Bill Gross, the founder of Idealab, an incubator and the startup accelerator based in Los Angeles, presented a scientific study pointing out the main factors that lead a startup to success in 2015 at TED. Since the creation of Idealab in 1995, Bill has participated in the startup of more than 100 companies and also in 35 IPOs and acquisitions.
At TED “The biggest reason why startups succeed” Bill revealed what he found in a systematic investigation with more than 200 companies. After a sieve, the analysis went with the 5 biggest hits of Idealab (Citysearch, CarsDirect, Overture, NetZero, Tickets.com) and the top 5 failures (ZCOM, Insider Pages, MyLife, Desktop Factory, People Link), as well as successes outside its scope (Airbnb, Instagram, Uber, YouTube, Linkedin) and failures (Webvan, Kozmo, pets.com, flooz, friedster).
In the study, Bill quantitatively analyzed the factors in 100 companies that are part of Idealab model and 100 companies that did not pass through the standards of Idealab. As a result of the study, he came up with 5 key factors that determine the success or failure of a startup. Here are those factors explained:
It was identified as the most important for a successful startup, representing a proportion of 42% of the difference between success and failure. The time factor relates to how early or late the startup is going to market. With that consider these factors:
- There is demand for the solution right now or not
• The customer is ready to consume the product or use the solution or technology immediately or not
• Is there any saturation with competitors in the market or there is no room to compete? Etc.
The second important factor in the success of a startup is the “Team”. It accounts for 32% of the total functioning ratio. This means that building a team able to perform and adapt to compete in the market can guarantee a huge proportion of startup success. Consider your business and see:
- What habilitation and capabilities do the founders of the team have?
- What additional abilities are necessary to implement the plan?
- How to track progress to achieve the vision? etc.
With the team what matter is the idea of your product or service. Solving the problem easily and bringing a great experience for the customer represented 28% of the success.
4. Business Model:
In addition to the idea, having a clear path to revenue generation accounts for 24%.
The fifth important factor in the success of a startup is funding. Though it is one of the most important factors, Bill presented the view that receiving capital for startup execution represents only 14% of the success.
While explaining the 5 factors, Bill explained that contrary to expectations, the idea only reaches the maximum of its potential if the time is the most appropriate. Also, the capital, i.e. the money they invest in that business is no guarantee of success.
5. Launches of Uber and Airbnb:
Bill also pointed out that Uber and Airbnb have been launched at a very opportune time of recession, where people were looking for an extra income to supplement their earnings. To illustrate the results in further details, Bill discussed the success of Airbnb and explained that at first. They dismissed the idea because investors thought that no one would rent a space in the home for a stranger.
As we know, they were wrong! Mainly because the startup came at the height of the recession in the United States (2008). It was the time when there was a need to raise some extra cash. This helped overcome the difficulty of sharing their homes with strangers.
There really is not a model or recipe for success of a startup. But knowing the best practices, case studies and theoretical models can support the entrepreneur to make decisions with more quality.
Below you can see the whole lecture. Worth it!