Let’s take a sneak peek into the central reasons for start-up success. In doing so, the things to avoid will naturally unfold as well.
Thanks to financial expert Bill Gross’ helpful Ted Talk “The single biggest reason why start-ups succeed” we have an epicenter for our discussion. Along the way, we’ll also take a look at how Bill’s conclusions about start-up success translate or do not translate to the other statistical findings for start-up failure.
The Ted Talk (2015)
Bill Gross: “If you take a group of people with the right equity incentives and organize them into a start-up, you can unlock human potential in a way that was never possible before.”
This quote should inspire hope in any budding entrepreneur. The claim is that huge potential is possible, but the reality is that it can be supremely difficult. So, what is going to make your start-up journey most likely to succeed?
Timing: #1 criterium for startup succes
Timing accounts for 42% of the difference between succes and failure in Bill’s analysis of over 100 start-ups. For failing startups, this means that simply their timing to enter the market was off.
Launching your business too early
The world is not ready for it. The idea might be great but the current climate does not facilitate it. This results in limited demand and technical hurdles which make delivery of the product/service incredibly difficult.
In order to address this, You must ensure your audience and investors are primed and educated on how your product is ahead of its time and therefore rich with potential.
Launching your business too late:
There is already too much market competition, making it impossible to surface through the sharky waters.
The best way to assess timing is the research whether consumers are really ready for your product/service? So, have you done the market research? Have a look at our market research tips here.
Team: #2 criterium for startup success
The wrong team accounts for 32% of the difference between a successful and a failing business .
According to Bill, the “customer is the true reality,” and the team must adopt this truth. A team is only as good as its ability to respond to real market demands rather than simply following incubated company targets.
When considering your team, consider your customer and how their experience relies heavily on having the right people behind the right product. For example, having a good marketing team for an online bank will pull a solid client base, but without the right software engineers, the client base may fade after trying the user interface.
Idea: #3 criterium for startup success
If the idea isn’t right, this accounts for 28% of the difference between startup succes and failure.
That eureka moment we often ascribe to start-ups is the birth of the idea. Because of their innovative nature, the idea is centrally attached to the notion of a successful start-up.
Of course, the idea is a vital part of the startup process, but the idea often ends up changing due to market needs and timing. The idea arises as a concept, but the important sequence that follows is how you contextualize this concept and find a place for it in the current market.
Business Model: #4 criterium for startup success
A poor business model accounts for 24% of the difference between succeeding and failing with your startup.
It is lower in failure importance because you can start without a business model and adapt it later. As companies go through stages of funding application and development, the business model will likely change.
Funding: #5 criterium for startup success
Funding accounts for 14% of the difference between nailing and failing your startup idea.
This low number is because inadequate funding, combined with existing company traction will still draw intense funding in the near future. Therefore, the other factors, such as the team and timing, are more significant than good funding according to Gross.
CBS Insights (2019)
Reasons for failure:
- Lack of a market need (42%)
- Running out of cash (29%)
- Not the right team (23%)
The reason these findings may support Bill’s analysis is that the different factors contextualize one another. Take “lack of a market need,” for example; the success of timing is only relative to the market need at the moment of launching.
Accordingly, the efficacy of “timing” cannot be analyzed without reference to “market need.” Launching a business at a time when there’s no market need will mean you have to jump more hurdles and spend more money and resources in the process. The likely result being that you’ll be “running out of cash.”
Thus, these reasons for failure cannot be considered exclusively, but must be seen as having the ability to overlap, intertwine and influence each other. Accordingly, you have to consider both hierarchies for success, with each element – the team, the funding, or the idea – as inticrate parts of the bigger picture.