The Right Formula for a Startup
Every week there’s a story about a sure thing startup in the news. The idea is usually the hiding in plain sight kind, where it’s such an obvious opportunity that you’re amazed no one has thought of it before. A can’t miss. Unfortunately, many of these companies turn out to be Tuesday morning commutes – not memorable a week later.
Few make it. I often cite the need to have hit the right formula, but I was never quite sure what that was. In hindsight, I gave luck a bit too much credence. Over the last few weeks I was turned on to a project called the Startup Genome. It aggregates data from 3200 plus start ups and looks for patterns and correlating results.
The company behind this work is Blackbox, a Venture Capital firm. One of their key findings is balance. A new company needs to stay in balance to scale appropriately, otherwise they call it Premature Scaling. They created a simple, yet telling matrix to observe if this is happening.
The dimensions are:
- Customer
- Product
- Team
- Business Model
- Financials
The stages are:
- Discovery
- Validation
- Efficiency
- Scale
- Sustain
- Conservation
When a company finds that right formula, the matrix looks like this:
A Company Demonstrating Consistency
When they don’t stay balanced the matrix can look something like this, with some parts out of sync with others:
A Company Demonstrating Inconsistency
I’ll do a follow up or two on the subject, but a few more tidbits:
- Being balanced is crucial to success. The project also discovered that there wasn’t a noticeable differentials between market size, product release cycles, education of the founders, gender, age, experience, geography, or the number of products.
- Startups that scaled properly grow about 20 times faster than startups that scale prematurely.
- Inconsistent startups write about 3.4 times more lines of code in the discovery phase and 2.25 times more code in efficiency stage.
Great line:
“It’s widely believed amongst startup thought leaders, that successful startups succeed because they are good searchers and failed startups achieve failure by efficiently executing the irrelevant.
