The ingredients for a successful startup

There are a couple of research reports out today which indicate the impact of a number of different variables on the likely success of a startup.  As with cooking in the kitchen, having the right ingredients doesn’t guarantee success, and equally a good cook can make a great meal out of almost anything, but high quality raw materials undeniably make success more likely both in the kitchen and in the world of startups.

However, in the kitchen it is generally well understood which are the ingredients where quality will make a difference, whereas in startups the relative importance of factors like the age of founders and the balance of the founding team have largely been matters of conjecture and ill-informed debate.  As an aside, in my opinion most business literature suffers from the difficulty of getting high quality data and is over-reliant on anecdote and case study, which is where the startup world has been.  Until now…

First up is a report called the Startup Genome which aims to ‘crack the code of innovation’.  The full report is worth a read, but here are a couple of highlights about the characteristics of successful startups:

  • Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot. [I.e. teams are much better]
  • Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams. [We all new that a mix of technical and business founders is best, but maybe not this much better…]
  • Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
  • Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all. [Interesting to note that few successful entrepreneurs get it right first time and that too many pivots is a clear negative indicator]

And here are a some common mistakes:

  • Founders overestimate the value of IP before product market fit by 255%.
  • Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
  • Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
  • Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.

The message here is clear, assuming the data is right, some founders would do well to reign in their natural bullishness a little (remembering also that founders who learn are more successful).  As I’ve said many times before, the most common way that venture backed startups get into trouble is scaling before the market is ready for them.

And finally, to the second report, which comes in the form of a blog post on Techcrunch from Adeo Rossi, founder of TheFunded.com.  He is reporting on data from the Founder Institute which had a couple of interesting findings:

  • Older age has shown in the data to correlate with more successful entrepreneurs up to the age of 40, after which it has limited or no impact. [I buy this overall, experience helps, but suspect that if the data was cut for truly revolutionary ideas and some of the more innovative market segments younger people might come out better.]
  • Fluid intelligence is a largely genetic trait that measures one’s ability to quickly learn a rule set and apply the learned logic to solve problems. It can also be referred to as abstract thinking
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