The Five Reasons Why Startups Succeed, According to a Legendary Investor
Today I was researching the factors of startup success when I came across one of Bill Gross’s TED Talks.
If you don’t know Bill, he’s a legendary investor who’s known for founding PIMCO, the world’s largest bond. Bill managed PIMCO until 2014 before founding a business incubator called IdeaLab, through which he created and invested in hundreds of companies. (You probably know some of them. Citysearch, CarsDirect, Tickets.com, and Picasa are a few of the more popular ones.)
I’d been researching the factors of startup success because I’m a software developer who builds products for a living, and when a founder asks me to build their idea into a product, my team doesn’t just code for them — we invest time and money into researching how we can help them succeed.
According to Bill’s talk, here are the five reasons why startups succeed, in order of least to greatest importance.
5. They Have Funding
“First mover advantage doesn’t go to the company that starts up, it goes to the company that scales up.” — Reid Hoffman, entrepreneur and investor
Surprisingly, having funding is the least important factor of startup success. Think about that next time you’re developing a pitch deck. If you can show that you’re getting traction and your user base is growing fast, finding money will be easy. Most startups stay underfunded either because they don’t show a decent growth rate, or because they deliberately chose to not take investor money.
4. They Have a Business Model
“Be so good they can’t ignore you.” — Steve Martin, comedian
It’s also surprising that having a business model is the second least important factor of startup success. You need to have some form of a business model when you establish your startup, though it’s good to know that it’s fine to change and develop it once you see that your product is wanted and needed by customers. Marketing and sales take precedence.
3. They Have Unique Ideas
“Don’t let people tell you your ideas are stupid.” — Dennis Crowley, entrepreneur
“Ideas are worth nothing.” You’ve probably heard someone say something along those lines before. I actually don’t believe that notion is true. You need to have an idea and a vision to get started. You need to solve people’s problems, you need to have domain knowledge, and you need to come up with a solution that no one has previously come up with before — or, at least, improve on an existing solution.
Like in the fashion world, some ideas are trendier now than others. For example, fifteen years ago, people were approaching me wanting to build social networks. Ten years ago, everyone was building SaaS apps to automate workflows. Five years ago, the blockchain craze began — and everyone and their dog were disrupting their industries with blockchain. Just remember that your idea has to be different, especially if it’s following a trend. It has to be unique to you in one way or another, because you can’t just mimic what other people are doing and expect to succeed.
2. They Execute Their Ideas with the Power of Teamwork
“Execution is everything.” — Chris Sacca, investor
Ideas are great, but everyone has them, and only a few people actually begin working on them. An even smaller percentage of people bring their ideas to life. That’s because execution is hard. We don’t always have a step-by-step guide on how to execute our ideas. Often, execution is an experiment, full of trial and error and failures and roadblocks.
Having a great team can help you execute your ideas effectively. But building a team that can work as a single organism is yet another challenge. Sustaining this team, keeping them motivated to continue, giving them hope and a reason to go to work every day…it’s not always simple or easy.
I’ve seen teams fall apart during their product launch in spite of having worked together for years. I’ve seen teams fall apart a few months after they experienced success because some team members were just in it for the money. But I’ve also seen teams that have worked together for more than a decade and remained strong throughout their time together. This is the type of team you want. A team you can trust. To earn that trust, though, you need to be a good leader and set a positive example to ensure accountability and motivation.
1. They Have Good Timing
“Everybody has a plan until they get punched in the face.” — Mike Tyson, boxer
I thought the main reason that startups succeed had to do with execution. But according to Bill, it’s having good timing. Forty-two percent of the difference between success and failure has to do with launching a product when the market wants it.
Personally, I believe there’s no such thing as a saturated market because you can always find a blue ocean and sell your product to a niche audience. For example, when the PC market became saturated, Apple started selling a different kind of computer and succeeded wildly at it.
A lot of companies launch their products to markets that have no idea about the problem in the first place, which typically ends in disaster. When Microsoft created Zune, they (and other competing companies) spent millions of dollars trying to educate people about why they should switch from using CD players to portable MP3 players. Apple was smart. They understood the concept of having good timing. They started marketing iPods when the market already knew about MP3 players, capitalizing on the efforts of others.
If you’re interested in listening to Bill’s full TED Talk, you can find it here.
Originally published on Medium