Start-Ups: Why Do They Succeed/Fail
I believe that the start-up organization is one of the greatest forms, to make the world a better place. If you can take a group of people, with the right equity incentives and organize them in a start-up, you can unlock human potential in a way like never before. You can achieve unbelievable things.
But if the start-up organization is so great, why do so many fail?
So I looked across what factors accounted the most for company success and failure, and I came up with 5 major factors. Idea, Team, Business Model, Funding and Timing. But when I looked at the contrast, the results took me by surprise. But more on that later, first, let’s discuss what these five factors are:
1. Idea- Most people generally think that the idea is the most important aspect of a start-up. That ‘aha!’ moment when you come up with an ingenious idea that could solve or alleviate a lot of problems in the world.
2. Team- Many others think that maybe, it’s the team that makes the difference. The team, execution, adaptability seem to be the most important, more important than the idea itself. I never thought I’d quote Mike Tyson on this but he once said that
Everyone has a plan, until they get punched in the face
And that is very true when it comes to business. So much about a team’s execution is its ability to adapt to getting punched in the face by the customer, and the customer is the TRUE REALITY.
3. Business Model- This comes out to be pretty simple. Does the company have a clear path to generating customer revenues? What are the customer demands? and so on are simple questions that can help one frame a business model. But there are many start-ups that have started up without a business model. They simply made one up as they went along.
4. Funding- Now this is a no brainer. Obviously, a company requires some capital to start and operate, but even if you have insufficient funding, and are gaining traction, then in today's age, it’s quite easy to get intense funding.
5. Timing- Now this one factor genuinely surprised me. I was like “Timing? Pfft. What's timing got to do with it? Sure it’s an important factor but is it really that important?” Turns out timing is one of the most important factors, if not the most important. Timing can make or break a company as no one can imagine.
Is it too early?-Is the world ready yet? Or do we have to educate the world about it?
Is it too late?- Are there too many competitors? Or is the market saturated?
Or,
Is it just right?- The perfect timing?
Now, all of us know about AirBnB, right? It is a multinational rental company. Did you know that many smart investors passed on AirBnB, saying nobody would rent out a space in their house to random strangers. Now here's the linchpin. AirBnB came out at the height of the recession. People needed money and they needed it fast. Many people lost their homes. And what was a stopgap measure to alleviate both these problems? AirBnB.
Similarly, Uber came out when taxi drivers in the US were looking for a way to earn more money. Again, amazing idea, great execution but brilliant timing.
Back in 1999, an online entertainment company called Z.COM was launched. In those days, an online media streaming company was a very futuristic idea, but there were a lot of issues back then. Broadband penetration was very low, it was too hard to watch videos online, you had to put codecs into your browser and do all of that stuff. Eventually, the company went out of business in 2003, but just 2 years later, when broadband penetration crossed the 50% mark in the US, and the codecs problem was solved by the Adobe Flash Player, guess what came out? Youtube. And it was a great success. As a matter of fact, Youtube didn’t even have a business model when it first started.
So what I would say in summary, is that the execution definitely matters a lot, the idea matters a lot, but the timing might matter even more. And the best way to assess timing is to really look at whether the consumers are really ready for what you have to offer them.
