Startup Success: Why Startups Succeed?

By Danny Holtschke from StartupGeist

What is the biggest reason for startup success?

There isn’t one!

Although we are always looking for this one approach or easy to follow steps that — if we apply them correctly — will lead us to success.

As with most things in life, the right approach to success cannot be broken down. This is also true for why startups succeed.

In this post, I refer to four startup experts and connect their startup advice with Startup Genome findings. It allows you to follow qualified and quantified suggestions to start and successfully build your startup.

Startup experts I refer to are:

1. Paul Graham: The 18 Mistakes that Kill Startups
2. Steve Blank : 9 Deadliest Startup Sins
3. Sam Altman: Startup advice, briefly
4. David Cummings: 7 Entrepreneur Lessons Learned

— P.S.: You are reading part three 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 second Startup Genome report, and summarizing the findings for you. Needless to say, I recommend you to download a free copy of the report and study it yourself.

1. The Startup Path: Measurable & Repeatable
2. Startup Failure: Why 75% of all startups fail
3. Startup Success: What makes only a FEW startups successful

80/20 Summary

— Please note: Startup Genome’s data, the foundation of their analysis was mainly collected in 2010–2012 from startups around the world.A large chunk of this data came from Silicon Valley based startups. In your local startup hub there are different conditions for startups, so that individual metrics, such as funding requirements could be analyzed differently.

Quantifiable Startup Success: Customer

• In the discovery stage, there is little focus on growth. In the validation stage, as the product improves, growth should increase. In the efficiency stage growth flattens but it paves the way for fast growth in the scale stage.
• No startup that scaled prematurely passed the 100,000 user mark.
• Startups that scale properly grow about 20 times faster than startups that scale prematurely.
• 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 100 times and often misinterpret their market as new.
• Founders overestimate the value of IP before Product/Market Fit by 255%.
• Unsuccessful startups are 2.3 times more likely to spend more on customer acquisition.
• Throughout the 4 stages, customer acquisition is overwhelmingly the biggest challenge.

PAUL GRAHAM

1. Having No Specific User in Mind — When designing for other people you have to be empirical.
2. Sacrificing Users to (Supposed) Profit — It is irresponsible not to think about business models. It’s just ten times more irresponsible not to think about the product.

STEVE BLANK

1. Don’t assume you know what the customer wants
2. Don’t fall into the “I know what features to build” flaw

SAM ALTMAN

1. Make something people want.
2. Figure out a way to get your product in front of users. Start manually.
3. Listen to what your users tell you, improve your product, and then listen again.
4. Figure out a way to get users at scale.
5. Obsess about your growth rate, and never stop.

DAVID CUMMINGS

1. Sell “painkillers”. Not vitamins.

Quantifiable Startup Success: Team

• The size of the team excluding the founding team and part-time employees stays relatively constant through the first 3 stages until they start scaling in stage 4.
• Advice: Worry about culture and organization from day one, because your core team (founders & first hires) plant the seed for the scale stage.
• Solo founders take 3.6 times longer to reach scale stage compared to a founding team of 2 and they are 2.3 times less likely to pivot.
• Business-heavy founding teams are 6.2 times more likely to successfully scale with sales-driven startups than with product centric startups.
• Technical-heavy founding teams are 3.3 times more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
• Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9 times more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
• The team size of unsuccessful startups is 3 times bigger than the successful startups at the same stage. However startups that scale properly end up having a team size that is 38% bigger, and almost surely continue to grow.
• Startups that scale properly take 76% longer to scale to their team size than startups that scale prematurely.
• Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and getting acquired.)

PAUL GRAHAM

1. A Half-Hearted Effort — Startups Take Over Your Life. The biggest mistake you can make is not to try hard enough.
2. Single Founder — “I can’t let my friends down.” This is one of the most powerful forces in human nature, and it’s missing when there’s just one founder.
3. Fights Between Founders — Be careful about co-founders. Most of the disputes I’ve seen between founders could have been avoided, if they’d been more careful, about who they started a company with. Lesson: Mean People Fail.
4. Not Wanting to Get Your Hands Dirty — If you want to start a startup, you have to face the fact that you can’t just hack. At least one hacker will have to spend some of the time doing business stuff. You need to SELL.
5. Hiring Bad Programmers — Find a friendly, or good programmer to help you hire people.
6. A Half-Hearted Effort — Startups Take Over Your Life. The biggest mistake you can make is not to try hard enough.

STEVE BLANK

1. Don’t emphasize execution over testing, learning, and iteration.
2. Don’t confuse traditional job titles with startups needs.
3. Don’t execute on a sales and marketing plan.
4. Don’t manage by crisis which leads to a death spiral.

SAM ALTMAN

1. Have at least one technical founder on the team.
2. Become formidable. Also, become tough.
3. Learn to ask for what you want.
4. Ignore what the press says about you, especially if it’s complimentary.
5. Hire the best people you can. Smart, effective people are critical to success.
6. Fire people quickly when you make hiring mistakes.
7. Don’t work with people you don’t have a good feeling about.
8. Focus intensely on the things that do matter. Every day, figure out what the 2 or 3 most important things for you to do are.
9. Do what it takes and don’t make excuses up.
10. Learn to manage people. Make sure your employees are happy. Don’t ignore this.
11. Don’t underestimate the importance of personal connections.
12. Work really hard. Everyone wants a secret to success other than this; if it exists, I haven’t found it yet.
13. Keep doing this for 10 years.

DAVID CUMMINGS

1. Embrace your constraints.
2. Focus on one thing and do it well.
3. Culture matters.

Quantifiable Startup Success: Product

• Barely any startup founder considered a product to be their main challenge.
• Startups that pivot once or twice raise 2.5 times more money, have 3.6 times better user growth and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.
• Unsuccessful startups write 3.4 times more lines of code in the discovery phase and 2.25 times more code in efficiency stage.
• Unsuccessful startups outsource 4–5 times as much of their product development as successful startups.
• In the discovery phase, 60% of unsuccessful startups focus on validating a product and 80% of successful startups focus on discovering a problem. In the validation phase, where startups should be testing demand for a functional product, unsuccessful startups are 2.2 times more likely to be focused on streamlining the product and making their customer acquisition process more efficient than successful startups. It’s widely believed amongst startup thought leaders that successful startups succeed because they are good searchers. Hence, failed startups achieve failure by efficiently executing the irrelevant.
• Product/Market Fit spikes as a key challenge in the validation stage.

PAUL GRAHAM

1. Derivative Idea — it seems like the best problems to solve are ones that affect you personally.
2. Choosing the Wrong Platform — Hire good programmers and let them choose.
3. Slowness in Launching — Force yourself to launch something fairly quickly.
4. Launching too Early — Think about what you plan to do, identify a core that’s both (a) useful on its own and (b) something that can be incrementally expanded into the whole project, and then get that done as soon as possible.

STEVE BLANK

1. Don’t assume you know what the customer wants.
2. Don’t focus on the launch date.

SAM ALTMAN

1. The best startup ideas are the ones that seem like bad ideas but are good ideas.
2. Eventually, the company needs to evolve to become a mission that everyone — but especially the founders are exceptionally dedicated to.

DAVID CUMMINGS

1. Even great products need marketing.
2. Create “painkillers”. Not vitamins.

Quantifiable Startup Success: Financials

• 93% of startups that scale prematurely never break the $100k revenue per month threshold.
• Founders that learn are more successful: startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7 times more money and have 3.5 times better user growth.
• Many investors invest 2–3 times more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical co-founders despite indicators that show that these teams have a much lower probability of success.
• Before scaling, funded unsuccessful startups are on average valued twice as much as successful startup and raise about three times as much money.
• Fundraising Advice: Raise a lot of money after Product/Market Fit and a cost-efficient customer acquisition process will be achieved. Recommended round size at each stage:
• Stage 1: 10–50k
• Stage 2: 100k-1.5M depending on type
• Stage 3: 0 (recommended to wait until stage 4 to begin raising)
• Stage 4: 1.5–7M depending on type

PAUL GRAHAM

1. Raising Too Little Money — Spend practically nothing, and make your initial goal simply to build a solid prototype. This gives you maximum flexibility.
2. Spending Too Much — Be relentlessly resourceful.
3. Raising Too Much Money — Paul advises founders who go on to seek VC money to take the first reasonable deal they get. Bargain-hunting among investors is a waste of time.
4. Poor Investor Management — If things go well, this shouldn’t matter.

SAM ALTMAN

1. Keep your burn rate very low until you’re sure you’ve built something people love.
2. Read this before you raise money.
3. Generate revenue early in the life of your company.
4. Ignore acquisition interest until you are sure you want to sell.

DAVID CUMMINGS

1. The startup with the most money doesn’t always win.

Quantifiable startup success: Business model

• The time a startup needs to move through the first stages is much longer than many first time founders expect. Many are deceived by the belief that they should be able to complete stage 1 (Discovery) within just one month.
• Most successful founders are driven by impact rather than experience or money.
• Premature scaling is the most common reason for startups to fail.

PAUL GRAHAM

1. Marginal Niche — It’s not that people don’t think of grand ideas, but they decide to pursue smaller ones because they seem safer.
2. Obstinacy — Don’t get too attached to your original plan, because it’s probably wrong. Pivots are more common than one might think.
3. Good Location — startups prosper in some places and not others.

STEVE BLANK

1. Don’t write a business plan. Allow for trial and error.
2. Don’t prematurely scale your company based on a presumption of success.

SAM ALTMAN

1. You should start with an idea, not a company. When you have a “company”, you feel pressure to commit to an idea too quickly. Once you’ve shifted from “interesting project” to “company” mode, be decisive and act fast.
2. In addition to building a great product, if you want to be really successful, you also have to build a great company.
3. Prefer a fast-growing market to a large but slow-growing one.
4. Have a strategy. Most people don’t. Occasionally take a little bit of time to think about how you’re executing against your strategy.

DAVID CUMMINGS

1. Good timing is better than good luck.

Attributes that have no influence on startup success

Interestingly, Max and Bjoern’s research also found, that the following attributes have no influence, on whether a startup is more likely to scale prematurely:

1. Market size
2. Product release cycles
3. Education levels
4. Gender
5. Time that co-founders knew each other
6. Entrepreneurial experience
7. Age
8. Number of products
9. Type of tools to track metrics
10. Location

There is so much conflicting advice

Bill Gross, for example, advocates the main reason for startup success very differently from the common, team, execution, business model or financing.

Although these points are all important, his research shows that timing is the most common reason. The right timing trumps team, idea, execution, business model and financing.

Whereas the Startup Genome team — as outlined above — identifies premature scaling as the most important reason for startups success. A startup must scale properly along five startup dimensions defined by the Startup Genome.

But there is also common ground

Startup experts agree. Your SUCCESS depends on your ability to

1. learn from best practices,
2. listen to customer feedback and
3. act on feedback.

Startup Founders are more successful if they aim to master these skills.

StartupGeist Knowledge Base

StartupGeist summarizes insights and experiences from digital entrepreneurs, startup experts, and founders. This article is based on …

• StartupGeist Startup Expert Gallery
• Paul Graham: The 18 Mistakes that Kill Startups
• Steve Blank : 9 Deadliest Startup Sins
• Sam Altman: Startup advice, briefly
• David Cummings: 7 Entrepreneur Lessons Learned
• Bill Gross: The single biggest reason why startups succeed
• Startup Genome Report 2: Premature Scaling
• Visual.ly: Infographic about a few of the Startup Genome findings

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Fearlessly love and build the life you truly deserve.

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.

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Originally published at startupgeist.com on January 22, 2016.