A Hot Streak
The Colorado Rockies won 21 out of 22 games to reach the World Series this year. Unlikely to make the playoffs just three weeks before the end of the regular season, they went on an unprecedented streak to reach the World Series. How did they do it? Various sports analysts have opinions on that, but in the end they really just caught a hot streak where everything was clicking for the team.
This is a much tougher item to gauge, but sometimes companies just catch a hot streak too. Facebook would qualify as one of those companies right now. I don’t think I can go a day without seeing at least a dozen articles about them. There are many other social networking websites and many that started with a focus on the university community as well. How did Facebook catch fire like they did? While I’m sure many an MBA will write papers analyzing this rise to the top, part of their explosive growth was gathering momentum that just kept going. Many factors clicked at the right time, and they took off.
Other startups hit hot streaks too. They don’t have the best product. They don’t have the slickest marketing. But conditions just gel at the right time for various reasons, and the company sees significant growth. Identifying some of these prospects can help identify potential winning startups.
There is a danger here though. Sometimes hot streaks are just that. Streaks. They end and the company doesn’t succeed in the long run. Napster, Friendster, and Jib-Jab are examples of companies that went on hot streaks that eventually cooled off. These companies may well succeed in the end, but their meteoric rise did not continue as it has with Facebook. And in the end, the Colorado Rockies were swept in the World Series.
Superior Technology
The last area I’ll address involves technology. Does the company have a technology that appears so superior that others will have a difficult time competing? You have to have some knowledge of your chosen industry to effectively evaluate this one. The Google algorithm gave superior search results. Netscape had a browser that had a successful run until Microsoft could replicate it. Amgen created novel drugs critical for treatment of cancer patients.
But technology doesn’t guarantee success either. Apple arguably has a superior operating system to Windows, but they will likely never overtake Microsoft. You also want to make sure the company isn’t using a canon to kill a mouse. The technology might be superior, but is the application overkill in terms of cost and functionality for the level of problem it addresses in the market? A Segway transportation device seems really cool and innovative, but how many people are going to spend a few thousand dollars to use one instead of walking or riding a bike or motor scooter?
Closing
Remember that even venture capital firms only pick winners 10-20% of the time. If your primary motivation in working for a startup is to hit a home run, then you will likely be quite unhappy. You should have a passion for the startup community and be prepared to kiss a lot of frogs before you find a winner. You can have a lot of fun along the way and learn a great deal about what does and doesn’t work when starting a company. No strategy guarantees you will pick a winning startup, but you can take steps to mitigate your risk of picking a loser.
