A few months ago, the team at Blackbox seed accelerator set out to decode the "genetics" behind successful startups (See this short piece at Fast Company and also "Love in Startup Land."). Their initial report, the Startup Genome Project, surveyed over 600 tech startup companies in Silicon Valley and around the world and gave them insights that let them continue their survey. They also started to develop a tool that will help startups see their current state and things that will help them move ahead. It will also warn them of potential disconnects and provide a report that will let them improve. That tool is being released today, and an updated report is now available.
"The Startup Genome Compass is a benchmarking tool for high growth technology startups,” said Bjoern Lasse Herrmann, co-founder of Blackbox (now called the Startup Compass.) “Startups fill out a monthly survey and receive a personalized benchmark based on their type and stage. The benchmark helps founders identify upcoming problems, set priorities, align the team and measure progress over time. We hope this regular data driven feedback loop can help founders significantly reduce their chance of failure.”
The Compass analyzes five dimensions of a tech startup: Customers, Product, Team, Business Model and Financials. It gives direct advice about how to scale each of the dimensions at the right time. “Prematurely scaling” is how the startup genome describes getting out of sync along one of the previously mentioned axes. Companies that don’t take the time to validate their market but instead jump right to creating a product would be considered “inconsistent” in the language of their findings. (See page 11 of the report for the definitions).
For example, from their report, “Almost 80% of inconsistent startups focus on product and 45% of consistent startups focus on customer development before they reached product/market fit…In the beginning startups can get easily lost in building a product without validating the actual demand for it. Based on interviews most inconsistent startups are under the impression that they are an exception of the rule. They believe they have found a special insight for a disruptive startup that no one else has. Unfortunately most of these startups fail."
Says Herrmann, “Too many startups start building first without talking to customers. A structured customer discovery process makes a big difference in defining the key features for an early prototype. Building a product without finding problem/solution fit by talking to customers is one form of premature scaling.”
The report advocates constant feedback loops about how customers are using your product, how sales cycles work, and other measurable items. Just one of their findings: “Inconsistent startups are 2.3 times more likely to spend more than one standard deviation above the average on customer acquisition.“
“We describe entrepreneurship as a search process,” says Herrmann. “A company needs to discover the right product, customers, team, business model, etc. The faster you learn all of these things the more likely you will succeed. The more you execute on un-validated assumptions the more likely you are to fail. With the Startup Genome Compass we help startups to learn faster.”
As more people use the tool, Blackbox reports that they will be able to return more detailed analyses, and more personalized recommendations. So, companies using the tool are also creating a better tool for all concerned. The updated report is quite an in-depth read, with lots of charts and graphs to help you digest the information. It is clearly intended only for the tech startup market, with 50% of the research coming from the US and the balance from other tech hubs around the world. The US data is skewed towards Silicon Valley, with the next largest data contributions coming from Austin, Texas and the New York Area. Herrmann and the team have a big vision. They’re looking for a scalable way to accelerate startups.
This Startup Genome Compass tool is a simple product to help companies to reduce failure rate. Have you used it to benchmark your company yet? Let us know if it was useful to you in the comments below.
(Updated 12/26/11 to reflect the new websites for the Startup Compass tool.)