Startups: How to pick the winners
Imagine if you could accurately predict whether a startup is going to succeed or fail. You’d be the best investor in the world. People would cry witchcraft. You’d be #0 on the Midas list. Forbes would have to create a new scale to rank you.
There are some variables that you can’t predict — but you’d be surprised how dead simple it is to (fairly accurately) predict success. Midas List, here I come.
A startup’s success is totally dependent on one simple thing: the team’s ability to execute. A startup could have a perfect business plan drafted by a Harvard Business School professor, a management team of former Fortune 500 execs, and a revolutionary idea — but if they can’t execute then it’s a worthless idea that will raise a bunch of cash and fail.
What does execution mean? Simple: the ability to 1) Build a kick-ass product 2) Get customers. If they can do this, they’ll be successful.
So how do you know if a team can execute? (This is the part most people suck at.) There’s no formula for this one. You can look at traction — that’s a good indicator. But if you only look for traction you’re a lazy investor and you’ll miss out on the best deals.
There are a few indicators you can look for right off the bat:
The first indicator is a team’s passion (read: How to make your team 1000x more productive. Literally 1000x). A passionate team will be devoted and fight to succeed. This means they will do everything in their power to execute like crazy. To see if a team has passion, ask them “Why are you doing this?” Read their body language. See if they get excited.
The second indicator is a team’s background. Not to hate on successful corporate guys, but a team of Fortune 500 execs probably won’t be very good at executing. They’re great leaders, they’re good at delegating tasks, and they can run a company of 10,000 people. But a startup doesn’t need generals, it needs soldiers. You’d be better off with four college students who just dropped out to change the way the world pays. If they have any background in the startup world, ask them about it. Ask what they learned and what they are going to do differently. Note — They don’t need to have industry expertise in the market they’re going after. They just need to be smart and have the ability to learn. Their background simply gives you some insight into the way they’re going operate.
The third indicator is a team’s synergy. Think of a startup team as a military platoon. They’re going to fight together. They’re going to live together (basically). They’re going to have good times and bad. At the end of the day, every person needs to have a role. They to work together — they need to have synergy. If soldiers in a platoon are out of sync — if they all interpret a command differently — then they’re going to fail at their mission and people are probably going to die. If a startup team is out of sync — if they’re not aligned on the same goal — they’re going to fail and the startup is going to die. So when looking at a startup, think “If this team was Delta Force, would I trust them to rescue me in a hostage situation?” Notes on this one: Soldiers deserve the highest level of respect. If a startup fails, the founder can go get a job at Google. If a platoon fails, people die. Respect soldiers. A good way to evaluate a team’s synergy is to sit down with the whole team and ask them a few questions. Observe the team dynamic. They should leverage each other — the sales guys shouldn’t do all the talking.
Above all go with your gut. Humans still have primitive instincts. Often times your instincts can tell you all you need to know. If you feel like something is off, it probably is.
I also tell people to look at the opportunity. A great team + a great opportunity = a great success. The thing is, a great team will always find a great opportunity. A great opportunity will never find a shitty team. If the team is great, bet on them
