P33 What It Takes for a Startup to Succeed According to Bill Gross.
This podcast shares insights from Bill Gross about what it takes for a start up to succeed today’s world. So who is Bill Gross? He is a very successful finance manager who has learned about why companies succeed and fail in order to make his finance company successful. He is also been an entrepreneur, actually a serial entrepreneur, with many notable successes and of course some failures. Businesses like Citysearch and go to.com.
In this podcast, he shares his thoughts on why companies like space X, uber and airbnb succeed while others fail. He identifies five factors that he sees driving success and identifies the one of those five factors that is the most important influencer of success. But start by looking at the five factors.
The first of the five factors is “the idea.”
Consistent with what we learned from Merwyn technology about what it takes to be successful, he points to some critical questions you need to ask in evaluating how strong the ideas.
Is a truly new or just a variation on something that already exists? New always tends to get people’s attention, so it’s a starting point for engaging potential customers. But if you’re only new and not truly uniquely new and beneficial in meeting customer needs, chances for longer-term success are not very high.
It’s very clear that with a startup there is an initial idea that evolves over time. The evolution of the idea can be a tricky process. Sometimes you can lose sight of the inspiration or original insight, which can be a costly loss. Nonetheless, an idea must and will evolve so there is no one original idea but rather an ever evolving idea that drive success.
The second of the five factors is the team and execution.
In this podcast I’ve not spent much time on this topic. I will spend more time in future podcasts, since it is very important.
There are several aspects of what it takes to have excellent teamwork. First, there are the factors that contribute to a high performing team. These involve organizational, process, and interpersonal elements. Second, a team needs a clear vision, strategy, and definition of success. Third, teams need resources, both core and ancillary resources. Fourth, teams need organizational and management support. And I could add to this less which I will do in a future podcast.
The third of the five factors is the business model.
The business model is all about how are you going to make money.
This is not as simple as it sounds – it’s not just about how you price it. Depending upon the business that you’re in there can make many ways of making money. For example, some software companies sell their clients full rights to use of the software and then they largely disappear. Other software companies, enable clients to bring in the software at a relatively attractive price and then sign long-term service contracts. In the first case, the business model makes money from selling rights to the software and in the second case they make money primarily through servicing the software.
While it’s not just about price, for many products it is about price. It is the difficult challenge of figuring out your value equation. The value equation is the benefit you provide and the price people have to pay for it. If you’re providing a very important customer benefit and you are the only one that can provide this benefit, then you are in a position to charge premium pricing. If on the other hand, you essentially have the same or similar basket of customer benefits, it’s very difficult to understand how you could succeed with premium pricing, although it is something that occasionally works.
The fourth of the five factors is funding.
Almost no successful startup makes it all the way to the marketplace with the only source of funding being from the founder.
As a result, startups need rounds of funding to take a step-by-step approach in getting to the marketplace. Each round of funding is dependent upon the enterprise making promising progress in manifesting the idea and business model. Investors are also interested in the continuing viability of the idea, especially as the marketplace changes and if a major competitor enters with a similar initiative.
The fifth factor is timing.
In many ways, this is the most challenging of the factors. There clearly have been ideas that were very promising but launched too early – that is, before customers were ready for them.
There also ideas that launched too late. Enterprise hope to be a fast follower, maybe with some additional customer benefits, only to find that the initial company grabbed consumer attention and loyalty.
An example of this is tablets. Despite what you may think, the iPad was not the first tablet. In fact, in many ways it was not Apple’s first tablet. At a later date we can get into why the iPad was successful when earlier ones were not and even later ones were not successful.
What is the relative importance of each of these factors? Bill’s analysis suggested the following ranking of importance.
The fifth most important factor was funding. In truth, there are plenty of examples of companies that succeeded without getting the ideal amount of funding.
The fourth most important factor was the business model. Remember, the business model is how you’re going to make money. Facebook and twitter launched without a true business model or should I say revenue model. That came later in their existence.
The third most important factor is the idea. This is especially true for the initial idea. As I mentioned, the initial idea changes over time – in fact, it needs to change over time. It needs to reflect what you learn from qualitative and quantitative research. It needs to reflect what you learn about competitors as you go along in the development process. Net, the idea that you launch with is significantly different than the one that came up in the first idea generating session.
The second most important factor is the team and execution. In all of my work I have seen many, many good and even great ideas. When the ideas were brought back from an idea generating station to the broader company, they often experienced a rapid death or a slow and dysfunctional death. There are many reasons for this including company culture, lack of internal team expertise, and ever changing management support and funding.
The most important factor is timing. He shares the Airbnb success example. Many people use their business model before. They launched the company when the recession hit and a lot of people were looking for additional sources of income. As a result, people were willing to rent out rooms or entire homes and apartments. Space X launched in the face of the Columbia disaster.
The timing being the most important factor, it can also be a very frustrating factor. As noted in the two examples, as an entrepreneur and inventor you often have little or no control over the macro factors influencing your success.
The importance of this factor does suggest that you identify a set of actual or potential macro conditions that could impact your success. Having identified them you want to then track them so that you are at least aware of what is going on in the macro world.
I think that Bill was made a good contribution to understanding what it takes to be successful. His five factors are not new. Other people have identified other factors some of which are not listed here. For example, Jim Collins has written a series of books on this topic including good to great.
I think his most valuable contribution is the relative importance of these factors. Having said that, I can easily see how the relative importance of these factors could vary by industry and type of product.
I hope this helps you understand the factors driving a startup’s success. At the end of the day, it’s never easy, but you increase your chances for success if you have an awareness of the critical factors driving the success.