Given my interest in investing and hopefully launching a startup in the near future I have always been intrigued with trying to define the secret formula for success and the factors that actually matter the most for the success of a startup. Given my finance and quantitative background, I have tried to figure out if a magic formula actually exists that would drastically reduce the very high failure rates of startups. A few days ago a friend sent me Bill Gross’ TED talk, “The single biggest reason why startups succeed” (https://www.ted.com/talks/bill_gross_the_single_biggest_reason_why_startups_succeed), which provides an interesting answer.
Bill’s discussion revolves around a study he made in order to try to define the 5 essential elements that lead to the success of a startup. Given the countless failures he had dealt with in the past, he was very intrigued in trying to find an answer. Through his study he was able define the following 5 Elements:
After defining the key elements he analyzed 100 portfolio companies that he had launched from Idealab and 100 other startups and ranked them across these 5 elements. Below is a sample of the non-Idealab startups including successful companies on the top row and failures in the bottom row.
After running the numbers he found that “Timing accounted for 42% of the difference between success and failure.” What he means by Timing is: “Is the idea way too early and the world is not ready for it? Is it early, as in, you’re in advance and you have to educate the world? Is it just right? Or is it too late, and there’s already too many competitors?”
Two interesting examples that help illustrate his concept of Timing that Bill describes are Airbnb and Uber:
“Airbnb came out right during the height of the recession when people really needed extra money, and that maybe helped people overcome their objection to renting out their own home to a stranger….Uber’s timing was so perfect for their need to get drivers into the system. Drivers were looking for extra money; it was very, very important.”
It’s important to clarify that these findings don’t claim that the other elements are not important or necessary. Instead, it just means that timing plays the biggest role in the success of the startup.
After today’s class (9/22) I linked Bill’s conclusion directly with one of the key takeaways our guest (serial VC investor) mentioned in class. He stated that Founders really need to make sure that once they define a problem and find a solution, it is imperative to confirm that the end consumer actually sees this issue as an actual problem. In a sense, the element of timing will be essential in the path towards achieving product-market fit. You can follow the lean startup methodology and be surrounded by the best investors, advisors and employees. However, if the timing is not right, your chances of success will be significantly affected.
The main issue that I see with these results is that out of these 5 elements, timing is the one where you have the least amount of control or influence over it. You can argue that there are strategies that you can follow in order to have some sort of influence over the other elements. However, what you can definitely do as an entrepreneur is focus even at the initial stage in trying to figure out if it’s actually the right timing for your idea before you end up spending time, capital and other resources.