Startup Path: Measurable & Repeatable
By Danny Holtschke from StartupGeist
In a 2014 podcast interview with Tim Ferriss, Marc Goodman, futurist for the FBI, said that scientists are decoding the DNA of humans five times faster than Moore’s law progresses
Simply speaking: Moore’s law means that chip power (CPU) doubles every 18 to 24 months.
Marc points to The Human Genome Project (HGP) and mentions that genetic blueprints could provide compromising information. He goes on to say, that it could build the basis for the creation of personalized bioweapons, that could take down a president and leave no trace.
That’s scary! This is the impact of technology growing exponentially. Exponential growth of technology is one of the reasons why startups have risen. That’s scary! This is the impact of technology growing exponentially. Exponential growth of technology is one of the reasons why startups have risen.
Decoding humans DNA is just one of many examples of rapidly progressing technologies. And again — Startups are working on that: 23andme, deCODEme andNavigenics (and as we learned from Marc, terrorists too…)
Similar to decoding the DNA of humans, there are startups that decode the DNA of innovation. Hence, they focus on startups.
Sounds hilarious? It’s true.
Welcome to the Startup Genome Project.
— P.S.: You are reading part one of a three-part series about The Startup Genome Project — an initiative carried out between 2010 and 2012. In this post, I am mainly referring to the first Startup Genome Report, and summarizing the findings for you. Needless to say, I do recommend you to download a free copy of the report, and study it yourself.
- The Startup Path: Measurable & Repeatable
- Startup Failure: Why 75% of all startups fail
- Startup Success: What makes only a FEW startups successful
80/20 Summary
Introducing the Startup Genome Project
The Startup Genome project, led by Bjoern Lasse Herrmann and Max Marmer (and supported by many other great minds, like Ron Berman, Ertan Dogrultan) identifies successful and less successful startups.
They provide benchmarks and give recommendations to startup founders — what to do and what to be aware of. The goal is to increase the success rate of startups (remember: 75% fail).
Based on Steve Blank’s customer development process consisting of 4 distinct stages,The Startup Genome Report is quantitatively able to assess each stage a startup moves through. It’s based on data from 3200+ web startups and 50+ qualitative interviews. A great framework for understanding why startups succeed!
Bjoern and Max were able to reveal that:
- Startups evolve through discrete stages of development called Marmer Stages. Each stage can be measured with specific milestones and thresholds.
- There are different types of startups. Each startup type evolves through the developmental stages differently. Simply spoken: A B2B startup takes more time to reach product-market fit than a B2C startup.
- Learning is a fundamental unit of progress for startups. Learning from best practices and the ability to listen to customers feedback and act on it increase chances of startup success.
Even though I summarized their findings here, I highly recommend checking out the reports in their entirety:
- The Startup Genome Report: A New Framework for Understanding Why Startups Succeed.
- Premature scaling: The Number Reason for Startup Failure.
- The 2012 Startup Ecosystem Report
— Disclaimer: I was part of the last report as the project lead and co-author.
Startup path: Discrete quantifiable stages
The startup lifecycle is made of 6 developmental stages.
The report covers the first four stages and doesn’t assess the last two stages: profit maximization and renewal/exit. This is why I only focus on the first four.
- Discovery
- Validation
- Efficiency
- Scale
- Profit Maximization
- Renewal/Exit
Moving through these stages generally is a matter of years. On average, it takes 7 years on average for a ‘Unicorn startup’ — a company with a billion dollar valuation — to reach a ‘liquidity event’ (an exit or IPO).
First stage: Discovery
Purpose: Startups are focused on validating whether they are solving a meaningful problem and whether anybody would hypothetically be interested in their solution.
Events: Founding team is formed, many customer interviews are conducted, value proposition is found, minimally viable products are created, team joins an accelerator or incubator, friends and family financing round, first mentors & advisors come on board.
Time: 5–7 months
Second stage: Validation
Purpose: Startups are looking to get early validation, that people are interested in their product, through the exchange of money or attention.
Events: Refinement of core features, initial user growth, metrics and analytics implementation, seed funding, first key hires, pivots (if necessary), first paying customers, product/market fit.
Time: 3–5 months
Third Stage: Efficiency
Purpose: Startups refine their business model and improve the efficiency of their customer acquisition process (CLT > CAC).
Events: Value proposition refined, user experience overhauled, conversion funnel optimized, viral growth achieved, repeatable sales process and/or scalable customer acquisition channels found.
Time: 5–6 months
Fourth Stage: Scale
Purpose: Startups step on the gas pedal and try to drive growth very aggressively.
Events: Large A Round, massive customer acquisition, back-end scalability improvements, first executive hires, process implementation, establishment of departments.
Time: 7–9 months
As startups move through these developmental stages, different challenges are faced, team size is increased, funding is raised, and user base grows.
Moreover, for each stage startup founders develop a unique competitive advantage for their startup. The following table taken from the report (p.7) gives you an overview in numbers:
Please note: These numbers are moving benchmarks — they are not targets! Moreover, Startup Genome’s dataset is based on startups data from the years 2010 to 2012.
Examples of other ‘non-quantifiable’ models
Startup Genome stages are just one of many models trying to describe startup progress in stages.
It’s, however, the only model that quantitatively assesses stages/phases startups move through. That’s why I prefer it over other models. One of them comes from Ash Maurya, author of Running Lean, or David Cummings’ four stages of a B2B startup. Both are experience and intuition based.
#1: ‘Running Lean’ three stages model from Ash Maurya
According to Ash, there are three stages:
- Stage — Problem/Solution Fit: “Do I have a problem worth solving?”
- Stage — Product/Market Fit: “Have I built something that people really want?”
- Stage — Scale: “How do I accelerate growth?”
#2: Four stages model from David Cumming
David Cummings, one of StartupGeist startup experts, outlines four stages of a B2B startup that are applicable:
- Stage 1 — Search for Product/Market Fit (1–2 years)
- Stage 2 — Build a Repeatable Customer Acquisition Process (1–2 years)
- Stage 3 — Maximize Growth (indefinite)
- Stage 4 — Maximize Profitability (no longer a startup)
Wrong focus? Are we missing an important step?
Not surprisingly, a startup isn’t a startup anymore as soon as it loses growth momentum and turns its focus to maximizing profits. This is in line with Paul Graham’s startup definition (read: What is a startup?).
Concluding, startups go through a series of steps before becoming a large company.
However, I missed one stage before the ‘discovery’ stage that I think is extremely important.
That is:
— MINDSET.
The stage where a novice acquires first knowledge and starts smaller side projects to get into entrepreneurship — in the broadest sense.
Nobody has covered how startup founders prepare (consciously or unconsciously) to discover a problem worth solving.
I think it is an extremely underestimated and often forgotten field.
StartupGeist helps startup founders, not only to successfully discover a problem and validate a viable solution but also to outline tactics to mentally prepare for starting a startup.
I don’t focus on the startup (see Steve Blank) or the product it builds (see Max Marmer). At StartupGeist the focus is on YOU as a digital entrepreneur or startup founder. My focus is your personality — the strongest indicator of success.
I strongly believe that YOU are the single most important key of every startup journey.
The StartupGeist journey
I think there are five phases you move through from student to startup founder. The image below doesn’t cover the inspiration stage because most of us are at the beginning of the journey. Let’s focus on the start and prepare.
- Stage 1 — Mindset: Prepare for the rollercoaster
- Stage 2 — Idea: Discover a problem worth solving
- Stage 3 — Startup: Validate if you have built something people want
- Stage 4 — Scale: Build a repeatable user/customer acquisition process
- Stage 5 — Inspiration: Act as role model and inspire young folks to imitate you
The holy startup grail: Product/market fit (P/M-Fit)
The #1 company-killer is lack of market. — Marc Andreessen, Serial Startup Founder and Venture Capitalist
The number one goal for any startup is to reach product/market fit.
I think this topic alone is extremely relevant, and so, I have covered it in more detail here.
If a startup successfully moves through the first two stages, it will reach product-market fit, commonly referred to be the holy grail of startups. Every startup wants to reach it, but only a few do.
There are many different best practices to reach product/market fit. Every successful startup founder has failed, learned, failed again and learned to ultimately succeed.
If you make the same mistake twice, you haven’t learned.
Successful startup founders never fail twice on the same issue, but have failed many times on different issues. And when they do, they learn and prevent it from happening again. That drive to learn and succeed — which comes from purpose and passion — is one of the most underrated skills in startup land.
Startup success or your minimal chances to reach P/M-Fit
Startup success isn’t a linear path. Sometimes it requires starting over several times.
The very first company I started failed with a great bang. The second one failed a little bit less, but still failed. The third one, you know, proper failed, but it was kind of okay. I recovered quickly. Number four almost didn’t fail. It still didn’t really feel great, but it did okay. Number five was PayPal.
— Max Levchin, former CTO of PayPal
Note: Max Rafael Levchin (born July 11, 1975) is a Ukrainian-born American computer scientist and internet entrepreneur widely known as one of the co-founders (along with Peter Thiel and Elon Musk) of PayPal where he served as the former chief technology officer. PayPal Inc. went public in February 2002 and was subsequently acquired by eBay.
Success = learning
Max Levchin proved that startup success is essentially based upon learning, as well as many other successful startup founders:
Hiten Shah, Co-Founder at KISSmetrics:
- Issue: “We wasted $1,000,000 on a company that never launched.”
- Learning: “We have now learned to spend smart, optimize for learning and focus on customer delight.”
Robin Chase, Co-Founder of Zipcar
- Issue: “We built the website first and asked our customers about it later.”
- Learning: “Get to your customers as fast as possible & learn from them to build your product.”
Rand Fishkin — CEO of Moz and Co-Founder of Inbound.org
- Issue: “One of the biggest mistakes we’ve made at Moz was to build “big bang” projects.”
- Learning: “Don’t be like us — use agile development, have lots of visibility into progress, and keep your team accountable to each other.”
Dharmesh Shah — Co-Founder and CTO of HubSpot
- Issue: “I made the biggest mistake of being a “parallel entrepreneur”. Trying to head up two different startups at the same time.”
- Solution: “So, my advice: Don’t do what I did. Don’t ever, ever, ever try to ride two horses at the same time.”
— You see that even the most successful startup founders fail.
Luckily for them, they failed less often than they succeeded with each step along the long startup journey. Otherwise, they wouldn’t have been successful.
Sometimes it’s with their first startup, sometimes it takes a few startups to truly succeed.
Their drive to learn and succeed unites them. They all start with a single step.
Everyone fails. Accept it.
The interesting question, however, is how quickly do you realize that a project and your strategy are failing and how quickly do you change direction. Startups are inherently designed to fail fast. As long as you consider failing as learning, improve and never do mistakes twice, your odds of startup success significantly increases.
Paul Graham says that you can’t know if you will be a successful startup founder until you try. No one can tell if you will be succeeding. “You cannot tell if you are ready to become a founder because starting a company will really change you. The problems you will face will be completely different from previous challenges in your life.” If you ask yourself if this is how it really is, check out my article on this topic!
Everyone who can face up to a decision making can learn to be an entrepreneur and to behave entrepreneurial. Entrepreneurship, then, is a behavior rather than a personality trait.
— Peter Drucker
Great news for you: you can LEARN these principles.
They are neither born (DNA), nor nurtured (parents). Entrepreneurship can be taught and learned and so can start a startup.
There are many things you can do before starting a startup that will increase your chances of success. Depending on where you are in life, it’s different things. But I believe you can prepare for the journey ahead tremendously well, to ultimately increase the odds for your success.
My mission is to help more students become Startup Founders.
That’s the whole purpose of StartupGeist — to successfully help you start a startup. I provide help in mastering mindset, ideation, problem discovery, and solution validation.
Are you ready?
Share your ❤ below — and respond with your thoughts.
I am looking forward to hearing from you.
I am Danny and started StartupGeist to help students and recent graduates build a business — and have a good life. Why? To be free, financially independent and healthy. How? Build a growth mindset and deliberately practice skills that turn your ideas into something bigger.
Originally published at startupgeist.com on January 19, 2016.
