Report: The Patterns of Successful Internet Startups
As an entrepreneur, I frequently see entrepreneurs failing. I wonder why it is so common for entrepreneurs to fail and how the successful entrepreneurs succeed. There must be a way to crack the formula of startup success and reduce the failure rate of entrepreneurs. The Startup Genome Project has an answer to this question.
A group of international entrepreneurs (Bjoern Herrmann, Max Marmer, Fadi Bishara, Aleksandra Markova) came together to crack the “innovation code” of the successful startups like the Human Genome Project’s attemps to crack the human genetic code. They released the first Startup Genome Report with in-depth analysis on what makes internet startups successful based on data from 650+ Internet startups. The list below shows 14 indicators of success from the report. You can download the full report for more details.
- Founders that learn are more successful: Startups that have helpful mentors, track metrics effectively, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth.
- Startups that pivot once or twice times raise 2.5x more money, have 3.6x better user growth, and are 52% less likely to scale prematurely than startups that pivot more than 2 times or not at all.
- Many investors invest 2-3x more capital than necessary in startups that haven’t reached problem solution fit yet. They also over-invest in solo founders and founding teams without technical cofounders despite indicators that show that these teams have a much lower probability of success.
- Investors who provide hands-on help have little or no effect on the company’s operational performance. But the right mentors significantly influence a company’s performance and ability to raise money. (However, this does not mean that investors don’t have a significant effect on valuations and M&A)
- Solo founders take 3.6x longer to reach scale stage compared to a founding team of 2 and they are 2.3x less likely to pivot.
- Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.
- Technical-heavy founding teams are 3.3x more likely to successfully scale with product-centric startups with no network effects than with product-centric startups that have network effects.
- Balanced teams with one technical founder and one business founder raise 30% more money, have 2.9x more user growth and are 19% less likely to scale prematurely than technical or business-heavy founding teams.
- Most successful founders are driven by impact rather than experience or money.
- Founders overestimate the value of IP before product market fit by 255%.
- Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.
- Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.
- Premature scaling is the most common reason for startups to perform worse.They tend to lose the battle early on by getting ahead of themselves.
- B2C vs. B2B is not a meaningful segmentation of Internet startups anymorebecause the Internet has changed the rules of business. We found 4 different major groups of startups that all have very different behavior regarding customer acquisition, time, product, market and team.
I hope this report will help all entrepreneurs like me to succeed and thanks for the contributors.