Critical Success Factors for StartupsMar 01, 2021
Five Elements of Successful Startups
About 95% of startups fail or dramatically miss expectations. Given the enormous investment of time, energy and effort required by most startups, founders would do well to ensure that they maximize their chances of success. We’ve found that entrepreneurs who focus on validation, execution, fundability, talent and planning can dramatically improve their success rate.
Startups need to first validate their idea, and then validate the business model. Researchers behind the Startup Genome Report found that 70% of all startup failures were due to pre-mature scaling — building infrastructure and growing the company before the idea and model were validated.
Most founders know they need validation, but under-appreciate the complexities involved. I’ve seen founders wrongly conclude they’ve validated their idea because they received positive, qualitative feedback from a few casual surveys of friends and family. Other founders conclude the startup is validated because they took a rigorous approach with detailed quantitative feedback from structured surveys. Though the quality of the data may be good, founders have still only reached hypothetical validation at this point. They still need to achieve actual validation, which happens when they’ve completed their minimum viable product with strong, sustained indications of product/market fit. Founders have successfully validated their model when they’ve proven product feasibility, market desirability, and business viability.
Stacey Alcorn with Entrepreneur Magazine states that “Execution matters more than knowledge.” Ron Leshem with Inc. Magazine asserts “Execution (not ideas) will bring you success.” Andy Grove, former CEO of Intel, said “It almost doesn’t matter what you know. It’s execution that’s everything.” Startup execution is difficult because it requires dozens of business functions and processes to be built well.
I’ve been a CEO, CTO, or VP for five different startups. Three of these startups were acquired, but two shutdown. Sadly, both companies that failed were very viable, but suffered from repeated failures to execute well. The three companies that were acquired didn’t execute everything well, but they did do enough things right that made them attractive enough for other companies to buy them. Having lived through both successes and failures, I can personally attest to the importance of great execution in the startup environment.
The top challenge that burdens most startups is fundraising. Founders often invest a huge amount of effort into raising funds, with pitching investors taking a substantial amount of time. However, I’m constantly amazed and how few founders are even aware of the concept of fundability, much less have it as a top priority goal.
Founders should strive to build a healthy, vibrant company first. Fundraising for healthy companies is easier, faster, and comes with better terms on the term sheet. Founders should build a funding strategy that identifies their key inflection points, which are the measurable milestones when funds should be raised. We have a four-hour class that teaches how to build a funding strategy. If you would like to try our training out, we have a free webinar in our Basic Tier.
Every startup investor, advisor and executive espouses the need to build a strong team. However, very few actually focus on building a talent framework or strategy that provides any differentiation from any other company that also wants to hire the same employees. Without a focused plan, finding and developing great talent becomes a random game of hit-and-miss. Founders should build a talent rubric that anchors the hiring, development, recognition and retention strategy.
Ben Franklin famously stated that “Those who fail to plan, plan to fail.” With the current startup emphasis on working lean and running fast, planning often gets sacrificed for the sake of time. I’m not advocating months-long planning sessions before taking any action or making any decisions, but no planning certainly is not a good idea.
Having a plan in advance forces you to put some thought into where you are going, when you are going to get there, and how you plan to get there. A detailed plan can also be used to manage your progress and make any needed adjustments to stay on track.
The Startup Execution Roadmap
To help founders frame up their first-order plan, we built a Startup Execution Roadmap that describes seven key phases in the business journey of a startup, from formation to exit.
The roadmap also includes a funding journey that illustrates how fundraising generally aligns with the growth of the startup. The roadmap also captures these five critical success factors to remind founders of the importance of validation, execution, fundability, talent and planning. A copy of this Startup Execution Roadmap can be downloaded from our Basic Tier. Please leverage this Startup Execution Roadmap to execute excellently, resulting in a very fundable startup!