Helping form the foundation of over 100 companies in the last two decades, the team at Idealab and its, founder Bill Gross, are no strangers to the startup story. Gross has failed a little, if not a lot, and had his share of success too. But the main thing is that he has learned something from both categories. The company and the individual both hold the belief that startups are a great tool to maximize the returns from human capital.
Being involved with so many companies, Bill and Idealab decided to create an analysis of the pivotal factors that decide a startup’s fate. They took into account companies that they had a role in fostering, as well as those they did not. A total of 200 startups were analyzed in the process. These include industry legends like YouTube, Airbnb, LinkedIn, and Instagram.
A number of factors were analyzed over the course of the study before Gross decided on the single most important factor behind the success of a startup. The results of the analysis in terms of percentages are as follows:
Many tend to think that funding is one of the key factors behind a startup’s success. But the Idealab analysis shattered that myth. It was found that only 14% of well-funded startups showed the kinds of success that your average startup longs for.
The Business Model
The business model is a vital ingredient that determines the eventual success or failure of startups. The business model is essential for generating revenues and the model strikes out a clear path for the startup to follow when it comes to revenues. Interestingly, it is often seen that startups start off in the absence of one, and then monetize only at a later stage. A classic example of this type of startup is YouTube, which did not start off with a business model. The business model accounts for 24% of the success ratio of startups.
The Big Idea
The “eureka moment" has for a long time fascinated those conducting the analysis – they did not name their venture Idealab without any good reason, after all! The idea itself accounted for 28% of the success ration of enterprises reviewed by the exercise, which is quite surprising. Great ideas solve lingering pain points of customers, but it was a eureka moment in itself to discover that its success ratio stood at 28%.
Let's Team Up
Everybody in the industry knows the value of the teams behind the success of startups. The customer is the ultimate reality to a startup. So it came as no surprise that teams who responded well to the changing needs of customers were also the ones that succeeded, with a success ratio of 32% in the analysis. But it was not the decisive factor, as the analysis found out. Crucially...
It's All About Timing
The key indicator that eventually determines the success or failure of a startup, according to the analysis, is the timing. The timing accounted for 42% of the success of the organization. As in the case of Airbnb, an idea needs to come at the right time in order to shine forth. Many investors had negated the notion of investing in the company. The reason behind this, they figured, was that people would be hesitant in renting out rooms to total strangers. But Airbnb had time on its side, as the economic recession was under way, and people were happy to do so with some extra cash in hand. This helped to popularize the concept. Uber was another startup that timed its launch extremely well, as during the launch of the services of the company, drivers wanted some extra buck, too.
So the takeaway of the exercise is that the idea behind a startup is indeed an important issue, but perhaps a greater factor in the success of new companies is the timing. Remember to ask yourself if consumers would be willing to pay for the service being offered by you, and be completely honest when you face this question with yourself and your partners. Above all, let's hope that more startups like the ones we have come to love arrive in our lives to solve more problems and ultimately make them a whole lot easier. Cheers to that!