Why Start-ups Succeed and Fail

Bill Gross, founder and incubator of hundreds of startups wanted to evaluate which factors matter most for company successes.

Gross looked at these five essential elements and initially thought their importance to the startup’s success existed in this order.

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  1. Ideas “the aha moments”
  2. Team

– “Everybody has a plan until they get punched in the face” — Mike Tyson

– The customer is true reality. The company’s success depends on how it reacts to getting punched in the face by customer.

  1. Business Model
  2. Funding
  3. Timing
    1. `Too late, already too many competitors?

Top 5 companies in Idealab, a technology incubator founded by Gross have been billion dollar successes. But there have also been company failures that Idealab predicted would do well. Gross scored each of Idealab’s most successful and least successful companies in the five dimensions. He also looked at successful companies outside of Idealab. 

The results were different from what he expected. Here is the actual ranking of the factors’ contributions to startup success.

  1. Timing — accounts for 42% of the difference between success and failure
  2. Team
  3. Idea
  4. Business model
  5. Funding

Gross was suprised the idea wasn’t most important factor. Funding’s low ranking made senes; If a startup is under funded at first, but gaining traction, its easy to get intense funding.

Examples of startups succeeding because of timing: 

  • Airbnb
      • Initially passed on by many smart investors
      • Came out right at height of recession
  • Uber
      • Drivers looking for extra money
  • Citysearch
      • people needed web pages
  • Youtube
      • When broadband penetration crossed 50% in America
      • Didn’t have business model

Z.com— was supported by Idealab and had great business model, but broadband penetration was too low, so the company went out of business quickly.

Main Takeaway:

It’s important to assess timing and determine whether consumers ready for what you’re giving.

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