups both within Idea Lab and outside of it.
The 5 Elements of a Startup
In conducting his study he honed his focus on these 5 metrics:
- Idea: How novel or differentiable is it? Is there any unique truth in the idea? Are there “competitive moats” you can build around it?
- Team/Execution: How effective or efficient was the team? How adaptable were they?
- Business Model: Was there a clear path to generating customer revenues?
- Funding: How much money did they raise based on initial funding, follow-up, & growth?
- Timing: How early or late was the execution of the idea relevant to the time it was pursued?
He took these metrics and placed a value (1–10) on each of them based on what he found contributed most to the success of the startup whilst not being present in the failures.
What He Found Matters Most In Startup Success
**Important Note: the percentages below don’t add up to 100 because they aren’t supposed to. They are the ratios between the values he assigned that accounted for the difference between the contributing factors of success and failure of startups in his study.**
After compiling all of his data, he found that timing accounted for 42% of startup success relative to failures.
Team/Execution came out at 32%.
Idea “Truth” Outlier came out at 28%.
Business Model came out at 24%.
Funding came out at 14%.
Why Funding Came In Last Place
You don’t need funding to build out a successful company especially if you’re idea and product are powerful enough. People will be drawn to what you make if it provides enough value.
Funding will never outweigh the drawbacks of a bad idea or poor execution.
I know this to be true because I personally know many startup founders who have succeeded and sustained themselves for long periods of time without having received a cent of funding themselves. It can be done.
Why Business Model Came In 4th
Gross says that although having a business model is important, it isn’t necessary to have when first starting. A business model can always be something that you can add on later with fundamental customer demand.
A great example is Twitter. Twitter didn’t start with building out a foreseeable business model that would generate revenue for their company. All of that came later, once they had already grown their audience and built out a solid foundation for their platform. It was at that point that they could strategically monetize their platform based on their users’ interests.
Why Ideas Came In 3rd
I’m sure we all know the importance of an idea. The idea is the focal point to which the entire platform is built on top off. It provides direction and purpose to the entrepreneurial pursuit.
Gross states that he used to believe the idea was the most important factor, but that the reason it lies in 3rd is that the idea is ever-evolving and constantly morphs over time due to market volatility and receptiveness.
He uses a hilarious quote by Mike Tyson to drill this idea in:
“Everyone has a plan until they get punched in the face.”
In business, this roughly translates to: everyone has an idea of where they want to take their business until the market hits them like a pile of bricks and wakes them up to the notion that they must pivot their direction completely to match the market’s needs.
Why Team/Execution Came In 2nd
The team is where all the magic happens. Gross highlights that it is the team that listens carefully to the market and intentionally reacts to the market by making subtle adjustments in both its product and trajectory. It is truly where all productivity and progress lies.
A good team doesn’t necessarily mean that the individuals making up the team are necessarily the most talented, but instead means that they work very well together. Culture and compatibility among teammates can be built and fostered over time. A good team truly depends on the combination of leadership, communication, compatibility, and trust.
We see this in some of the world’s greatest sports teams. They could be a combination of some of the best athletes in the world, but if they don’t communicate well then they likely won’t perform as well. But if you take a team like the Oakland Athletics in their 2002 Season as conveyed in Moneyball that had the longest win-streak in the history of baseball, a team filled with underdogs that worked underneath the strength of a powerful system and teamwork, then a team can accomplish fantastic things — but that by no means says that you will win the world series.
Why Timing Is The Most Important Factor For Startup Success
Gross reflects on past ideas that have failed but were excellently executed and notes that the reason they failed was due to the fact that the market just wasn’t ready for them yet.
He uses AirBnB as an example of a company that was perfectly timed and reaped the benefits of doing so. Yes, Airbnb has an absolutely brilliant business model but there were also many companies exactly like Airbnb in the past that didn’t see the same success that they did. He says that one of the reasons this is is in large thanks to AirBnB coming out right around the time of the 2008 economic housing crisis. Because of the huge recession that the US was in at the time, people were desperate and willing to rent out their rooms or their homes to make a bit of extra money just to get by. This is truly one of the biggest factors why AirBnB was able to get so much traction.
This same trend can be seen with companies like Instagram, Uber, Youtube, and LinkedIn as he notes.
When timing isn’t right and you’re either too early or too late, your startup will potentially be masked by other more relevant ideas that are actually tackling current issues or fulfilling market needs at that given time.
You can’t introduce a solution to a problem if that problem doesn’t exist on a large enough scale or has already been solved in some way in the past. How can you provide value when the world isn’t in need of that added value currently?
What You Should Be Taking With You
Now given all of this information, you need to understand that you must first take a step back from the idea that you intend on pursuing or are pursuing and analyze if what you are creating fits the needs of the market right now.
Is the world really ready to integrate your innovations into their daily life? Will it provide an immense amount of value relevant to what the world is experiencing right now? Is this something that you can see people easily adopting and needing in their lives?
If you’re already flying off the ground and pursuing that idea but you find that it isn’t timed right, then you might either need to adjust your idea to better fit the market needs or you need to adjust the burn-rate so that you last long enough until the market is finally ready for what you actually have.
That’s why virtual reality is taking off right now rather than when it was first pursued years ago in the late-1900s. That’s why electric vehicles are being widely adopted due to the increased awareness of environmental issues and increasing gas prices. That’s why Zoom is completely taking off because they filled a need that was necessary during the shifting workplace dynamic we’re experiencing during the pandemic.
Therefore, stop trying to find funding right away. Stop focusing so much on the business model right away. Stop romanticizing over your idea. All of these things aren’t necessary to kickstart your growth — they either are subject to change or might be of more value later in development.
Really the first thing you should do, is just to ask yourself: is this timed correctly?