Why Startups Like Uber, Airbnb, and SpaceX Succeed, While Others Fail
What's most important for the success of your project? Is it the team? Funding? Timing? Idea? Business model? Recently I heard Bill Gross, one of the most brilliant entrepreneurs of this century, offer a compelling answer—one that changes my views on the formula for success.
This blog is a summary of Bill Gross's excellent talk.
5 Key Success Factors
Bill investigated how 5 key factors affected the success of the 125 companies in his portfolio at Idealab and 125 companies outside of his portfolio.
The factors he considered were:
- The Idea: How new is it? Is there a unique truth in the idea? Are there competitive moats you can build around it?
- The Team and the Execution: How efficient is the team? How effective is it? How adaptable?
- The Business Model: Do you have a clear path to revenues?
- The Funding: Can companies that can out money-raise others succeed where the others would fail?
- The Timing: Are you too early? Just early? Too late. Right on time? Did that matter a lot?
Of these 250 companies, Bill picked 10 in each category: five companies that turned into billion-dollar companies, and five that everyone thought would be billion-dollar companies but failed.
The question: Which variables accounted more for successes?
What Was the MOST Important Factor?
The no. 1 thing that mattered was TIMING.
Timing accounted for 42 percent of the successes relative to failures.
No. 2 was team and execution.
No. 3 was the idea.
No. 4 was business model, and last was funding.
Funding: Much to the disappointment of the venture capital business, funding as a key success factor came in last. As Bill explains, "Funding mattered the least because you can make a company succeed even if you don't raise the money."
Business Model: The business model ranked low because you can start without a business model. Take Facebook and Twitter, both of which launched without a revenue model. Some of the best companies add their business model after they find product market fit and demonstrate rapid growth.
Idea: You morph the idea. The market is going to change your idea. Here Bill Gross quotes the famous business philosopher, boxer Mike Tyson: "Everybody has a plan until you get punched in the face."
As Bill points out, the way the market actually reacts to your first product is a lot like getting punched in the face. Your plan may be good, but it's going to change.
Team and Execution: The team is the one that has to look at the market and adapt their product to what they see. If you don't have a good, complementary team, it's just not going to happen. But, it's not the most important factor. So why did timing come out on top?
Timing Is Everything: Sometimes you might have a great idea, but the market just isn't ready for it. And sometimes the timing is just right to launch your business.
Take Airbnb as an example—everybody thinks Airbnb is an incredible business model. It is a good business model, BUT "the Airbnb model" had been done multiple times before Airbnb became successful.
One of the things that accounted for Airbnb's huge success is that it came out right when the huge recession hit around the world…people needed extra money badly. People were willing to rent out their rooms or their homes.
Similar timing helped Uber. SpaceX was founded and then the Columbia Space Shuttle accident left the US without a reliable launch vehicle.
So What Can You Do About It?
Knowing how critical timing and market acceptance is to your business, what do you do?
First, you should actually look at your business, the uptake of your product, and the dynamics of the marketplace of your customer to see if they are really ready for what you have.
If not, adjust your offering to be what they actually need, right now.
Second, adjust your burn rate (how much money you spend) so you can last long enough so you're there when the market is actually ready for what you have.
Let's Create a World of Abundance
It's incredible that we now have the data to analyze and rank order the success factors of startups.
Beyond timing, funding, team... there are many others worth considering, including the proper use of exponential technologies (e.g. 3D printing, cloud computing, AI, sensors, etc.) and use of the crowd (crowdsourcing, crowdfunding, etc.).
If you'd like to view Bill Gross' incredibly eloquent talk (which he gave both at DLD and TED), here is a link to Bill's talk. It's brief and very worth your time: https://www.youtube.com/watch?v=QR6YgWOan8Q
We are living in incredible times where the only constant is change, and the rate of change is increasing.
Image Credit: Old chronometer courtesy of Shutterstock.com
He is the founder and executive chairman of the XPRIZE Foundation which leads the world in designing and operating large-scale incentive competitions.
Diamandis is also the co-founder and vice-chairman of Human Longevity Inc. (HLI), a genomics and cell therapy-based company focused on extending the healthy human lifespan.
He is also the co-founder and executive chairman of Singularity University, a graduate-level Silicon Valley institution that counsels the world’s leaders on exponentially growing technologies.
In the field of commercial space, Diamandis is co-founder and co-chairman of Planetary Resources, a company designing spacecraft to enable the detection and prospecting of asteroid for fuels and precious materials.He is the also co-founder of Space Adventures and Zero Gravity Corporation.
Diamandis is a New York Times bestselling author of two books: Abundance – The Future Is Better Than You Think and BOLD – How to Go Big, Create Wealth and Impact the World.
He earned degrees in Molecular Genetics and Aerospace Engineering from MIT, and holds an M.D. from Harvard Medical School.
His motto is, “The best way to predict the future is to create it yourself.”