By: Joshua Finley
What makes a new company successful?
Too many things to name in a single article, is the short answer. To hear it from seasoned startup investors like Steve Streit, whose SWS Ventures backs a range of early- and later-stage enterprises, every startup is unique, and generalizing too broadly can quickly get you into trouble.
“Startups’ success or failure depends on numerous factors whose importance is difficult to ascertain early on,” Streit says.
Yet Streit and other experts do see patterns in the startup world. They tend to assign higher probabilities of success to companies (and leaders) with the following six characteristics.
1. High Potential for Disruption
Emerging startups tend to have high potential to disrupt existing industries and quickly gain market share from incumbents that have perhaps become too comfortable with their place in the market.
The tricky bit of this, and the part that many investors overlook, is that disruptive potential isn’t always apparent until later — after the disruption has already occurred. For every Uber, which seemed destined to disrupt the taxi business from the outset, there are numerous startups that toil in obscurity until suddenly achieving a breakthrough that appears to change everything.
2. Clear and Compelling Business Plans That Look Beyond the Five-Year Horizon
The typical five-year business plan is not sufficient for early-stage startups. It can take longer than that to cross the startup valley of death — a journey that roughly half of all funded startups fail to complete.
The trouble is, it can be very difficult to anticipate conditions beyond five years. (Even beyond two or three years can be dicey, but that’s another story.) So what gives? How can businesses anticipate a future whose animating principles are barely scrutable at present?
The imperfect answer is a “living” business plan that accounts for enormous uncertainty. This plan needn’t be crystal-ball accurate, but it does need to lay out a clear and compelling theory of the case for investors, advisors, and other current and future stakeholders.
3. Subject Matter Experts in Core Roles
Successful founders know how important it is to have the right people in the right seats. Early on, this really means getting subject matter experts in core roles within the organization. Anything remotely related to the startup’s IP is a given, but depending on the company’s focus, it may be important for legal, business development, and other functions that would be suboptimal to outsource at any point.
4. Action-Oriented “DNA”
Most serial founders have seen firsthand how “decision by committee” becomes “death by committee.” Imbuing a single point person with unfettered decision-making power isn’t necessarily the answer — and could in fact do more harm than good — but orienting the organization toward action rather than deliberation usually pays dividends.
That said, context matters. Startups focused more on project-driven “hard tech” need to invest in deliberative processes like R&D, engineering, planning, and project management even as they embrace a bias toward action.
5. A Drive to Continuously Improve
Successful startups tend to merge a bias toward action with a powerful drive to continuously improve, formalized in the continuous improvement model.
The continuous improvement model is “the ongoing improvement of products, services or processes through incremental and breakthrough improvements,” according to the American Society for Quality. “These efforts can seek ‘incremental’ improvement over time or ‘breakthrough’ improvement all at once.”
Continuous improvement is closely related to the process philosophy known as Lean, which aims to run complex processes as efficiently as possible. Together, the two disciplines can be like rocket fuel for early-stage, resource-constrained companies, provided they’re supported by effective execution.
6. Self-Aware Founders Who Know Where They’re Needed Most
High-potential startups tend to be run by people who understand their strengths, weaknesses and limitations. They know where they’re most likely to add value to the organization and when their highest and best use is to step back into an advisory role. Or, from a more drastic standpoint, to shut the whole thing down and start afresh.
They also have a vision — whether informal or incorporated into the company’s business plan — for the enterprise’s entire lifecycle, from growth stage to maturity to exit.
Does Your Startup Have What It Takes?
Experts like Steve Streit believe that these six characteristics can increase startups’ likelihood of reaching profitability and scaling into valuable businesses. However, they know that not all successful startups have all six. They also know that other characteristics factor into early-stage companies’ success as well.
That brings us back to where we began, with the idea that every startup is unique. Your startup may or may not be well-positioned to succeed based on a wide range of factors, each weighted differently when applied to it and peer companies. This guide gives you an idea about how to think about positioning your new enterprise, but it’s not the last word.
Disclaimer: The information provided in this article is for informational purposes only and should not be interpreted as financial, investment, or business advice. Success in startups is influenced by many unpredictable factors, and these general insights are not guarantees of specific outcomes. Readers are advised to consult with qualified financial or business professionals before making any investment or strategic decisions.
Published by: Holy Minoza