What makes startups succeed or fail? More than 90% of startups fail, due primarily to self-destruction rather than competition. For the less than 10% of startups that do succeed, most encounter several near death experiences along the way. Simply put, while we now have some good theory, we just are not very good at creating startups yet. After 50 years of technology entrepreneurship it’s still an art.
Three months ago I wrote about my ex-student Max Marmer and the Startup Genome Project. They’ve been attempting to quantify the art. They believe that they can crack the code of innovation and turn entrepreneurship into a science if they had hard data rather than speculation of why startups succeed or fail. Max and his partners had interviewed and analyzed over 650 early-stage Internet startups. In May they released the first Startup Genome Report— an in-depth analysis on what makes early-stage Internet startups successful.
Now 90 days later Max and his team have gathered data on 3200 startups and they believe they’ve discovered the most common reason startups fail.
Today you’re invited to benchmark your own internet startup and see how you compare to the winners.
———
Benchmarking Your Startup
I hadn’t heard from Max for awhile so I thought he took the summer off. I should have known better, it turned out he was hard at work.
Max and his team built a website called the Startup Genome Compass (their benchmarking web site) that allows an Internet startup to evaluate their business performance. The Startup Genome Compass uses a hybrid “Stage and Type” model that describes how startups progress through their business development lifecycle.
The benchmark takes 20 or so minutes to go through as series of questions, and in the end it spits out an analysis of how you are doing.
The benchmark is not perfect, it may even be flawed, but it is head and shoulders above what we have now – which is nothing – for giving Internet startups founders specific advice on best practices. If you have a few world-class VC’s on your board you’re probably getting this advice in person. If you’re like thousands of other startups struggling to get started, it’s worth a look.
It’s Not How Big It Is – It’s How Well It Performs
If you’re interested (and you should be) in how you compare to other early stage ventures, they summarized their results in a report “Startup Genome Report Extra: Premature Scaling.”
One of the biggest surprises is that success isn’t about size – of team or funding. It turns out Premature Scaling is the leading cause of hemorrhaging cash in a startup – and death. In fact:
- The team size of startups that scale prematurely is 3 times bigger than the consistent startups at the same stage
- 74% of high growth Internet startups fail due to premature scaling
- Startups that scale properly grow about 20 times faster than startups that scale prematurely
- 93% of startups that scale prematurely never break the $100k revenue per month threshold
The last time I wrote about Max I said, “I can’t wait to see what Max does by the time he’s 21.” Turns out his birthday is in a week, September 7th.
Happy birthday Max.
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Filed under: Business Model versus Business Plan, Corporate/Gov't Innovation, Customer Development, Market Types |
I had the pleasure to meet Fadi at a recent talk in San Francisco and ask a few questions. Besides the considerations about biased survey responses, doesn’t this look a lot similar to what Younoodle attempted a few years back (and got a lot of flack for)? http://techcrunch.com/2008/02/18/younoodle-thinks-ai-can-predict-startup-success/
I’d love to read his report in more detail, but I’m completely unwilling to join their mailing list for the privilege.
Max Marmer, allow me to introduce the Internet. Internet, Max Marmer. It’s clear you’ve never met.
Kevin,
Thanks for the feedback. (I agree)
I passed it on to Max and they’ll create a pdf with the first few pages without requiring any info. You can then decide if it’s worth a trade.
steve
Kevin, you can find the summary of our key findings here:
http://startupgenome.cc/pages/summary-of-startup-genome-report-extra-premat
If you have any other thoughts or questions you can email me at max@blackbox.vc
So easy to believe that premature scaling is a deadly killer of startups. Seen it/lived it many times.
“Those whom the Gods would destroy they first call promising.” Cyril Connolly.
I still wonder what good a tool is to establish the metrics for success, the simple act of the tool coming into the market place shifts the goalposts!! And changes the entropy of the startup pre-market … (take the recent apps market place as a dynamic example that might make this tool redundant)
Churnrate = the glue that binds ones team together over time, feedback = common sense-o-meter! Speed = low barrier of risk (in the face of proof-of-principle giving accurate feedback). Scale up the complexity & introduce more distortion. So is this simply a filter, and if so, what happens to the knowledge distortion as a venture scales up? It doesn’t go away – it is still there in the business team!
Is it not simpler than this – tenacity, and common sense, at every step with accelerated feedback!
[…] Managements im E-Commerce steht diese Studie, auf die ich via dem immer lesenswerten Blog von Steve Blank aufmerksam geworden bin. 90% aller Startups scheitern seiner Meinung nach aufgrund […]
Max is truly a digital world citizen. The kind of citizen that shapes the new electronic and digital human society.
Steve, Alexander and Max should direct their efforts to identified solutions of a new type to address public and humans needs. I am sure that they can make it, bringing a new way of thinking and doing things and address improvement opportunities. Commonwealth and wellfare looks not far from these guys.
Consumers insights (humans-community) need to be satisfied. Also the enormous amount of social clichés need to be rediscovered and challenged with strategies that denied, opposite and scaled them. Also the political patterns need to be disclosed and show them to everybody in the form of new entrepenur ideas that match and make sense with the real reality (sharing and collaborative). Technology has been there for us to employ it to solve problems. Progress is new ways to solve old needs.
So go ahead and show us the path to a new solidarity society. Keep up the good job.
please excuse my shorts in English language
sincerely
Luis Cueva
lcueva@tgestiona.com.pe
I have been thinking this through, metrics that indicate health, prior to success – as a guide to turn effort into sustainable returns. But then I reflect back on some of the wildest successes we have had – almost none came from anything other than stubborn belief that it were possible to get people beyond the horizon of current thinking, against all the odds, and in return reward us, even after teams vaporise – the notion lives on.
Now I am wondering what ratio of business cycle thinking deals with this fluffy substance – design & story telling, most certainly and successfully. A questionnaire and reflection !! So the ratio approx. is >> 10% success from nurture,training, shear luck and on the flip side 90% go into the abyss. Okay – lets flip that and get 90% success and 10% failure – sounds scary.
Ignorance is sometimes bliss when it comes to championing the breakthrough 1-2% innovations, maybe it’s still a romantic old school notion – but I see plenty of opportunity in the fall out. I dread the notion of formulaic successes rolling off the production line – 500,000+ apps and counting, how much market choice does one truely need? 90% success could be failure, just with good taste!
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This post should have been called “Obvious Research Findings from the early 1990s.” Here are just a few excerpts from the many, many people that have made the exact same point.
Harvard Business Review by Kuemmerle (2002)
The impatience and idealism of the young often lead them astray, pushing them to blindly adopt a get-big-fast philosophy – “going for scale,” as the dot-commers put it. This approach makes sense in certain contexts, especially for businesses like on-line recruitment sites, because their competitive advantage lies in the size of their networks. But it does not work for most start-ups. Among the unsuccessful ventures I’ve studied, many simply burned up their capital by trying to expand too soon….”
Strategies for Two-Sided Markets 2006 Harvard Business Review
Talks about the upsides but warns of the risks of “get big fast” strategies
“Getting Big Too Fast: Strategic Dynamics with Increasing Returns and Bounded Rationality”
Management Science 2007
@Watson well said, optimism can kill. However, there is more here than meets your postulation: Product visionaries are actually rare. Most entrepreneurs don’t realize that startups fail because they listen to users – instead of measuring what users do and responding. Problems arise, they blame UI/UX prematurely who then points the finger at marketing. Meanwhile, they all are suffering from media blindness resulting from the Techcrunch article that posted, which generated a false buzz while their early adopters become harder to identify and service. The point is that there are a lot of moving parts to a startup, which cannot necessarily be condensed into a formula for success, or failure. Just ask consumers what they want, when you figure that out you will have your answer.
There is a user generated content survey relating Steve’s post here (great work Steve!): http://bit.ly/O7klf0