Becoming a successful startup founder is mildly put a hard task. However, saying that by starting a startup you have a 90% chance to fail is misleading. Yes, on average this statement is correct. However, this average is determined by the causal relationship of a plethora of factors, some of which have a major effect on the outcome. By nudging the most important factors in your favor, your chances of success increase exponentially.
On becoming a movie star, an ambition arguably harder to achieve than becoming a successful startup founder, Tim Urban said:
“Acting ability is only one piece of that puzzle—you also need a knack for getting yourself in front of people with power, a shrewdness for personal branding, an insane amount of optimism, a ridiculous amount of hustle and persistence, etc. If you get good enough at that whole game—every component of it—your chances of becoming an A-list movie star are actually pretty high.” – WaitButWhy
Similarly, becoming good at the whole startup game increases your chances a great deal. The goal of this list is to help you understand the aspects of the startup game and to let you intentionally get good at them.
Table of Contents:
1. A Good Idea
The founder’s journey always starts with an idea. Generating good ideas and quickly discarding bad ones, however, is a skill.
You are searching for an unsatisfied market need. It’s easiest to notice such opportunities if you are exposed to the cutting edge of a field either professionally or as a consumer. This way the problems you notice would be new, and you will be part of the first wave of people that try to tackle them.
Once you have your good idea, it’s time to test it as quickly and cheaply as possible. If there is only one thing you will learn about startups, it should be idea validation. Testing your theoretical idea against reality without wasting tons of time and money is like a superpower.
Imagine skipping the wasted effort, capital, and emotions on your 9 bad ideas (that would have led to failed startups) so that you can jump straight into working on your good one. That’s what idea validation is, and arguably it’s the first and most important key to winning at the startup game.
2. Product-Market Fit
The reason why validating your idea is worthwhile in the first place is because it increases a great deal the chance that you are building something the market needs – i.e. that you are on the right track to product-market fit.
In a study of the mistakes of 80 failed startup founders, the lack of product-market fit was singled out as the biggest startup killer.
On the marketing side, the hard thing about building startups is that you would constantly have to push your idea and product in hopes of getting the ball rolling. Once you hit PMF, however, you would start to feel a pull from the market. People would ask you for access, updates, features, etc. Obviously, getting to the inflection point from push to pull as fast as possible is a game-changer.
In order to get there faster, talk to your customers and observe their behavior. Once you get some initial users, polling them could give you a good indicator if you are on the right track to PMF.
Measure some form of usage metric as your north star KPI is also a good idea to keep you on track.
3. Impeccable Timing
In a study of 200 startups, the timing was singled out as the biggest difference maker between success and failure.
That’s why in our guide about choosing the right startup market, we mentioned the question “Why now?” as one of the most important you should answer. Why is the world, technology, your market, and your niche ready for your solution, and why wasn’t it ready up to that point?
If the cutting edge of a market niche or technology is where you discovered your idea, then the chances that you are at the right place at the right time increase.
4. Big Market
Because of the high risk associated with startups, they need to have a high upside. Otherwise, the venture simply doesn’t make economic sense. Trying to develop and implement innovative, disruptive tech isn’t a viable business strategy for tackling problems that too few people have.
The upside of the business is mostly defined by the market size. Keep in mind that innovative tech startups often have network effects (each new user adds value to the experience of other users) and low marginal costs (costs of adding an additional user), which means that they tend to become monopolies at least in their own market niche. Because of this, their size isn’t limited by competition as much as it is limited by the size (and growth rate) of the market.
Moreover, the size of the market is influenced by your timing. Some new market niches are likely to grow, and if you are one of the first movers in the market you are likely to grow with it. In that sense, it’s important to enter the market when it’s big enough to support a business but small and new enough so that there isn’t well-established competition yet.
5. Scalable Business Model
Startups are about growth. To make use of your growing market, your solution needs to be scalable.
If the cost of adding an additional user is close to zero, which is often the case for software solutions (e.g. SAAS business model, which is the best startup business model in our tier list), then your growth rate wouldn’t be restricted or even slowed down from the supply side. This is vital if you are working in a winner-takes-all market where being the first one to offer a good solution the market adopts means taking a monopolistic position.
The revenue per user is also something you need to consider. An ad-supported free service requires an enormous audience in order to justify the existence of the business, while an enterprise solution might allow you to reach a considerable size with just a few customers. Make sure to choose the right startup business model to make sure that your venture has a realistic chance to reach the required scale.
6. A Mentor and Vibrant Startup Community
This is an especially important point if you are a first-time startup entrepreneur. Having a mentor to guide you past the common startup mistakes and to give you advice tailored to your specific situation is invaluable.
Moreover, a vibrant startup community is vital for access to funding and top-tier tech talent for building a good startup team.
It’s not a coincidence that most successful startups come from the same places – Silicon Valley, NYC, London, etc. Paul Graham calls this phenomenon the case of the Milanese Leonardo. The point is that there is no such person – all famous Italian faineance painters came from Florence because the environment there cultivated such artists, while the environment in 15th century Milano didn’t.
The same applies to startups – you cannot build Google on your own, you need the help of a network of people around you.
7. A High Quality Startup Team
Early-stage startup success rests entirely on the shoulders of the founders, which means having a founding team with the required skillset to pull the business through the early validation and efficiency phases. This usually
As the business and the team grow, the success would increasingly depend on the quality of the work of the people around you. Having access to domain, tech, and marketing experts is vital for a successful business. Also, so is a productive startup culture.
8. Sufficient Funding
Money isn’t equally important during all startup stages or for all startup industries.
Startups dealing with physical products or working in labor-intensive industries might need funding earlier. However, in the early stages of a software startup, the founding team can bootstrap their way to a product-market fit. If you can do this, it’s recommended that you try, because the later you raise money, the better terms you’ll be able to get.
That said, if you want to push your business to grow rapidly, you’d usually need funding at some point. Fundraising is difficult, so direct access to angel investors and venture capital funds is a big advantage.
That said, always keep in mind that fundraising is a means to an end, not the goal in itself. The startup and business media often distort this notion by praising startups that can raise enormous rounds. However, in reality, you need to use the funds you have efficiently – it’s extremely easy to burn cash with nothing to show for it.
While access to some capital is a prerequisite for some types of startups, funding as a whole isn’t the most important success factor.
Last but not least, you need to know what you’re getting into and you need to build the right character for the job.
· High-risk tolerance: you need to be OK with the fact that the most likely outcome is failure.
· Resilience: you need to deal well with uncertainty and stress. Running a startup feels like constantly putting out fires while pushing a boulder up a hill. Usually, in order to deal well with this kind of day-to-day life, you need some form of passion for the industry or the problem you’re solving. If you don’t feel that what you’re doing is worthwhile, you’ll quickly grow tired of this lifestyle.
· Discipline and Creativity: those two traits don’t usually coexist very well, but as a founder, you need to combine them. You need the creativity to come up with innovative ideas, and the discipline required to implement them.
· Open-mindedness and a low ego: you need to be able to take criticism well and derive value from it. Most importantly, you need to be able to take a message from the market (and from your customers) quickly. You’d have to discard your current beliefs and adopt new ones based on evidence quite often, especially while you are validating your ideas and product.
· Critical Thinking: an analytical mind would help you take the complicated input of the market and convert it to a productive output from your business. In the early startup phases, your job mostly consists of testing hypotheses, so you need a scientific disposition.
· Disagreeableness: a lot of people (some of them close to you) would tell you you’ll fail and would contrast your choices to other people who are walking a more traditional professional path. For most of your startup journey, it would seem those people are right. Being able to bear the disapproval of the people around you isn’t something that everyone can easily do. Make sure you can manage it if you choose this as your career.
· People Skills: this comes as a surprise to most tech-oriented founders because talking to people doesn’t feel like working. Yet, for a startup talking to people is the most important kind of work. First, you need to talk to customers as much as possible and to sell your offering. Second, you slowly but surely need to start leading a team. Your coding skills are crucial, but building good people skills is equally if not more important.
· Moral Integrity: startups are about trust. You make promises to your customers, team members, investors, and essentially you don’t know if you’ll be able to fulfill them. Since your first idea isn’t likely to be the one that makes you rich, you need to be able to preserve your connections and relationships through periods of hardship and through utter failure. The only way to do this is by showing moral integrity.
· Persistence: Finally, the true key to success is persistence. However, not in the sense of sticking to one idea ad infinitum, but in the sense of staying in the game as long as possible and trying
10. In Summary
In order to vastly increase your chances of success, make sure you work hard to influence these 9 crucial factors in your favor.
1. You need a viable idea, the best way to be sure is to try to validate it.
2. You need to find product-market fit.
3. You need good market timing. Be at the cutting edge of a new industry to ensure it.
4. You need a sufficiently big market to reach a high upside and to justify the high risk of the venture.
5. You need a scalable business model – the lower your marginal costs, the better.
6. You need a mentor, especially if you are a first-time founder.
7. You need a high-quality startup team – surround yourself with capable people.
8. You might need funding, but this is dependent on your industry and the phase of your venture.
9. Finally, you need to build a strong character.
If all 9 factors work in your favor, your success as a startup founder would be extremely likely.