In Part I we explored the first step to picking a winning startup: following the professional gamblers, the venture capitalists. So you’ve done some homework and tracked some of the investment trends with the top VC funds. You can see a few markets they are targeting that look to have some promise. You have tracked a few companies in those markets. Now what?
Knowing the reasons a startup succeeds or fails will help you know what to look for next. I’ve outlined some of the factors to look for below, but this is by no means a comprehensive list. Startups that exhibit characteristics of success or failure on the list are also not guaranteed to succeed or fail. Exceptions can be found to almost any rule, and this list is only meant to be a guide.
Focus
I had dinner with an old friend last night who told me a story of a product manager job he had with a startup company a few years ago. The founder of the company created and sold a software company that made him very wealthy in the past, and now he was trying to replicate that experience again. The company had a great entrepreneur with prior success, good funding, and a solid team. And they failed. My friend blamed the failure on an issue that I have seen as one of the most deadly in the startup world: lack of focus.
All companies struggle with focus, but losing focus can be most dangerous to a startup as they do not have the resources to recover. The company in this example had a CEO who never stopped adding features and functionality to a product until the market opportunity passed them by. The development team was heading in twelve different directions and never could finish the product for launch.
So how do you measure focus if you don’t work for a company? Read the website. Look for a consistent message in the content. Read the press releases and news articles from the earliest to the most recent to see if you can follow the focus of the company. Do they have a core product that they focus on? Have they released or talked about releasing several products in a short period of time? If this is a brand new company, review the products they have launched. Do they have a core competency that they do very well, or does the product have so many features that it looks like it is trying to be all things to all people?
You should also evaluate focus in interviews. Bring a notebook to track responses you get from different interviewers about the company strategy and products. Do they all say the same thing? Is the vision clear, or does everyone have a different idea about what the company is going to do? If the core message and strategy isn’t known, the company could be headed for trouble in the future.
Timing
Market timing is critical for startups, but the difficulty is that there is no set rule for measuring timing. Being first to market does not guarantee success. Being the last one to the party does not guarantee failure.
When researching a startup, know what their timing is in the market they are pursuing. If they are first or one of the first, they have the advantage of getting out their name and getting recognition. But they also have the disadvantage of not being able to learn from the mistakes of others. Evaluate how they are handling being a first mover. Do they continue to lead and innovate, or are new competitors capitalizing on their mistakes and taking market share?
If they are late to market, they have to overcome a field of competitors that is already known and entrenched. A late mover can certainly succeed, but make sure they have a competitive advantage that will clearly let them overcome the established leaders. Have they learned from the mistakes of earlier entrants to the market and developed a superior product or service based on the shortcomings of other players?
They Just Win
There are some people in this world who just know how to win. They aren’t always the smartest, they don’t have the best strategy, they don’t have to be the most athletic, but somehow they find a way to win every time. Athletes like Joe Montana, Tom Brady, Bill Russell, and Michael Jordan are easy to identify as figures who just know how to win. It is harder to identify those people in a business setting.
Evaluating the history of the executive team is an obvious place to start. You can research the founders and quickly determine if they have a winning track record. That doesn’t guarantee future success, but it does indicate a higher likelihood of future success. When looking at track record, don’t just look at the success of their past companies. Look at who funded their past startups. If 2-3 of their past startups were funded by the same people, it shows the investors have confidence that this person can do it again. They identify the entrepreneur with the past successes and don’t view the companies as succeeding in spite of that person running them.
And don’t stop at past business success. What else has this person done in their life that shows they can accomplish anything? Are they fiercely competitive in other areas? Have they held leadership roles outside of the business world? Look for those key personal attributes that make someone a winner.
