What makes startups in Silicon Valley Successful ? Startup Genome Report finds out

By Team YS|29th May 2011
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Its IPO time for internet startups and a global comeback for entrepreneurship. After the breathtaking IPOs of Linkedin and Yandex and the nearing IPOs of Facebook and Groupon at double digit billion dollar valuations, the world is on fire.Bubble or not, this is the beginning of a big structural change in society. The next wave of internet startups are poised to completely marginalize the service industry. Lawyers, doctors, bankers and accountants are all going to be replaced by software.

The last 50 years of technology entrepreneurship were dominated by Silicon Valley. But that is now changing. In just the last 2-3 years the number of people extracting and codifying the informal learning of Silicon Valley has hit a point of critical mass. Concurrently the costs of startup creation have fallen dramatically triggering a huge increase in technology entrepreneurship all over the world. We look to bolster this trend by being able to validate the conventional wisdom the Valley has been spreading with hard numbers.

Three months ago we set out on a mission to crack the innovation code of Silicon Valley and share it with the rest of the world. Today we are releasing the first Startup Genome Report— a 67 page in depth analysis on what makes Silicon Valley startups successful based on profiling over 650 startups.

Following are 14 of our key findings. You can download the full report here: http://startupgenome.cc/pages/startup-genome-report-1

1. 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.

2. 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.

3. 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.

4. 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)

5. 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.

6. Business-heavy founding teams are 6.2x more likely to successfully scale with sales driven startups than with product centric startups.

7. 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.

8. 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.

9. Most successful founders are driven by impact rather than experience or money.

10. Founders overestimate the value of IP before product market fit by 255%.

11. Startups need 2-3 times longer to validate their market than most founders expect. This underestimation creates the pressure to scale prematurely.

12. Startups that haven’t raised money over-estimate their market size by 100x and often misinterpret their market as new.

13. 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.

14. B2C vs. B2B is not a meaningful segmentation of Internet startups anymore because 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.

Today, along with launching the first Startup Genome Report, we are releasing the Startup Genome benchmark. Entrepreneurs that fill out the test will be given their startup personality type, with personalized advice for what to focus on based on aggregate data from the startup genome project. You can benchmark your startup and contribute to the Startup Genome Project by taking the test here: http://startupgenome.cc/pages/startup-genome-benchmark

If you have any questions about our methodology you can read this blogpost by Ron Berman: http://www.systemmalfunction.com/2011/05/deciphering-genome-of-startups.html

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