The single biggest reason why start-ups succeed

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I’m really excited to share with you some findings that really surprised me about what makes companies succeed the most. What factors actually matter the most for startup success? I believe that the startup organization is one of the greatest forms to make the world a better place. If you take a group of people with the right equity incentives and organize, I’m gonna start up. You can unlock human potential in a way never before possible. You get them to achieve unbelievable things. But if the startup organization is so great, why do so many fail?

That’s what I wanted to find out. I wanted to find out what actually matters most for startup success, and I wanted to try to be systematic about it. Avoids on my instincts and maybe misconceptions I have from so many companies I’ve seen over the years. I wanted to know this because I’ve been starting businesses since I was 12 years old when I sold candy at the bus stop in junior high school to high school when I made solar energy devices to college when I made loudspeakers.

When I graduate from college starting software companies and 20 years ago, I started Idealab, and the last 20 years we started more than 100 companies, many successes and many big failures. We learned a lot from those failures, so I tried to look across what factors accounted the most for company’s success and failure. So I looked at these five first, the idea. I used to think that the idea was everything. I’m gonna name my company, Idealab and how much I worship the ah ha moment when you first come up with the idea. But then, over time, I came to think that maybe the team, the execution adaptability that mattered even more than the idea.

I never thought I’d be quoting boxer Mike Tyson on the Ted stage, but he once said, Everybody has a plan until they get punched in the face. And I think that’s so true about business as well. So much about a team’s execution is its ability to adapt to getting punched in the face by the customer. The customer is the true reality, and that’s why I became I came to think that the team maybe was the most important thing. Then I started looking at the business model. Does the company have a very clear path, generating customer revenues that started rising to the top in my thinking about maybe what mattered most for success, that I looked at the funding. Sometimes companies received intense amount of funding.

Maybe that’s the most important thing. And then, of course, the timing is the idea way too early on the world’s not ready for it. Is it early? Meaning you’re in advance if you have to educate the world, Is it just right? Or is it too late? And there’s already too many competitors. So I tried to look very carefully at these five factors across many companies. On I looked across all 100 Idealab companies and 100 non Idealab companies to try and come up with something scientific about it. So first on these Idealab companies, the top five companies CitySearch, CarsDirect Go two Net zero tickets dot com. Those all became $1,000,000,000 successes and the five companies on the bottom z dot com insider pages. My life desktop factory people like we all had high hopes for but didn’t succeed.

So I tried to rank across all of those attributes. How I felt those companies scored on each of those dimensions and then for non Idealab companies. I looked at wild successes like Airbnb and Instagram and uber and You two been linked in and some failures. Web and Kozmo pets dot com, Flooz and Friendster. The bottom companies had intense funding. They even had business models in some cases. But they didn’t succeed. I tried to look at what factors actually counted the most for success and failure across all these companies, and the results really surprised me. The number one thing was timing. Timing accounted for 42% of the difference between success and failure.

Team and execution came in second on the idea. The differential ability of the idea that needs idea that actually came in third. Now this isn’t absolute definitive. It’s not to say that the idea isn’t important, but it very much surprised me that the idea wasn’t the most important thing. Sometimes it mattered more when it was actually time. The last two business model and funding made sense to me. Actually, I think business model makes sense to be that low, because you could start out without a business model and then add one later. If your customers are demanding what you’re creating and funding. I think as well if you’re underfunded at first. But you’re gaining traction, especially in today’s age. It’s very, very easy to get intense funding.

So now let me give you some specific examples about each of these. So take a wild success. Like Airbnb. Everybody knows about when that company was famously passed on by many smart investors because people thought no one’s gonna rent out a space in their home to a stranger. Of course, people prove that wrong. But one of the reasons that succeeded, aside from a good business model, a good idea. Great execution is the timing That company came out right during the height of the recession, when people really needed extra money and that maybe help people overcome their objection to renting out their own home to a stranger.

Same thing with Uber when Uber came out. Incredible company, incredible business model, great execution, too. But the timing was so perfect for their need to get drivers into the system. Drivers were looking for extra money. It was very, very important. Some of our early successes Citysearch came out when people needed Web pages, goto dot com, which we announced actually attend in 1998 was when companies were looking for cost effective ways to get traffic. We thought the idea was so great, but actually the timing was probably maybe more important. And then some of our failures we started a company called z dot com was online entertainment company. We were so excited about it. We raise enough money. We had a great business model. We even signed incredibly great Hollywood talent to join the company. But broadband penetration was too low. In 1999 2000 it was too hard to watch video content online.

You had put Codex in your browser and do all this stuff in the company of actually went out of business in 2003 just two years later, when the Kodak problem was solved by Adobe Flash and when broadband penetration crossed 50% in America, YouTube was perfectly time. Great idea, but unbelievable timing. In fact, YouTube didn’t even have a business model when it first started. It wasn’t even certain that that would work out, but that was beautifully, beautifully time. So what I would say in summary is execution definitely matters a lot.

The idea matters a lot, but timing might matter even more. And the best way to really assess timing is to really look whether consumers are really ready for what you have to offer them and to be really, really honest about it. Not be in denial about any results that you see because you have something you love. You want to push it forward, but had to be very, very honest about that doctor on timing. As I said earlier, I think startups can change the world to make the world a better place. I hope some of these insights can maybe help you have a slightly higher success ratio and thus make something great come to the world that wouldn’t have happened otherwise. Thank you very much.

Thanks to Bill Gross for this insightful video. Follow Ted on YouTube for more great videos.

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