It’s not easy being green — or an entrepreneur. The inherent risk in becoming an entrepreneur or founding a startup is high. Sleepless nights, sweat equity, bribing new users to come to your product — it’s all part of the nerve-racking, code-spinning, and teeth grinding process. That’s why most of these swashbucklers are pirates by nature. But the truth of the matter is that few startups ever make it far enough to find the buried treasure or piggyback on Facebook all the way to glory; in fact, the cold, hard reality is that more than 90 percent of all startups fail.
That’s why four young international entrepreneurs (Bjoern Herrmann and Max Marmer) created the so-called Startup Genome Report, because they wanted to a deep dive into what makes a startup successful — and what causes so many to drink from the cup of FAIL.
The 67-page report, created in collaboration with researchers from Stanford and Berkeley, has collected data from 3,200 startups to date in order to work towards laying the foundation for a new framework for assessing startups more effectively — by measuring the thresholds and milestones of development that early stage web companies move through. (Read our initial coverage of the Startup Genome Report here.)
The report, which brought a comprehensive and scientific approach to the analysis of startup trends, was a success; it was downloaded 15,000 times and covered in more than 150 publications in 20 different languages. But perhaps more importantly, the report (and subsequent data added by new companies and entrepreneurs) has already begun to show some interesting results — that can actually benefit the very people they analyze. Namely, Co-founder Bjoern Lasse Herrmann tells me, the number one cause of startup failure: Premature scaling.
Herrmann said that the team’s research found that of the 90 percent of startups that fail, 70 percent scaled prematurely, which had a sometimes subtle and sometimes dramatic effect on the success (or lack thereof) of their business. Self-destruction and not competition is the bane of most startups, it seems.
So, the team behind the report, which also created a business accelerator called Blackbox (designed to leverage the data collected from their R&D projects), wanted to move beyond static reports and create a tool for startups that would help them combat this widespread problem of premature scaling.
Today, the Blackbox team is releasing the “Startup Compass”, a tool built to be a prescription for premature scaling by mapping a company’s progress along “5 core interdependent dimensions”, according to Herrmann: Customers, Product, Team, Business Model and Financials. The Compass provides entrepreneurs with a dashboard to monitor their progress along these dimensions, helping them to set better priorities on a monthly basis — and also help them locate any inconsistencies in these dimensions.
According to Herrmann, many startups have trouble deciding which priorities to follow, not to mention measuring their effectiveness once they do, “almost always landing in the proverbial grey zone”. He gave these questions as classic examples of startup uncertainty: “Is a 5 percent increase in retention good? Do I have enough users to declare product/market fit? Is now the right time to step on the gas pedal and scale?”
The Compass, then, is a simple benchmarking tool designed to reduce this grey zone by assessing a startup’s type and stage of development, and then comparing that data to that of other startups of the same type and stage — on 25 key performance indicators — to help them get a better sense of their current location (and the efficacy of their direction).
For those looking to check out the Compass beta, you can find it here. Blackbox is looking for feedback from entrepreneurs and founders, too, as it wants to make tools that actually benefit those out there in the wild and woolly world of entrepreneurism — not just the researchers. This is a collaborative project, Herrmann says, and one that can have real effects with the more data it collects.
Readers that want to check out Blackbox’s mini report “Startup Genome Report Extra: Premature Scaling” can find it here.