There’s no magic formula that can predict the success or failure of a new business. Anyone who has spent time in the world of investing or venture capital learns very quickly that many businesses fail and most ventures do not pan out. The startups that do end up finding traction and building a lasting business tend to produce big returns on investments, so the rule of failure is tolerated as a necessary part of the process. The rule for startups is to scale up, and this is typically a trial by fire. There’s nothing safe or slow in the world of venture capital.
As the Director of Portfolio for one of Europe’s most active startup accelerators and investment funds, I work with startup founders every single day. I wish I could share with you the secret key to determining the potential of a startup, but unfortunately I don’t think such a key exists. A business is not just an idea; it is a team of people coming together at a certain moment in time, within a context of economic, social, and human factors that are impossible to compute by formula. But while I cannot share a secret that I don’t have, I am happy to describe the trends that I’ve noticed on what separates successful startups from the rest of the pack.
Execution is king
Startups are enjoying a sustained moment of media attention as well as support from deep-pocketed investors right now. There is a certain allure or ‘perceived glamour’ about being a startup founder today. Working with startup founders is the most exciting thing I have ever done, but it is also oftentimes the complete opposite of glamorous. The truth of running any business is much more mundane than is often portrayed in the media.
I think a lot of people believe that a revolutionary idea is the main ingredient for business success, but having a brilliant idea is actually the most challenging starting point when building a business. It’s better to focus on solving a specific pain point and then put the emphasis on execution. Brilliance can develop over time, but it’s not a necessary or even sufficient starting point. Remember that Google began as a student research project looking at links between web pages!
Executing on plans, having methodologies in place to tackle problems, and always moving forward are the traits that signal a strong executive ethos in a team and true potential for long-term success. The world needs dreamers, and everyone needs time to unplug, but what businesses need more than anything else is a roll-up-the-sleeves and dig-in mentality.
Executing well on a business plan does, however, mean more than working hard and ‘hustle’. Having an executive mindset means, more than anything, being effective – creating goals and then actually achieving them. Execution moves step by step. It has a clear methodology and it is sometimes boring, but the focus is always on daily achievement, however small. Sometimes you see teams that are good at execution but their business still fails. However, you will never see a successful startup that is poor on execution.
Management of focus
We are all familiar with those founders that never have enough time and always seem to be stressed out, running from one problem to the next. These types of founders are constantly tweaking the product, launching new features, dealing with customers, and overseeing every other possible task that pops up. Startups usually begin as very small enterprises, sometimes just one or two people, and it makes sense that the original founders get accustomed to a certain DIY mentality.
Keep in mind: the idea is that the ship eventually gets bigger, and when it does, the need to delegate becomes necessary. As a faculty that mentors startup founders, we are used to working with high energy people, but we also often see founders struggling to apply that energy in the right areas. We’ve had to teach founders how to say ‘no’ to the endless customers’ requests to improve the product. We’ve had to help founders step away from their product, putting a stop to the quest for perfection and getting them on the track of running a business.
Founders and CEOs do need to have an eye on some of the details and they do need to be involved with the company holistically. But there is a more important role that leadership plays and that is communication. Being an effective communicator means being selective about the focus, having an eye on everything but pulling out only the most important bits to build the narrative.
One of the things we notice about teams that go on to create lasting businesses is that they tend to be prepared and focused. They always came to our meetings with detailed plans, structured priorities, and challenges that they wanted to discuss and get feedback on. Successful teams send out frequent and precise company updates, short and sharp with all of the information needed by investors and stakeholders. I think successful founders do these things as a matter of course because they realize that the work of clarifying the company’s focus and writing the narrative of achievement are major components of leadership’s job.
Flexible and experimental
Even successful companies experience failures, likely on a daily basis. Business cycles move up and down, but resilient founders have a built-in understanding of how to work with failure. The successful startups that we’ve worked with almost always show an experimental approach to their enterprises. These founders are receptive to feedback, and they are willing to make pivots and adjustments when they hit a bump in the road.
Being receptive to feedback is a tricky metric to watch for. No company can be successful by saying yes to every new suggestion that comes. But the opposite is also true: rigidly staying the planned course is also a recipe for disaster. We have noticed that successful founders take feedback very seriously, and they know when and how to say ‘no.’
Experimentation means checking your hypothesis and being honest about results. It’s impossible to predict the exact business model that will spell success for your product, so it’s important to remain flexible. Moreover, scaling up is the natural order for startups, and a model that works for a one-country, three-person team will likely need to be adjusted or completely redesigned when the company grows. Operations look completely different for a business that is clearing €5K in monthly revenues versus a business that does €100K a month, and many startups find that their models just don’t work at scale.
Ultimately, the ability to pivot and overcome adversity in business probably comes from having some depth in the given industry. Founders with depth understand that their product is just an entry point to their being able to work within a chosen field. If their product needs to be revised or changed completely, these types of founders are able to persevere because they have a deep understanding of their options within that vertical.
An executive mindset, laser focus, clear communications, critical thinking, depth, and experimentation are characteristics that most founders who build lasting enterprises have in common. This is not the easiest skill set to absorb and begin enacting overnight, and indeed, running a successful business is also no easy job. If you are a founder of a startup, take a look at this skill set and ask yourself in what areas you could build more effective habits.
On the investment side, it certainly pays to be as close as possible to your investments. Following developments in technology and learning about great ideas is important. It will always be necessary to analyze product-market fit and company metrics, but finding teams that have the right mix of strengths is probably the more decisive factor. If you do find a startup team with this combination of skills, follow them closely, even if their first couple startups do end in failure. These types of teams are not common, and success is bound to come to them eventually.
