The number one reason why startups thrive

Research suggests it’s not funding, the business plan or even the cleverness of the idea that counts most. There’s another factor that’s more important than all of these, and it could mean the difference between your success or failure.

“No one’s going to rent out a space in their home to a stranger.”

That was the reaction of many seasoned investors who passed up the chance to put money into Airbnb in the company’s early days. The core concept and the business model were the same at the time as they are now, yet many experienced venture capitalists couldn’t see the potential. Of course, the company went on to become the huge success we know today, valued at $25.5m.

On the other hand, look at Z.com, an online entertainment company founded in 1999. It did raise enough money from VCs. It had a great business model. It had even got significant Hollywood talent to join the company. Yet within four years it went out of business, and you’ve probably never heard of it.

These two contrasting examples come from a TED talk given by Bill Gross that I watched before joining Startupbootcamp and re-watched recently. Bill is the founder of Idealab, a startup incubator that has launched over a hundred companies in the last 20 years. Bill’s opinions about why new businesses succeed confirm the patterns we see at Startupbootcamp. If you’re a startup seeking to maximise your chances of success – or an incumbent wondering which startups to partner with – our findings should help you.

The 4 factors for startup success

Why is it that some startups with great ideas, a great team and plenty of funding can falter and fail, while others that may not even have a business model can go on to become billion-dollar companies?

Since Startupbootcamp was launched in 2010, we’ve had a lot of success. In the last six years, we’ve helped over 350 startups around the world raise an average of €663,000 from investors. This means over €100m of funds raised. 80% of our startups are still active, and 3% of them have been acquired by other companies. Of course, we’ve also seen some of our startups fail. This combined experience has given us a deep insight into the four most important factors for startup success or failure:

1. The idea and concept

All successful companies start with a great idea. When startups come to us, we interrogate their idea and help them refine it. Is it unique? How well does your product idea fit the market? Will your service idea be attractive to potential partners? These are some of the questions we ask, because no company succeeds unless it has something to offer that the market is likely to pay for.

2. The founding team

A great team is the key to great execution. But besides the obvious questions, such as what leadership or entrepreneurial skills the team has, is an even more important one: how adaptable are they? A team that works well together when times are tough, that can adapt to sudden changes in the market, and that’s open-minded enough to take advice, is a team that is much more likely to succeed. These are all qualities we look for in the startups we choose to work with, and which we foster and develop while we work with them.

3. Funding

Without cashflow no company survives for long. So we ask where the startups’ existing funds have come from. Previous investment? Bootstrapping? Crowdfunding? We look at the cash burn rate – and how much the company needs to stay afloat (and, indeed, to achieve or maintain profitability). And we also interrogate their business model because it’s crucial to know where revenues are going to come from. Besides that, what’s their funding strategy for future growth? What do they plan to spend that money on?

But the #1 factor for startup success is…

All of these three success drivers are important, but the fourth driver is the most important of all. Because you can have the most talented, experienced and adaptable team, all the funding in the world and a brilliant idea that everyone loves. But unless you get your timing right, it’s all for nothing. Even a great idea at the wrong time can die.

Take the Z.com example. They wanted to offer video content online. But in 1999 broadband penetration was too low and accessing videos on the internet was too complex. Then, in 2005, broadband penetration in the US crossed the 50% threshold, and Abode Flash made watching online video simple and intuitive. Along comes Youtube – with no business model to speak of. Of course, it took off anyway.

So, if you want to succeed as a startup, you need to get your timing right. Partly, this means ensuring you can deliver your product or service to the market speedily. But it also means working out whether the market is ready for you idea. As Bill Gross said in his TED talk: “The best way to really assess timing is to really look at whether consumers are really ready for what you have to offer them. And to be really, really honest about it…”

This is an approach that we take very seriously at InsurTech; it underpins so much of the work we do with the companies we support. It’s a lesson that all startups must learn if they want to increase their chances of success.

 

 

Sabine VanderLinden

Co-founder, CEO & Managing Partner at Alchemy Crew, Co-founder Startupbootcamp InsurTech and Co-Editor of The InsurTech Book