Bill Gross, a highly successful entrepreneur who runs Idealab, recently gave a TED Talk about what makes startups successful. As a mentor, funder, and business partner, Gross has seen hundreds of startups launched – many have been successful, but not all, of course.
Which got him thinking.
What determines a startup’s success? In his line of work, as an investor, identifying a formula for a startup’s success was a piece of the puzzle worth figuring out.
After reflecting back on his years as an entrepreneur, doing research on the companies he had funded that had succeeded and failed, and looking at industry trends, Gross drilled a startup’s success down to five potential factors:
- The idea itself
- The team
- The business model
The TED talk goes through each of these five points, and Gross details his investigation into each factor. After researching and comparing hundreds of companies, Gross came to a conclusion about why some startups succeed and why some fail.
What is the marketplace situation?
All five factors make a huge impact on whether a startup will succeed or fail, but a resounding aspect that stood out is timing. But why does timing matter so much – particularly if a company has a brilliant idea, business plan, funding, and team behind the concept?
Gross concluded that it boils down to this:
Are consumers really ready for what your startup has to offer them? Even if you have the best idea ever, a brilliant team, generous angel investors – all of it – without a marketplace ripe for your idea, it probably won’t get wings.
Not totally convinced? Take the example of Airbnb. Surprisingly enough, they had a tough time getting funding; no one thought people would be willing to rent out their homes. But they launched at the height of the recession, and people were hungry for extra cash and a way to offset their mortgages. Airbnb has a current market valuation of $13 billion.
Or take Uber. Similar situation – they launched during an economic downturn. People were looking to pick up side work, and the freelancing/sharing economies were burgeoning. They’re currently one of the most successful startups in recent years.
As a startup, you can’t afford to gamble on timing
The startup scene is intense. Investors struggle with FoMO (fear of missing out). Companies are awarded billions in market capitalizations, even with shaky business models. And, of course, the stark reality: 94% of startups fail within the first five years.
If you are in a startup, or if you’re involved in financing startups, you simply can’t throw your idea against the proverbial wall, hoping that consumers will buy it and that your timing will be correct. Fortunately, you don’t need a crystal ball. You can do research that will give you a clear idea on consumer mindsets and attitudes to help you gauge if your idea is ripe for the environment.
Enter qualitative research
The most successful startups put some pretty intense research behind their ideas. They test through methodical qualitative research. They examine the overall marketplace conditions through media studies and quantitative research, and, most importantly, they intently listen to what people are saying, how they interpret the startup’s idea, and how they would use the product/service in actual practice.
The secret to successful startups? Yes, it is indeed timing, but most importantly, it’s doing investigative research into the consumer mindset to understand if your startup’s idea works in the current conditions and timeframe.