For the last decade or so, there has been a debate raging: “What is the hardest thing to accomplish when building a company from a startup?” Some sources suggest that 3 out of 4 startups fail (from data taken between 2004-2010), so we know there are a multitude of challenges.
Not long ago, I got an email from a well-meaning, but misguided person. He wrote me that he has a million dollar idea (and it definitely WAS a million-dollar one, not just a figure of speech) and he would like to offer me an opportunity to fund it as well as find the team.
This type of approach is a common thing, and comes from an understanding that ideas are worth a lot. The consensus of the startup industry, however, is that ideas are not worth that much. This stems from the fact that many folks, ironically, seem to get the same idea at the same time. But simply having the idea will not give you any competitive advantage in the real world.
Got an idea? Who cares. Got a way to execute it?
So what gives you the advantage? Opinions differ here. It is commonly said that if the idea itself doesn’t matter much, then the execution of the idea is what defines the winner. Not what idea they started with, but how they massaged it to fit the market, and where they take it from there. This makes sense, but doesn’t help to pick any winners, since execution can only be seen as it happens.
I propose that Venture Capitalists (VCs) need to understand this very well in order to adequately pick companies that will be winners. At the same time, startup founders need to understand this to be able to shape their pitches and win funding. And the startup community at large needs to understand this to provide adequate mentorship and help direct these budding companies well.
The business model is a definite factor in startup success. A common startup goes from demo > product > bookings > business model. Often, a technocrat investor will try to come up with potential business models and figure out what the startup can be worth in the long run.
Even more often, the business model that the startup will end up with has nothing to do with the demo that they started with. At the product or bookings stage, this is a more useful metric, though even there significant paradigm shifts can happen.
Paul Graham, the Steve Jobs of the startup industry, considers the startup’s team to be among the most important factors. He brings up examples like PayPal, Facebook, AirBnB and others, that started with one idea and hit it big with another. I find this hard to argue with. Founders are extremely important. They will define what the company will be and how will it get there. The real question is what qualities of the team will help ensure victory in the game of wealth? (after all, how many dotcoms with great ideas like dog sock-puppets went bust in the end?)
Startups: Choose your weapons
Startups play at a tremendous disadvantage. Established companies will often have immense resources, the goodwill of their customers and the willingness to take a loss on a burgeoning market segment to expand their main cash base. Startups begin with an idea, a product demo and, if they are really lucky or good, a few customers. Yet every year we see them succeed where established companies have failed repeatedly or create a new market altogether. What is the X factor that causes such market disruption?
The main weapons that a startup has against the odds are ignorance and hunger.
No, this is not a typo: ignorance. In this example, ignorance is a two-sided sword. If you never knew better, ignorance will allows you make silly mistakes and follow dead-end paths. But on the other side, ignorance drives you to come up with novel solutions to problems that can change the market. The only difference is whether you make ignorance a friend or an enemy based on how creative you are in your approach..
If you are hungry enough, you need to be agile, light on your feet, and willing to stretch yourself to your limits. In a large company, changing a product can take months. In a good startup it should take hours or days. Hunger forces startup leaders to come up with better ways of motivating and managing the team. But beware: extended hunger with infrequent nourishment can kill your motivation, your social life and basically stress everyone out. This all depends on how well you can channel it.
Agility, Creativity and Luck
Startups are a game of agility, creativity and luck. If startup founders are creative enough, they won’t have just one idea, they’ll have 500. Each year. And every day will bring new problems that need quick solutions–which office location should we pick, who should we hire, where should we put this button on the product? Finding quick and creative answers to both everyday and long-term questions is an important thing that differentiates a great startup from a lousy one. The rest is a matter of luck.
Do the successful startups really come up with 500 ideas? It is not a coincidence that Google, Facebook, Amazon didn’t just come up with one novel approach, they came up with many. We look to successful startups and their founders as innovators in management, company governance, offices and employment, energy use and even space exploration.
In hindsight, ignorance and hunger was what drove ZeroTurnaround to where we are. From the beginning, not knowing that reloading classes on the JVM is impossible helped us to conquer that with JRebel. Facing doubt over the right approach in different scenarios forced us to come up with a significantly better user experience than most of the industry.
Knowledge that time was running out kept us moving. Today, although we now know a great deal more on what our users want and need, we still keep some of the ignorance as to what other folks in the industry are doing. This sometimes costs us time, but helps come up with more creative solutions.
What’s the tally? If you’re thinking of investing into a startup, look for a team that is quick on their feet and that has a track record of creativity, whether in technology, arts or business–this can tell you how well will they execute when put against the wall, facing hunger and ignorance. If you’re building a startup, don’t just have one idea up your sleeve, be prepared to conjure up 500 at a moment’s notice–and consider how to execute on them!