5 factors that determine success

In the quest to find out the secret of success for startups, I refer to Bill Gross’ research. His company, Idealabs, was founded in 1996 in California, and is the longest running technology incubator. They have created over 150 companies with more than 45 IPOs and acquisitions. But they have also failed a lot. And from failure, we derive precious lessons.

Mr. Gross went to on a mission to find out what actually mattered most for startup success. He wanted to be systematic, avoiding his instincts and bias built over the years. So he looked across 5 factors to identify which one mattered the most:

Idea

Team

Business model

Funding

Timing

Let’s talk about the idea. Like Gross, I also used to think that the idea was everything. But then over time, we came to think that maybe the team, the execution, adaptability, mattered even more than the idea.

So much about a team’s execution is its ability to adapt to be tested by the market. The customer is the daily reality check. That is why the team is so important for the execution of an idea.

Then comes the business model. Does the company have a clear path generating customer revenues? Could this be the most important factor?

And then comes funding. Some ideas are great, in the hands of an expert team with a sophisticated business model. Yet, what if they don’t have enough money to execute? But wait, what about timing?

Even when the the idea is excellent, if the market is not ready, it might be doomed to fail. For instance, the fax machine was ahead of times when was first tested in the market. It took decades for the market to be ready.

For early movers, educating a new market is an enormous challenge. On the other hand, if the idea is too late, the market will not show interest. But then some ideas are just in time. Blockbuster and Netflix were in the same industry, with Blockbuster having a very clear fist mover advantage. Yet, Netflix came up with a completely new business model which was head of Blockbuster, but not ahead of time. And the market loved it.

Idealabs published the data linked to the success and failure of their companies. Timing accounted for 42 per cent of the difference between success and failure. Team and execution came in second, and the idea, the differentiability of the idea, the uniqueness of the idea, that actually came in third.

The ranking was quite surprising to me. Although it is a quantitative assessment (i.e. it measures the number of times that it happened, and not the magnitude of the failure) the idea seems to be not as important as I thought.

According to Bill Gross, sometimes it mattered more when it was actually timed, indicating a strong link between the 2 factors. The last two, business model and funding, made sense to me actually. Startups can get off the ground without a definitive business model.

Facebook is the clearest example.

And funding, I think as well, is not so crucial at the beginning. If you team is able to deliver an idea suited for the time, that wins enough market, then investors will indeed start knocking at the door. (The writer is a member of the International Press Association)