What do you think is the number one reason that startups succeed?
22nd Dec 2016
Updated 2nd Mar 2019
Here in the SpinLab, you can imagine that we run into a lot of challenges that startups are having. These problems can have very extensive reaches and range from financing issues to overall construction of a basic business plan. We work hard with our teams to solve them, but there rarely is there a question of ”What is the number one thing I can do with my startup to succeed?” Most founders and teams never have this thought cross their mind, because they have found their problem to solve, and have built a company to solve that problem. That company becomes their life, and to even put the term success in such an obscure capacity is out of the question. It becomes more a game of finding the gaps in the plan, and attacking them as swiftly as possible. But when one does stop to actually think about this, what kinds of ideas come to mind? If you are a startup founder, did this idea ever cross your mind in the very early stages? Or were you simply too obsessed with fixing a problem that your startup set out to fix?
The good thing is someone did think about this, and that someone is someone who really knows what they are talking about. Bill Gross, founder of the technology incubator Idealab, gave a TED talk on this exact topic. Side note, for those of you still unaware of what TED is you can find out more about this another blog article I wrote featuring TED and the skill of communication. For your convenience, Bill’s TED is embedded below so you can also watch it should you choose, it’s only about 6 minutes long and it is highly worth viewing.
Bill is an excellent person to talk on this topic, because he has the experience to to back it. In the last 20 years, Idealab has founded over 100 companies. So the data is there, he’s looked companies that have flourished and those that have failed to identify areas of opportunity. In his talk, Bill highlights some of experiences from childhood to his professional career in entrepreneurship, and how the idea of The number one reason of success really fluctuates. There have been times where he thought maybe the idea was really the number one reason, and then times where maybe available funding was the real key to success, and lastly sometimes it maybe even seemed like the team itself was the most important factor. All in all, he sums up his experience into a meaningful quote said by the wise sage, Mike Tyson:
“Everybody has a plan, until they get punched in the face.”
What are the 5 main reasons that Bill came up with?
After some self-analysis, and analysis of his portfolio of 100 companies, Bill was really able to narrow it down to 5 essential elements that lead to success:
- The Ideas
- The Team
- The Business Model
So, now that you know who Bill is, and now hopefully you’re also curious as to what the number one reason is, what do you think? Of the 5, timing was the clear winner in Bill’s research. Timing accounted for 42% of the difference between success and failure, with team and execution coming into second place, and the actual idea surprisingly placing in third.
“Timing accounted for 42% of the difference between success and failure.”
If you’re like me, you may be slightly surprised with the result. Before Bill delivered the number 1 answer, I was really sold on the idea. Perhaps I am a bit of a dreamer in this sense, that a simple idea can have the capacity to change the world. But sometimes the world is just not in the right state of mind to accept something, even such things as a good idea.
Extending the analysis into non-Idealab companies
As I continued to watch the video, I wasn’t completely sold on the idea that timing was really as important as Bill made it out to be. Sure, it’s easy to look at your own experience and also the portfolio of your own incubator, but what is going on with the rest of the startup world, could these facts really remain consistent? The Bill brought up some really solid examples.
Timing for AirBnB and Uber
If you’re in the startup world in anyway, well I mean honestly, even if you just own a smartphone and know how to use the internet these days, you have probably heard of both AirBnB and Uber. For those who haven’t, a super quick intro, AirBnB gives people the opportunity to rent out extra space in their apartments and houses to people traveling. In essence, they offer a much more intimate and personable method of travel lodging, and prices that can be significantly lower than hotels. Uber, following a similar concept, lets people use their personal cars to offer rides to people, basically a competition against taxi services. Timing here was really paramount for these two companies, AirBnB launched in August 2008 in San Francisco, right at the height of the most recent and significant economic recession in recent US history. As Bill states, many investors passed up the opportunity to invest in this because they simply thought the idea was bad. I mean, who in their right mind would want to open up their home to complete strangers? Well, when you launch an idea that anyone can take advantage of in the middle of a significant recession, that timing may save your questionable idea. People were desperate for forms of extra income, and AirBnB provided a way to do that without any sort of investment on the part of the people offering their properties. All one simply had to do was have an open mind, at least an available couch, and the desire to meet people from all over the world, and thus a brilliantly successful concept was born. Aside from the wild popularity of the brand on its own, according to the-airbnb-analyst.com, since its conception AirBnB has accomplished accolades such as:
- Listings in over 190 countries, and 34,000 cities.
- Has hosted over 30 million guests, and hosts 2 million guests per month
- Has a current valuation of over 24 billion dollars. Yes BILLION.
Yeah, I would say the timing of when they launched helped them out a bit wouldn’t you? That’s quite a track record for one of the world’s most successful startups. In a mere 8 years, they are able to claim that they are booking more rooms than the world biggest hotel chains.
Uber followed similar trends, launching originally as UberCab in 2009, the company acquired its first in that same year of $200,000 and by the end of 2011, Uber had raised $44.5 million in funding, and officially changed its name to the current version, Uber. Coming in with similar timing to AirBnB, they offered those looking to make more money a chance to do it, and those looking to save money a chance to pay less to get around the city. The company has continued to dominate, and despite some struggles with local laws in some areas not wanting to have Uber as a service, the company continues to flourish. According to Wikipedia, as of April 12, 2016 Uber offers service in over 60 countries and 404 cities worldwide. Not a bad piece of marketshare.
Even a little bit more perspective
In his talk, Bill mentions z.com, he coins it as an entertainment site. Have you heard of it? Nope? Well, neither have I until I watched the talk. It was one of Idealab’s failures. It was launched in 1998, when 28K and 56K modems still reigned supreme, and Idealab loved the idea, had great funding, and even celebrity endorsements and appearances to boot. But despite all of that, the project failed horribly and shut its doors in 2003.
A mere two years later, YouTube emerged, officially registering that domain name in 2005. The founders of YouTube didn’t even have a business plan when they launched it, and they launched the concept on top of a Sushi restaurant in San Mateo, California. A year later in 2006, emerging search engine giant Google bought YouTube for $1.65 billion in stock. What went right for them that didn’t go right for z.com? Well…Timing!
- In the periods between 1998 – 2003 high speed internet was still not a dominant entity in most households.
- Cell phone cameras were rare, or they were clunky and quality wasn’t good as a whole.
- Digital cameras were brand new technology at this time, and were expensive.
- Social media was also just at its initial phases in 2003, when z.com was ready to shut its doors.
But in a mere 2 years, almost all of that changed drastically. Suddenly, anyone could make movies on a digital camera with very little camera expertise, and very little money. With high speed internet taking over, it was now possible to upload videos and watch them without too much trouble. With social media also beginning to spread like wildfire in the mid-2000’s, people now also had a reason to want to share their stuff. And there you have it, a mere timing issue. Had z.com come to life 2 years later, or maybe even just 1 year later, we might not have the affinity for YouTube that we have today.
So what did our audience actually think?
Like any person working in a startup, or around a lot of startups in my case as I work for the accelerator, I have a never ending thirst for curiosity. So we went to Twitter and polled our audience.
Now unfortunately, Twitter pools only offer up to 4 options, so I opted to leave out funding. Being that funding is the only option of the 5 that is not directly controlled by the founders of a startup, I figured these 4 options would be a fair comparison with each other. Now, as you can see from our massive reach of 30 submissions, the clear winner here was The Team. Following is the idea, then timing in third, with 3% of all votes voting the business model into the last slot. This result doesn’t really surprise me though, as most people in our community are startups and entrepreneurs themselves, there may be a bit of bias. Startups love their teams, and naturally should believe that the spirit of the team is responsible for the startup’s well being.
Maybe next time we’ll have a better sample size to run this again. But for now, we will have to make due with what we’ve got, it’s all part of that lean startup approach, no? :)
How to put the information into action
While it may you may or may not agree with the findings of Bill’s TED talk, or the responses from my wildly popular survey on Twitter, it can’t be ignore that in some capacity, timing does play a very important role in whether or not a startup will succeed. From my perspective, the lesson learned here is really to look at all angles of your startup, not just the specific problem you’re trying to solve.
“The lesson learned here is really to look at all angles of your startup, not just the specific problem you’re trying to solve.”
Going back to the z.com example, if they took an entire 360 degree approach to this, why didn’t they really evaluate the reach of their audience? Perhaps easy to miss back in 1998, but obvious to spot now, digital equipment wasn’t mainstream yet. In 1998, VHS tapes and film cameras were still the norm, and to be honest I am not even really sure that people could convert this stuff digitally on their own? I can’t remember that far back, but the process in the era where z.com existed was just simply too hard to get film online as an individual, leisure type user. These guys saw ”Let’s bring entertainment to every computer user out there” but failed to see how difficult this really would be from every possible angle. I’d would definitely be interested in having a conversation with Bill at some point about z.com, to see how these types of things could have been overlooked.
In the end, look at the big picture. No, not just the big picture, look at the giant picture and all the supplies involved with painting it. If the timing isn’t right now, figure out if that point has passed. If it has, figure out how you can tweak your product to make it fit an upcoming era where the timing will work more in your favor. Pay attention to the trends, and see what people are falling in love with. If you can have those two waves to ride your startup surfboard on, you’ll be significantly increasing the chances of hanging 10. As always, we’re always open to your feedback, positive, neutral, or negative in the comments. Let us know what you think are the most important parts to help startups succeed, and perhaps we can shape this differently in the future to come.