You could argue that many ingredients go into a successful startup and luck is undoubtedly one of them. However, there are individual elements that are necessary for success. When failed startups revealed why they were not successful, they offered many reasons. But, If you boil them all down to their basics, I think you will agree that there are five primary reasons. These elements apply to business in a state of inertia and non-profits as well. With non-profits, the result is different, but the process is similar. These critical elements are as follows:
No Strategy. Most startups and other organizations do not have a strategy, yet many claim they do. Most organizations have statements or goals like a marketing strategy or strategic goals or strategic initiatives, etc. For example: “Our strategic goal is to grow 20% per year in revenues and profits over the next five years.” These are not strategies; they are goals or wish lists. A strategy is a coherent set of analysis, concepts, policies, arguments, and actions that respond to a significant challenge or opportunity. A strategy can be described very simply and often with an analogy or metaphor. Getting there, however, does take work. One good source for additional information is Professor Richard Rumelt’s book, “Good Strategy/ Bad Strategy.”
No Evidence-Based Business Model. Most startups have a “Business Plan” which explains the company and how they plan to reach the numbers in their five-year Pro Forma. The problem is that this narrative consists mostly of assumptions and judgment calls. Since the dot.com bust, traditional business plans have been replaced by evidence-based business models. Now, business models have to start with the idea (solution and opportunity), show how each critical element of the business ecosystem works together with all the other elements to achieve repeatable, sustainable sales. Each significant assumption needs to be tested and verified (the scientific method has come to business models), so you have confidence that the business will succeed. There are many good books on business models including Steve Blank’ s “The Four Steps To The Epiphany.”
No Persuasive Story. Very, very few companies know how to craft and tell their story to every one of their audiences. Telling your story includes graphics, presentations and handling questions. Also, having a standard presentation does not work. Every audience is different, have different levels of knowledge, and interests. Most of the stories I see and hear are text-filled slides and long lists of features. A persuasive story must get the “audience” from A (uninformed or skeptical) to B (knowledgeable and committed) and filled with benefits that relate to the specific audience being addressed. Jerry Weisman has several books on how to get the audience from A to B.
No PLan To Raise Funds. Most people leave fundraising until the end of the development process. It is hard work and takes lots of time away from developing the business. But, you have to start early identifying when you will need additional funds, how and from whom you are going to raise these funds, and lay out a process to help you get there. You will have a better opportunity to get funds if you start early, even if it is just asking for advice from investors. It is challenging to “sell” investors on a high-risk venture (even Apple, Google and Facebook had a difficult time). It is better to get investors involved as early as possible and let them “sell themselves” along the way.
No CEO. A critical component in the company’s success is because of CEO and the Team. For many investors, the capabilities of the CEO and team is the first, and often most important criteria, they evaluate. Founders are not automatically great CEO’s. It takes a person with vision, know-how, focus, a growth mindset, the ability to make decisions under stress and uncertainty, and who knows how to keep score (revenues and profits). Also, the CEO has to know the development phases of the business and be able to adjust himself and the team to meet the challenges of each phase. This is not an all-inclusive description of a CEO; it is only meant to point out how talented the CEO and team are to the success of the company.
These five elements are important, but by no means everything. We will explore each of these more in depth in other posts as well as other topics. Let me know what you think of these critical elements of a successful startup or if you think there are other elements just as important.