Generally speaking, the odds are stacked heavily against the average startup. The rate of failure among entrepreneurs and startups is startlingly high — it comes with the territory. Otherwise, entrepreneurs wouldn’t be pirates.
But, what if there were a way to reduce that failure rate by cracking the formula of startup success? No easy feat to map the double helix of startups, but entrepreneurs are risk-takers by nature, so four of these risk-loving international entrepreneurs came together to found the Startup Genome Report, a report that is part of a larger project that dives into the very anatomy of what makes Silicon Valley startups successful — or not.
The entrepreneurs who founded the Startup Genome report (Bjoern Herrmann and Max Marmer), have also created a business accelerator called Blackbox, which will be leveraging the data they have collected (and will collect) from their ambitious R&D enterprise. The Startup Genome Report, as it is today, is a 67 page analysis on data collected from 650+ web startups.
The entrepreneurs recruited both UC Berkeley and Stanford faculty members, like Steve Blank, the Sandbox Network team, the Startup Bootcamp team, and the Pollenizer team, to help coauthor and contribute to the study. The goal of the report is to lay the foundation for a new framework for assessing startups more effectively by measuring the thresholds and milestones of development that Internet startups move through.
Blackbox, which was co-founded by techVenture and other organizations that have a track record of working with 100+ startups, including 15 exits (such as Bebo, Tapulous & Lala), hopes to use the Startup Genome Report as a cipher to help crack the innovation code, and give fledgling entrepreneurs and startups from around the world access to the characteristics and qualities that make Silicon Valley companies successful.
Here are 14 of the most interesting trends identified by the Startup Genome Report, some of which are intuitive and some of which may come as a surprise. Among them? Investors may be less help than they think. Take a look:
- Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
- Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.
- Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
- Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)
- Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.
- Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.
- Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
- Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
- Most successful founders are driven by impact rather than experience or money.
- Founders overestimate the value of IP before product market fit by 255%.
- Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
- Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
- Premature scaling is the most common reason for startups to perform worse. They tend to lose the battle early on by getting ahead of themselves.
- B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.
If you’re interested in learning more, detailed analysis of each of these points can be found in the full Startup Genome Report.
The team is also introducing a new survey that aims to help entrepreneurs understand the stage their startup is in and gives them personalized tips and advice for what to focus on based on data from the research project. The more data the project collects, the more accurate its conclusions become, and the more entrepreneurs and their startups can benefit from that knowledge, so check it out here.