Most start-ups fail--but the extraordinary few that succeed practice six shared habits.
Based on my interviews with over 200 entrepreneurs, I’ve developed the Hungry Start-up Strategy Index (HSSI) that scores a start-up from 0 to 100 based on how well it does these six relative to the world’s best.
What are your start-up’s odds for success? Based on anecdotal evidence, they are not good. I have spoken with venture capitalists who say that in a year they review 1,000 business plans and invest in two or three.
Of the other 997, perhaps some get funded by VCs, others bootstrap or get funds from friends and family, and still others give up. Of the ones that get funded, typically one out of 10 is a big success. And one in 10,000 gets to be worth $1 billion or more.
Two extraordinarily successful start-ups I have interviewed - Westborough, Mass.-based SimpliVity -- its hardware lowers the total cost of ownership for corporate IT departments and Waltham, Mass.-based Actifio -- a maker of appliances to lower the cost of copying data, both of which I have interviewed extensively -- have HSSIs that are close to 100.
Here is what it takes to get that score.
1. Setting goals. Start-ups almost always lack the cash to pay market-beating salaries to top talent. One way that they do this is by setting goals that talented people - founding executives, investors, and staff -- find irresistibly compelling.
To practice the first habit well, you must do a great job on these three goals:
- Mission: Enduring purpose of the start-up
- Long-Term Goal: Approach to realizing investment return
- Short-Term Goals. Clear short-term milestones
Based on their talented executive teams, excellent professionals, and world-class investors, SimpliVity and Actifio have clearly done a great job of setting these three goals.
2. Picking markets. A start-up could pick any market in which to sell its product. But the most successful start-ups pick markets that pass four tests:
- Its founder is passionate about the industry
- Its founder has superior industry knowledge
- Strong forces drive its industry growth
- The start-up is solving a customer problem that the market ignores
SimpliVity and Actifio have picked markets wisely as evidenced by their extremely rapid growth - over five-fold.
3. Raising capital. The most successful start-ups preserve control while obtaining the capital that they need to fuel their growth. Moreover, when they do raise venture capital, they do so with firms that can help them expand due to their brand, connections, and capabilities.
A winning start-up’s approach to raising capital passes three tests:
- It self-funds until expansion phase
- Its researches the founder’s fit with the VC firm partner
- It creates a competitive bidding process to obtain attractive investment terms
SimpliVity and Actifio both self-funded until they had developed working prototypes and won customers. Once established, they raised capital from firms that have helped them expand.
4. Building the team. As a founder, you can’t do everything yourself. A successful entrepreneur is humble enough to know her strengths and weaknesses and to build a company that attracts and motivates talented people who can work together to pursue the company’s goals.
To do that, winning start-up CEOs do the following:
- · Identify the skills needed for success
- · Add executives to complement their strengths and weaknesses
- · Attract and motivate top talent
- · Link their incentives to clear values
5. Gaining share. Given the odds of failure, potential customers don’t want to buy a product from a start-up. To overcome those odds, winning venture do the following:
- Build a product that offers more value for money
- Develop improved product versions fast
- Sell to new market segments
SimpliVity - its product reduces total cost of ownership three-fold -- and Actifio - for every $1 a customer invests in its product, the customer gets $15 in cost savings -- both do that.
6. Adapting to change. Finally, the most successful start-ups adapt well to changing customer needs, upstart competitors, and new technology.
To that end, they do the following:
- Monitor customer needs, competitors and technology
- Pinpoint critical threats and opportunities
- Modify products and pricing to boost growth
Both SimpliVity and Actifio have altered their marketing strategies and product lines to respond to changes in boost their growth.
What’s your start-up’s HSSI?