What Types Of Startups Usually Succeed?
The first startup I ever invested in had great technology. In fact, it was clear to me the technology was great, but I wasn’t sure how good the CEO was.
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I decided to invest anyways, and the company failed about two years later. All I had left to show for my investment was a tax write-off.
The second startup I ever invested in the VP Engineering was a friend of mine. The technology was really good, but I wasn’t sure how good the CEO was.
I decided to invest anyways, and the company failed about one year later. Again, all I had left to show for my investment was a tax write-off.
The third startup I invested in had great technology. But, this time I learned my lesson. The CEO was someone I really believed in. That company is now worth well over $1 billion.
The fourth startup I invested in had great technology too. The CEO was world-class, and I believed in him. That company is now worth over $1 billion too.
Do you see the pattern here?
The type of startup that succeeds always has a great CEO.
Startup success has little to do with the market you’ve chosen or the technology you have. Startup success has a lot to do with you as a the CEO.
If you don’t have the right stuff, then everything else will fail. That’s my experience.
Andy Rachleff, late of Benchmark Capital, has a rule that is known as Rachleff’s law. It goes like this:
- The #1 company-killer is lack of market.
- When a great team meets a lousy market, market wins.
- When a lousy team meets a great market, market wins.
- When a great team meets a great market, something special happens.
From an investor perspective, Rachleff’s law makes all the sense in the world. You change a team, but you can’t change the market, so invest based on the market and you improve your chances of success.
However, as an entrepreneur, you don’t have that luxury. You may focus on the wrong market like many companies do (see twitter’s history for an example), and it’s up to you and your team to make a change and find the right market to focus on.
You need a great idea, a great team, and you need some luck if you’re going to win.
That’s why I bet on the CEO. I believe that great CEOs and their teams will make the right adjustments and get the market right.
That’s why I’ve adjusted Rachleff’s law to reflect this:
The #1 company-killer is lack of market.
- When a great team meets a lousy market, market wins, but the great team adjusts to find a great market.
- When a lousy team meets a great market, the lousy team will still fail.
- When a great team meets a great market, something special happens.
- You need a great idea, a great team, and you need some luck if you’re going to win.
So why does a great CEO with a great team adapt and win?
You need to build a great culture in order for your great team to thrive.
Too many startup CEOs treat their company culture as an afterthought, but you, hopefully, will be different. Of all the indicators of startup success, a great company culture is the most important indicator of your future success.
That’s right. It’s not the market you choose. And it’s not whether you’re competing against Facebook or Google. It’s your company culture that is the most likely indicator of your success.
Let’s say you’ve recruited a great team, and you’ve spent time building a great culture for your team. And by a great culture, I mean:
- A culture where your team works well together, and…
- A culture where your team feels free to speak their mind, so…
- If your company is not focused on the right market, you and your team will work together to make the proper adjustments
Remember, every startup pivots, and so will your startup.
It’s extremely rare for a startup to get everything right from the start. So, it’s very likely that you’re going to have to pivot and adjust.
The first two startups I invested in didn’t recognize they needed to make changes until it was too late. That’s why the failed.
The next two startups I invested quickly recognized the adjustments the needed to make. The reason they moved so fast was the team was working well together. So focus on your company culture and team right from the start, and your chances of success will improve dramatically.